Compliance Week: Peer Pressure - Is Benchmarking to Blame for Runaway CEO Pay?

Compliance Week: Peer Pressure – Is Benchmarking to Blame for Runaway CEO Pay?

October 2 2012

By Joe Mont

Excerpt:
Still, compensation consultants admit that the peer-group benchmarking process is an inexact science. “I’m an accountant by training and always chasing every single penny that didn’t count out right. But, if you have to search for exact numbers, market pricing will make you crazy,” says Steven Hall, founding partner and managing director of the compensation consulting firm Steven Hall & Partners. “There is no perfect group in any case. We are just trying to get close. I’d be happy to consider other ways of looking at these things, but you’ve got to have some starting point.”

Hall says compiling peer groups is seldom as easy as it seems. Working with a regulated utility, for example, he initially thought a comparison of similar companies would be straightforward. His client’s demands quickly proved otherwise. Finding truly comparable executives wasn’t just a matter of grouping companies by revenue. Also in the equation was the cost of providing that power and how much was generated to reach those revenue targets. The specific expertise needed to oversee nuclear power or the ancillary services some utility companies offer, such as phone service and cable television, also made useful executive-to-executive comparisons difficult. “We kept yelling, ‘uncle, uncle,’” as the client’s list of necessary comparison criteria grew and grew, says Hall.

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