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Compensation rose again for chief executive officers at the highest rate in four years and reached new heights, according to several studies. The trend has been to link executive pay to performance and, in May, the SEC proposed rules that mandate specific proxy statement disclosures on the link between pay and performance. Among other things, it proposes that pay will be reported separately for the CEO and include performance of the company’s cumulative total shareholder return and peer TSR.
Many companies use TSR as a metric, but relative TSR is not ideal, according to Peter A. Lupo, Managing Director and Head of the New York office of Pearl Meyer & Partners. ‘‘TSR is a measure of performance over a very long time. There are many instances where TSR is misleading or lacking,’’ he said.
Peer groups are another thorny issue, according to Lupo. ‘‘In theory, it makes perfect sense. In reality, it works well when you have peers with similar operating models,’’ Lupo said. However, few companies have 10 to 20 similar peers, which can create false results, he said.