Peer Pressure: Inflating Executive Pay

This New York Times article discusses the problem of inflated executive pay, due to unequal comparisons between different corporations. The “peer group” is a collection of companies that corporations measure themselves against when determining compensation. However, many experts say that these peer groups are anything but equal. Especially since corporate managers (who naturally want higher pay!) are the ones that select what corporations to compare themselves against. One of the key problems with this practice is that CEOs of poor corporations are often making as much as their more profitable peers. Some corporations use different poor groups for different purposes- for example Ford used one peer group for their compensation section and one for their stock performance portion. However, this ambiguity will hopefully change when the SEC disclosure rules go into effect on December 15, and investors are given more insight into corporate pay practices. The new rules require a corporation to reveal what companies it includes in its peer groups and provide extensive reasoning for their decisions. Do you think the new restrictions will have any real impact? Will this prevent gilded paychecks for executives? What is a fair standard for peer groups? Should they be created by size, profit margin or the complexity of a corporation?