Some Industries Are More Equal Than Others: Optimizing Your TSR Peer Group for a Volatile Market
Relative total shareholder return (rTSR) awards motivate good performance and link shareholder goals to realized pay for top-level executives. What’s more, goals for rTSR awards are fairly simple to create because they don’t rely on absolute targets. Instead, they compare the company’s stock return with that of other companies.
That makes these awards particularly well suited to times when the future is cloudy. In this issue brief, we examine the merits of two different approaches to developing a peer group. Then we look at how industry factors and correlations can affect payouts for rTSR awards. We wrap with some practical steps you can take to make sure the peer groups you select are in line with the company’s goals.