When I was hiring people for the various software companies I ran, one question I usually asked was, "What league do you belong to?" I wanted to find out what this person thought of his programming talent and whether he was basing his judgment on a realistic view of the programming world, for I think that, if we are experienced and honest enough, we have a pretty good idea of where we stand in a particular field, be that field programming, golf, writing, chess or our knowledge of zither players in 18th century Russia. We know to which peer group we belong and, most of the time, don't compare ourselves to those who are simply more accomplished in a particular field than we are. C'est la vie.
In the world of big business there is much talk of peer groups. Companies like to compare the performance of their stock with that of other companies in their peer group. We hear often that company x is paying their CEO $12,000,000 as that is a median salary in the executive's peer group. If you believe that the members of these particular peer groups are truly comparable, read Gretchen Morgenson's article in today's NY Times.
For example, the peers to which the NYSE compensation committee compared Grasso's pay had revenue more than twenty-five that of the NYSE, assets 125 times greater and thirty times the number of employees. How about Ford? Its peer group has many more non-auto companies than auto companies. Campbell Soup and Hewlett Packard use one peer group for compensation and a different peer group for stock performance.
Most companies claim that their executive's compensation is at about the 75th percentile in their industry. And you thought that Lake Woebegone where everybody is above average did not exist. It sure does exist in the world of the Fortune 2000.
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