A peer group is a list of comparator companies selected by compensation committees, institutional investors and proxy advisors to serve as a market benchmark for evaluating executive pay levels and comparing pay design. Benchmarking against a peer group helps the compensation committee determine the competitiveness of its pay plans as well as demonstrate the alignment of pay and performance relative to peers. When selecting a peer group, committees typically consider industry, size and other qualitative factors such as competition for talent, global footprint or unique situational factors that may drive the selection of particular companies (e.g., a significant change in business strategy or major market shift). The Center believes companies should clearly explain the rationale for selecting a peer group. Proxy advisors such as ISS and Glass Lewis determine their own peer groups in conducting their pay for performance assessments which significantly influence their say on pay vote recommendations. The peer group selection methods used by ISS and Glass Lewis differ in their approach – ISS relies on the GICS industry classifications of the target company and its selected peers, whereas Glass Lewis uses peers generated by Equilar through its market-based “peer of peers” methodology. The Center’s view is that neither solution is a substitute for the reasoned judgment of the compensation committee, who is in a unique position to properly determine the companies against whom the company competes for market share and talent.