In August, Cari Tuna of the Wall Street Journal threw a major spotlight onto the subject of peer group selection with a story called “Picking Big ‘Peers’ to Set Pay: Executive Compensation Is Often Skewed by Comparisons.” The story opened by noting that Tootsie Roll ($496 million in revenues last year) benchmarks to Kraft ($42.2 billion), a company with 85 times its revenue. And so, the controversy over how companies determine peers, and who those peers are, began.

The article went on to cite an academic:

Charles Elson, head of the Weinberg Center for Corporate Governance at the University of Delaware, says the studies could add fuel to debates among lawmakers and regulators over two executive-pay issues: the independence of board compensation committees and the role of pay consultants, who often choose peer groups. Peer groups are “easily manipulated,” he says.

To provide an analytic view, we decided to look into peer composition in our Fortune 500 Peer Group Report, which went out this morning in our Executive Compensation Trends newsletter. Equilar analysis was derived from our own research databases, as well as our new PeerInsight tool (which will soon be released to the public). You can request a copy of the report here.

Some of the key findings include :

Equilar's Peer Group Research showing Peer Group Size Prevalence

• Most companies name between 10 and 20 companies as their peer. The average company named 24 other companies in their peer group.
• When benchmarking, companies typically select organizations 1/2 to 2x their own size (revenue and market cap).
• About 1/4 of second-degree peers are in the original peer group. For example: if you are my peer and you have 100 peers, out of those 100, 25 peers are also mine.
• Most companies are called a peer at least 10 times. 81% of the companies are found 10 or more times.
• The company cited the most as a peer was Limited Brands. 65 companies mentioned Limited Brands as a peer, while Limited Brands only considers itself to have 20 peers.
• Average peer group size by industry:
  o Industrials – 35
  o Utilities – 28
  o Services – 26
  o Technology – 26
  o Basic Materials & Energy – 24
  o Conglomerates – 23
  o Consumer Goods -23
  o Financial Services – 19
  o Healthcare – 19

Want to stay on top of Equilar’s latest reports? Subscribe to Executive Compensation Trends here.