Relative TSR: Measuring Performance in a Tough Market

Below is an excerpt from ISS Corporate Solutions’ recently released paper “TSR: Measuring Performance in a Tough Market” The full paper is available for download from the ISS Corporate Solutions (ICS) online library.

Share prices tumbled across indices, industries and regions in 2022, Wall Street’s worst year since 2008. With global disruptions such as the war in Ukraine and sharp interest rate rises driving values down for many companies, it can be difficult for a company and its shareholders to determine how well their managers performed versus comparable businesses. Relative total shareholder return (TSR) has reemerged in recent years as a preeminent management performance measure and a key component in many long-term incentive plans.

ISS Corporate Solutions (ICS) analyzed relative TSR metrics across the S&P 500 to review how companies weathered the storm compared with their peers. We found that less than half (40 percent) of companies maintained the same relative positioning between December 2021 and December 2022, but, as always, high-level aggregate statistics don’t tell the full story.

We also examine several key elements in designing a relative TSR-based compensation plan that will stand up to future challenges.

Key Takeaways:

• As of the end of last year, 54 percent of companies in our analysis have a relative TSR performance that’s equal to or greater than the median of their performance peer group
• In the year through December 2022, 40 percent of companies maintained the same relative positioning
• Median TSR for all the groups was up as of the end of March 2023 after a general stock price recovery from the lows of 2022
• Although stock prices have generally fallen across the board as a result of the recent market turmoil, relative TSR metrics have remained resilient and have delivered on their promise of helping incentivize executives to outperform their peers in challenging and uncertain times