For many years, performance-based executive pay has been proclaimed as the solution to the problem of interest alignment between owners and management of market-listed companies. Unfortunately, pay for performance has proven to have some severe drawbacks. We therefore suggest the use of relative performance evaluations (RPE) in managerial compensation contracts to mitigate the problem of biased performance measures and enhance reliability of performance-based pay systems. By using cluster analysis we propose a new approach to generate required peer groups for RPE. Additionally we evaluate the relative performance of Swiss firms and rank them accordingly. This ranking allows concluding with recommendations for the design of performance evaluations and managerial compensation contracts.