Marlene Kennedy, the business editor at the Albany Times-Union, had this to say about the upcoming proxy season in this morning’s paper: “You have to be a hard-core business reporter — or a moderately serious investor — to enjoy sifting through the documents’ minutiae.
“‘Beneficial ownership reporting compliance’; ‘Certain relationships and related transactions’; ‘Compensation committee interlocks and insider participation’ — what eye-catching proxy subtitles! But while the filings with the U.S. Securities and Exchange Commission may follow a standard form, some can be more revealing than others in their substance.”
I don’t know about you, but my mouth is watering already.
Thereâ€™s plenty of other information in a proxy filing to interest business readers. Most business reporters immediately turn to the compensation chart of a proxy when they receive it. How much a CEOâ€™s salary or bonus rose or fell in the past year is obviously news. The hard part is deciphering the numbers and explaining them to readers who also want to know this information, but donâ€™t have access to the proxy, or investors who havenâ€™t received their proxy yet.
Compensation stories are among the most widely read in the business section. Executives at other companies want to know what their counterparts are making down the street. Employees of that company want to know what their boss is pulling in. And shareholders of that company want to know whether the executive is worth his salary. This last one can often be determined by comparing the percentage increase or decrease in the CEOâ€™s compensation package in any given year to the percentage increase or decrease in the companyâ€™s stock price for the same year.
What most investors would like to see is an executive’s total compensation package â€“ his salary, bonus, stock options and other pay â€“ rise somewhat in line with how the company performed for the year. For example, if a CEOâ€™s pay increased 75 percent during a year in which the companyâ€™s stock price fell 40 percent and profits dropped 50 percent, then an investor is likely to be upset and could ask questions at the annual meeting.
Here are a few other things to look for in proxy statements that are newsworthy:
1. Business relationships between board members and the company issuing the proxy;
2. Shareholder proposals, specifically those related to executive compensation or business practices;
3. Change in board members. Are there new members joining and old ones retiring?
4. Change in board compensation;
5. Change in the largest shareholders of the company.
Look elsewhere in the proxy for explanations about compensation and why executives are receiving stock options and restricted stock. A reporterâ€™s best bet is what is called the â€œCompensation Committee Report.â€? The compensation committee is composed of board members. This report on executive compensation is not usually found with the chart on executive compensation. Instead, youâ€™ll have to look for it elsewhere in the proxy. Some companies place it early on in the proxy with all of the other board of director-type information. Others place it way in the back, assuming that many proxy readers will fall asleep before they get to it. But look for it. It is the report from the members of the board of directors who sit on the compensation committee, which decides how much or how little executives get paid.