Proxy Statements, Part One
The best way to learn something is to teach it
somebody
Since I have already discussed M,D&A, it only seems fair
to be talk about the Proxy Statement. In the Proxy statement, how should I put this, management has to disclose all the stuff they don't want to. Think of a married cross dresser who has to show the world his wardrobe. The purpose of the proxy statement is to provide investors with enough disclosure to make important shareholder votes when attending the annual shareholder's meeting. And no, I've never attended one, perhaps I should.
The proxy statement is fairly complex and there is a lot in it but I'm only going to discuss the fun parts.
Executive compensation, oh yeah, got to love this. A glimpse into the life of the rich and famous. Well not the companies I invest in anyway. It's not so much the salary but the employee stock options where the executives of a company make their real money. Now some executives deserve to be well compensated because of the results they provide to shareholders. But of course, human nature being what it is, some will dip into the troth a bit too long. Some points to keep in mind while perusing the proxy statement.
Look at the size of the employee stock options. If it is more than say, 10 million shares, it is probably verging on the obscene. If the stock goes up $1.00, the executive gets a nice $10 million boost to his net worth.
Compare stock grants to the current shares outstanding. If last year's grants amount to more than 10 percent of the shares outstanding, be careful. Not only is the executive getting a big payday, but when he decides to exercise his stock options he will flood the market with additional shares of stock thereby diluting the average shareholders holdings. Yes, Virginia, there is a Christmas. It would be a good idea to compare compensation with others in the same industry.
To be fair executive compensation is a balancing game. The company wants to attract and retain highly motivated and skilled managers to generate profits for the company while at the same time making sure that abuses of compensation are not taking place.
In the proxy statement, you will have full disclosure of executive and director compensation but be sure to read their biographies as well. It will give you added insight into their experience and background. That's all for now but I will have more to say about the proxy statement in my next post.
The proxy statement is fairly complex and there is a lot in it but I'm only going to discuss the fun parts.
Executive compensation, oh yeah, got to love this. A glimpse into the life of the rich and famous. Well not the companies I invest in anyway. It's not so much the salary but the employee stock options where the executives of a company make their real money. Now some executives deserve to be well compensated because of the results they provide to shareholders. But of course, human nature being what it is, some will dip into the troth a bit too long. Some points to keep in mind while perusing the proxy statement.
Look at the size of the employee stock options. If it is more than say, 10 million shares, it is probably verging on the obscene. If the stock goes up $1.00, the executive gets a nice $10 million boost to his net worth.
Compare stock grants to the current shares outstanding. If last year's grants amount to more than 10 percent of the shares outstanding, be careful. Not only is the executive getting a big payday, but when he decides to exercise his stock options he will flood the market with additional shares of stock thereby diluting the average shareholders holdings. Yes, Virginia, there is a Christmas. It would be a good idea to compare compensation with others in the same industry.
To be fair executive compensation is a balancing game. The company wants to attract and retain highly motivated and skilled managers to generate profits for the company while at the same time making sure that abuses of compensation are not taking place.
In the proxy statement, you will have full disclosure of executive and director compensation but be sure to read their biographies as well. It will give you added insight into their experience and background. That's all for now but I will have more to say about the proxy statement in my next post.
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