The Proxy Statement for New Investors

Find the Hidden Secrets of Your Investments in the Proxy Statement

Proxy Statement
A proxy statement is a special type of report publicly traded businesses must file with regulators detailing information that includes everything from pay packages for upper executives to matters being submitted to stockholders at the annual meeting.. Joshua Kennon

Each year, financial regulators in the United States require publicly traded companies to provide their stockholders with a proxy statement that details a lot of really important information that cannot be found anywhere else. As an owner – and that’s what you are if you own stock in a company – the proxy statement will show you things such as:

  • The proxy statement must include an explanation of matters the company’s stockholders need to vote on such as changes to the corporate by-laws, mergers, spin-offs, or other corporate actions. This is where the document gets its name – the voting card that you fill out as an owner of the company is called a proxy.
  • The proxy statement includes the names, ages, and biographies of the current directors that serve on the Board of Directors so you can make an informed decision about whether or not you want to vote for them to represent your interests. One of my favorite stockholdings, for instance, has a director that is a county coroner serving on its board that has often baffled and frustrated me. I decided to invest regardless of this, but it gave me serious pause because you want to make sure the directors aren’t just a rubber stamp for a powerful CEO.
  • Just as importantly, the proxy statement includes the pay and perks received by the top managers of the firm, including the CEO, CFO, and other important executives. This lets you see if they are robbing the company blind, whether or not their pay is justified based on the company’s performance, and whether you are dealing with shareholder friendly businessmen and women.
  • The number of shares of stock owned by directors and executives must be disclosed in the proxy statement so you can decide if you trust the company’s managers to do the right thing. By looking at the proxy statement of the same company I mentioned earlier, I was able to see that the CEO earned more in dividends from his shares of company stock than he did in salary and bonus. That made me confident that he would do what was right for the stockholders because he was in the same economic boat as everyone who took their paycheck and bought a stake in the firm.

    The truth is, the proxy statement is one of the most interesting documents you’re likely to read as an investor. It shows you just how much some executives are paid and how ridiculous some of the perks are. Several years ago, there was a company that actually had a private jet sent to pick up the CEO’s dog from across the country at the cost of tens of thousands of dollars to the corporation. When you read that, you are able to ask yourself if this is really the type of person to whom you want to entrust your hard earned dollars, especially if they are retirement funds that you will need to live on during your golden years.

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