Donald W. Reynolds National Center For Business Journalism

Two Minute Tips

Mine proxy statements for executive pay and more

April 27, 2011

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Proxy season, always fun for business writers, is an even richer source of stories this year due to changes in executive compensation reporting stemming from the Dodd-Frank financial regulatory overhaul of 2010.

For the uninitiated:  a publicly traded company’s annual proxy statement is a notice to investors sent in advance of the company’s annual meeting of shareholders.  (Formerly a modest black and white document relayed via U.S. mail, the proxies may now be posted electronically if ample notice is provided by mail to shareholders; here’s a PDF of the Securities and Exchange Commission rule.)

In addition to executive compensation information, proxies include matters to be voted upon at the shareholders meeting, director compensation, stock option grants, share performance vs. industry peers and other interesting information.  One of my favorites is “related party transactions” in which companies must disclose business relationships with executives and directors.  If the firm is renting an airplane hanger from the chairman’s brother-in-law, or has hired the CFO’s spouse’s PR firm, you’ll find the information here. This oldie-but-goodie from Business Week, Unlocking the secrets of a  proxy statement,” will give you other ideas for parsing the documents.

Another interesting story you can glean when you have a stack of locally relevant proxies on your desk is the interrelationships of local executives and directors.  You many find one or two “professional directors” sitting on numerous boards, or seemingly reciprocal board membership by prominent local business people.  Evaluating the relationships and expertise on local boards – with the help, perhaps, of area recruiting experts, business management faculty or other third parties – can provide valuable information to readers and investors.  Does a health care system, for example, have enough medical experts on its board?  Does a local manufacturing company need more up-to-date marketing or sourcing pros guiding it?

Meanwhile the financial regulatory overhaul of 2010 has added some new twists to proxy season and shareholders’ meetings.  As this Financial Times story “Say-on-pay rules hit US executives,” relates, the Dodd-Frank act – which requires a non-binding shareholder vote (this year, for most firms) on CEO compensation – is having a ripple effect on all sorts of compensation matters this year, both as a practical matter and in terms of how pay issues are communicated in company documents.   This MarketWatch article from last week also demonstrates how the increased scrutiny is affecting C-suite pay and perks.  It’s an excellent story to localize and as the proxies roll out you’ll have plenty of data at your fingertips.

This consulting firm mentioned in the Financial Times article, ClearBridge, has posted an interesting (PDF) memo on its site detailing more effects of the Dodd-Frank rules on proxy statements this year; you might check with them or similar consultants for analysis pertinent to your region.

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