Diving into proxy statements

Diving into the

DEF 14A

Finding stories in proxy statements Michelle Leder

editor/founder footnoted

ml@footnoted

@footnoted

Photo by flickr user

TauchSport_Steininger

What's so interesting about a proxy

statement?

• Compensation, compensation, compensation (plus

lots of perks)

• Director bios, compensation, committee

assignments and meeting attendance

• Related-party transactions

• Audit-related fees

• Shareholder proposals

Photo by flickr user Victor1558

How can you find the proxy?

• SEC's Edgar site (can search by ticker or

company)

• Investor relations section of company site

• Google Finance, Yahoo Finance, or any

number of other large finance sites

• Simple search “Alcoa proxy 2012"

A closer look at Microsoft's proxy:

• This proxy was filed late in the day on Oct. 9.

• At 52 pages, it's about average size.

• The good news? You don't have to read all

52 pages!

• Let's focus on the most interesting parts.

Start with the summary-comp table

Skip straight to this chart by typing "summary compensation"

Beware of common traps

• Too many journalists take the total comp

number in the last column as gospel. It isn't.

• The rules for reporting stock options are

complicated, and it's very easy to think

you're getting it right, but get it wrong

• Pay close attention to executive changes

from year to year. Once an executive leaves,

you may not get any more info on him/her.

What I look for in the summary --

comp table

• Mix of compensation

(cash, stock, perks)

• Trends in compensation

• Weird disclosures:

apartments in Paris, fish

camps, excessive

corporate jet usage,

moving expenses for the

family pet, wine cellars

Photo by flickr user seantoyer

Photo by flickr user andyrusch

Even more compensation

• Next, I like to skip to the

director-compensation

table.

• This isn't always as easy

to find as the summary-

comp table, but it's

always there

• Often provides good

insight into company Photo by flickr user Tax Credits

Director comp at Microsoft

• Cash vs. stock mix

• All other comp (none here, but pretty

common)

• Compare with how many times directors met

Director bios

One stop shopping: bio, length of board service, board committees, other

boards he/she sits on

Board attendance

• Hard to get a real feel for this. Usually get

boilerplate disclosure. But every now and

then, there's something good.

Meetings and meeting attendance

Our Board of Directors holds regularly scheduled quarterly meetings. Typically, committee meetings occur the day

before the Board meeting. During one quarter each year, the committee and Board meetings occur on a single day

so that the evening and following day can be devoted to the Board’s annual retreat, which includes presentations

and discussions with senior management about Microsoft’s long-term strategy. In addition to the quarterly

meetings, typically there are two other regularly scheduled meetings and several special meetings each year. At

each quarterly Board meeting, time is set aside for the independent directors to meet without management

present. Our Board met eight times during fiscal year 2012.

All of our directors attended 75% or more of the aggregate of all Board of Directors meetings and meetings of the

committees on which they served during the last fiscal year. Directors are encouraged to attend the Annual

Meeting of Shareholders. Five of the nine directors then on the Board attended the 2011 Annual Meeting.

Related-party transactions

• Can be called different things and in a

different place in each proxy, so you often

need to search

• Look for "related party," "certain

transactions," "transactions with officers and

directors" to start with.

• Almost always worth reading carefully

Audit-related fees

• There's rarely a smoking gun here, but

there's sometimes an interesting detail.

• Audit fees up 21% over past year

Shareholder proposals

• First few proposals are usually proposed by the

company (re-election of directors, appointment

of auditors, other routine corporate actions).

• Newest one is "say on pay"

• The others are the ones you want to pay

attention to.

• Remember: even if a shareholder proposal wins

the popular vote, the company chooses whether

to adopt.

Your homework: Smithfield Foods

• Thanksgiving is around the corner. Consider

this proxy your amuse-bouche!

• Read the related-party transactions, and

come up with 3 key bullet points.