Jeremy Glaser: For Morningstar.com, I'm Jeremy Glaser. With proxy season about to get started, I'm here with the newest member of the Morningstar family, Michelle Leder from footnoted, to see what investors should watch out for. Michelle, thanks so much for joining me today.
Michelle Leder: Thanks for having me, Jeremy.
Glaser: So when you're taking a look at a proxy, what are some of the big things that an investor should be looking at?
Leder: Proxies are really one of the sexiest documents out there. Can we use the word "sexy document" in the same sentence?
Leder: But they really are. For someone who really finds these things, they can be really, really interesting. Why is that? Because they have all of the information about compensation in there.
Compensation is one of those things that's really a giant taboo here in this country. You would never walk up to someone and say, "Hey, Jeremy, what do you make?" It's kind of embarrassing. You wouldn't ask me that question right here on TV. But it's the type of thing, when you're a publicly traded company, that CEOs and other top executives are required to disclose. And so it's kind of an interesting thing to look at. And you can see, how did the CEO do? How does it stack up against other CEOs in the same industry?
Glaser: Now, I know there were a lot of changes to the way that compensation had to be disclosed a few years ago. Have you noticed that companies are doing a better job at letting you know exactly what kind of perks executives are getting, or is it still somewhat opaque?
Leder: It's still somewhat opaque, and you kind of have to put numbers together, but it is much easier to decipher than perhaps five or even 10 years ago. So what you have is companies are listing the straight salary. They're talking about the bonus. They're talking about the different pieces of the compensation, which is stock options and other long-term compensation.
And then the perks, which I love to pay attention to. And we're finding all sorts of crazy things, whether it's a million dollars spent on a corporate jet. Or the other day, we were looking at a director of GE, for example. Large company there. And one of his perks was a million-dollar donation to the charity of his choice. That's an interesting thing. Yes, you can argue it's a charitable donation, but it's very nice to be able to make a million-dollar charitable donation in your name and someone else pays the price.Read Full Transcript
Glaser: Now, what are some of the other, kind of more outrageous things that you've seen in proxy statements?
Leder: You're seeing, again, just really crazy sorts of perks. It's not unusual. Last year, for example, we saw a CEO who successfully was able to get his stepdaughter access to the corporate jet. So you see sort of like this general definition of this expanded definition of who has access to the corporate jet, who has access to some of these perks.
We're looking at car and drivers. We had a post earlier today: over $80,000 on a car. I don't know what kind of car would cost $80,000 for one year. I recently bought a car myself, and it was under $30,000. So, you've got to wonder what kind of car costs $80,000 for a year.
Glaser: So on the flip side of this, has the notion that you have to put all of this out there for the public to see caused any companies to cut back on some of these perks or to start doing the right thing for their shareholders?
Leder: I think some of them are definitely being a little bit more cautious, and they're trying to come up with ways. You've seen some companies replace actual perks, or disclosure on perks, with things called allowances. You see an executive, for example, getting a $25,000 allowance. And this way they don't have to disclose it necessarily, that they spent $20,000 on the golf clubs and these sorts of things. It's really just almost like a corporate allowance.
Glaser: I always thought those allowances were called salaries, but I guess I'm old-fashioned in that way.
Leder: You don't get a $25,000 allowance, [laughs] to spend any way you want?
Leder: And usually, it's obviously the higher-profile executives that you're seeing this with.
But I think there's a lot of other good stuff in proxies, too, not just the compensation and the perks. But you can also see the director compensation, too, and that's an important component. Because I think what you need to ask yourself is, if you see directors--and we're routinely seeing directors now that are making $600,000-$700,000 a year, sometimes as much as a $1 million--you want to ask yourself, is this a director who's really going to raise some serious questions about the company?
Keep in mind that this is a part-time job. And so, if you had a part-time job that was paying you $600-$700,000 or more a year, are you really going to stand up and say, "Hey, is this the right way to run the company?" Or are you just going to say, "Hey, I've got a $600,000 part-time job, and let me just kind of like twiddle my thumbs during the meeting."
Glaser: Yeah. Well, it sounds like there's a lot of great stuff in there. We'll be sure to keep our eyes out for any outrageous or unnecessary perks as we're looking through proxies this year.
Leder: Yeah, absolutely.
Glaser: Thanks for joining me, Michelle.
Leder: Thanks for having me, Jeremy.
Glaser: For Morningstar.com, I'm Jeremy Glaser.