Proxy Statement - Explained
What is a Proxy Statement?
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Table of ContentsProxy Statement DefinitionA Little More on Proxy StatementInformation Contained in Proxy StatementsHow is the Proxy Statement Useful?Academic Research
What is a Proxy Statement?
A proxy statement refers to a document which contains some of the information which the Securities and Exchange Commission (SEC) requires businesses to offer to shareholders to enable them to make decisions via a wide range of available data about issues which has the possibility of stepping out during an annual stockholder meeting, or any specially fixed meeting. A proxy statement can cover different issues, ranging from proposals for new additions to the board of directors, details on directors wages, information on bonus pays and options plan for directors, as well as any other statement or declaration made by the company's management team.
How Does a Proxy Statement Work?
For a company to be approved as a publicly traded firm, it must be willing to file a proxy statement as required by the Securities and Exchange Commission (SEC). A publicly-traded company is mandated to file its proxy statement before every shareholders meeting of any sort, and the statement is required to contain useful information of the company that is relevant for soliciting shareholder votes and final approval of selected or handpicked directors. All proxy statements are to be filed with the SEC as Form DEF 14A, or using the SECs database, one can file a definitive proxy statement. The SECs database for finding a proxy form is known as the electronic data gathering, analysis and retrieval system (EDGAR).
Information Contained in Proxy Statements
A proxy statement is required to disclose details about directors pay and bonuses, a company's voting method, and the list of nominated candidates for a firms board of directors. Since the election of a new member of the board of directors is more important to the company than the other two options, a proxy statement usually goes into substantial details about directors, their past track record, and information about them. It also analyzes how much these directors have been paid in the past several years, and provides a detailed guideline of bonuses and option plan compensations for such directors. A proxy statement must reveal a firms executives and directors wages and bonuses, compensations like equity award, and any deferred compensation. A proxy statement can also cover details about other perks that an executive or a director has in a company, like the use of a corporate plane, company covered travel costs, and other expenses handled by the company. Also, a proxy statement can reveal any possible conflict of interest between the company and its auditors, directors, and executive. In summary, a proxy statement is required to show all details of any related-party transactions that might have occurred or have occurred with the company and its key employees or personnel in the past. It also offers and reveals details about the firms audit committee or team, as well as amounts paid as audit and non-audit fees to its external public accountant. A proxy statement points out a person with manual and tangible ownership of a firms common stock, including its directors and executive officers.
How is the Proxy Statement Useful?
A proxy statement is useful both to shareholders and potential investors in a firm. For the shareholder, a proxy statement helps him or her prepare for a company's special or annual meeting, while an investor uses this document to observe and determine what is currently happening in a company. The investor in this case uses the document to check out who is among the board of directors, their qualifications, and the compensations which they receive. If a potential investor finds that a chief executive officer earns a bonus that is way higher than that of his or her peers, it might raise a red flag, and possibly signify overspending in the company. An investor will surely be wary of something like this. Also, when the frequency of related-party transactions between the firm and directors or executives increases drastically, it can signify a misuse of company resources and in most cases, warrant further investigations.