How to Read a Proxy Statement (DEF 14A): A Practical Guide
The proxy statement tells you how much executives get paid and whether the board is actually independent. Here's how to find the parts that matter.
I used to skip proxy statements entirely.
The 10-K felt like the real filing. That's where you find actual numbers about the business. The proxy? Voting paperwork. Who's running for the board, whether to ratify the auditor. I wasn't going to the shareholder meeting anyway.
Then I got burned.
I owned shares in a company that looked solid. Revenue growing, margins stable. Then I finally cracked open their proxy and found out the CEO paid himself $47 million the prior year. The stock had dropped 35%. The comp committee's justification? "Retention." They were scared he might leave. And three of the five "independent" directors had served on other boards with him. One was his college roommate.
I sold the next morning.
The business itself was fine. But I realized I had no idea who was actually running the company. Whose interests were they serving? Not mine.
That changed how I research stocks. Now I read proxies.
What's in a Proxy Statement
The proxy (officially "Form DEF 14A") gets filed before any shareholder vote. DEF means definitive, 14A refers to some section of the Securities Exchange Act. The legal details don't matter.
What matters: companies have to disclose stuff in the proxy that would never make a press release. CEO pay, down to the dollar. Whether board members are actually independent or only independent on paper. Deals between the company and insiders. It's 80-odd pages of information executives would prefer you ignore.
You can pull them from SEC EDGAR (filter for "DEF 14A"), from company IR pages, or from Earnings Feed where they sit next to the company's other SEC filings.
One thing to know: proxies drop 30-60 days before the annual meeting. Most meetings are March through June. So if you start researching a company in January, last year's proxy might be ten months stale.
The Comp Table
I always start here.
This table shows exactly what the top five execs got paid: salary, bonus, stock awards, options, and then a bucket called "other compensation" where the weird stuff lives.
What am I actually looking for? Stuff that pisses me off.
CEO made $30 million while the stock cratered 40%? I don't care what the comp committee says about "alignment" or "retention." Those are just words. The numbers tell a different story.
The "other compensation" column is where you find things companies don't advertise. Corporate jet for personal trips. Tax gross-ups, which means the company pays the taxes on the CEO's perks so he doesn't have to. Security details. Housing allowances. I once found a company paying $400k a year for the CEO's driver and household staff. It was in a footnote on page 67.
There's also a section called Compensation Discussion and Analysis, or CD&A, where the comp committee explains the philosophy behind the pay. It reads like it was written by a lawyer (because it was), and the whole point is to make $25 million a year sound perfectly reasonable. I read it anyway because sometimes there's useful stuff about performance targets buried in there.
Board Independence
Every proxy has a section declaring which directors are "independent." I've learned to be skeptical.
The SEC has technical rules. No recent employment at the company. No big business relationships. A director can check every box and still be the CEO's golf partner who shows up four times a year to rubber-stamp whatever management puts in front of him.
Tenure is one thing I check. Boards where every director has been there 12, 15, 18 years? That board isn't challenging anyone. They've gotten comfortable. Also worth looking at backgrounds. If the whole board is former Fortune 500 CEOs from the same three industries, they probably share the same blind spots.
Attendance matters too. The proxy discloses it. I've seen directors miss a third of the meetings. What are they even doing?
The part that tells me the most is usually the nominating committee. That's the group that decides who gets nominated to the board. If the CEO is on it, or if it's all long-tenured directors who basically owe their seats to current management, then "independence" is mostly theater.
Related-Party Transactions
Dry section. Easy to skip. But I've found some ugly stuff buried here.
Related-party transactions are deals between the company and people connected to it: executives, board members, their families. Some are totally fine. Others are ways for insiders to siphon money from shareholders without anyone noticing.
I remember one where the company leased its HQ from an LLC the founder controlled. Buried in a paragraph on page 54, it mentioned the rent was $2 million above market. Nobody was going to catch that unless they were looking.
Another one: a director's consulting firm got $800k a year for "advisory services." What services? Never defined. And the director voted on his own reappointment.
Or the CFO whose brother-in-law ran the logistics company that handled all the company's shipping. No mention of whether they had ever considered anyone else.
None of that is automatically illegal. But if I'm a shareholder and the CFO has a side channel pulling more from the company than his actual salary, I start wondering whose team he's really on.
Auditor Fees
There's a table near the back showing what the company paid its auditor. It breaks out the audit itself, tax work, and "other fees."
What gets my attention is when the other stuff dwarfs the audit.
Say a company pays $3 million for the actual audit and $18 million for consulting. That auditor is not going to jeopardize an $18 million consulting relationship by making noise about aggressive accounting. They'll find ways to get comfortable.
I also look for auditor changes. Sometimes it's normal: fee negotiations, routine rotation. But if the company switched auditors right after the old one raised concerns, that's a different situation. The proxy is supposed to disclose disagreements with the prior auditor. It's worth checking.
Shareholder Proposals
Most of the proxy is about things management wants you to vote on. Reelect the directors. Ratify the auditor. Approve the exec comp plan. Boring.
Shareholder proposals are different. These come from investors who actually want something to change. An independent board chair, disclosure of political donations, whatever. The company has to include them and usually tacks on a "we recommend voting against" statement.
Even when these proposals lose, they matter. If something gets 40% support, the board notices. They don't want a majority vote against them next year. That's embarrassing and it makes the proxy advisory firms cranky. So sometimes you'll see a company adopt changes the year after a proposal almost passed, just to make the problem go away.
What Makes Me Nervous
I've read enough of these to notice patterns.
Pay that never goes down is the most obvious one. Stock trades sideways for a decade, but somehow the CEO's comp keeps climbing. That's not performance-based anything. That's a board that stopped pushing back years ago and just ratchets the number up every cycle.
Peer group selection is another red flag. Companies pick their own peers for comp benchmarking, and some game it hard. Choose larger companies, higher-paying industries, so the CEO's $20 million looks modest. The peer list is buried in the CD&A. Worth a glance if the pay seems out of whack.
Board structure tells you a lot too. Classified boards where only a third of directors face election each year. Supermajority requirements to remove anyone. Poison pills. If the whole setup is designed to make it nearly impossible to hold anyone responsible, that's not an accident.
And then there's the skin-in-the-game question. If directors aren't required to own stock and don't buy any voluntarily, I want to know why I should trust them to think like an owner.
How I Use This
I don't read the proxy for every stock I own. Too many holdings, too little time.
But I read it before making a position meaningful. And I read it when something feels off: a CEO leaving abruptly, comp that looks disconnected from results, news about a proxy fight.
The proxy won't tell me whether a company is a good investment. It tells me whether the people running it are playing the same game I'm playing. Or whether they've found a way to win even when shareholders lose.
Good business, bad board. It happens. It works until it doesn't.
Finding Proxy Statements
Proxy season is roughly March through June. To track DEF 14A filings:
The filings feed shows them as they hit EDGAR. You can filter by form type. Company profiles on Earnings Feed have the proxy alongside the 10-K, 8-K, and everything else.
This information has been public for decades. Most people just don't look.