Last month, I wrote about how crucial proxy statements are to getting the inside scoop on a company's management. They include numerous aspects, such as CEO compensation, make-up of the board of directors, and a CEO's insider holdings. These facts are crucial to evaluating the management of a company like energy small cap ATP Oil & Gas (Nasdaq: ATPG ) .
Salary plus bonus plus stock plus ...
CEO compensation can be a tricky business. Are they paid too much? Is compensation consistent with industry culture or is it pegged to revenue? It's important to look at industry competitors, but also consider unrelated companies with similar revenue. That's why I've included Tootsie Roll and B&G Foods in the comparison of ATP CEO Paul Bulmahn's compensation below.
|
Company
|
Revenue
|
CEO Compensation
|
% Revenue
|
|
ATP Oil & Gas
|
$511,000,000
|
$4,974,843
|
0.97%
|
|
Hercules Offshore (Nasdaq: HERO )
|
$673,000,000
|
$2,516,064
|
0.37%
|
|
Parker Drilling (NYSE: PKD )
|
$658,000,000
|
$4,936,199
|
0.75%
|
|
Tootsie Roll
|
$521,000,000
|
$4,116,130
|
0.79%
|
|
B&G Foods
|
$520,000,000
|
$2,285,349
|
0.44%
|
Sources: Yahoo! Finance and company proxy statements.
Looking strictly at dollar values, ATP's CEO compensation doesn't seem too bad. It's only when we consider compensation as a percentage of revenue that it's obvious ATP's package is much more lucrative compared to the rest of the industry.
That's teamwork
A company's board of directors is an integral part of the success of a business, so it's important to pay attention to the size and composition of the board. Seventeen board members? Might be too many. Mostly family members? Probably not a good sign. A diverse lineup of executives with experience relative to the industry and/or a track record of success? That's more like it.
ATP has seven board members, not including Bulmahn, and all of their professional biographical information is laid out clearly in the proxy. The board includes:
- A federal immigration judge
- A former attorney
- A former director of the Railroad Commission of Texas
- A president and CEO of an oilfield services company
- The executive secretary emeritus of the Board of Regents of the University of Texas system
- A chairman and CEO of a corporate governance and CEO compensation consulting firm
- A former president of a South American pipeline engineering firm
- A current attorney
The board is a nice size and there is some great leadership experience here, but I have reservations about the professional diversity. I'd like to see some public policy or government affairs experience added to the mix.
Buy what you know
Investors want to see company insiders buying up stock because it measures their faith in the business. For small- and mid-cap companies, it's nice to see ownership range from 5% to 45% of shares outstanding.
|
Executive
|
Shares Owned
|
Price of Shares
|
Total Value
|
|
T. Paul Bulmahn
|
6,079,853
|
$14.66
|
$89,130,645
|
Source: Proxy statement. Share price is as of this writing.
Bulmahn meets our target of 5%. His stock ownership is 11.83% of shares outstanding, and he is the largest single shareholder of the stock.
The proxy is a great place to look for insider holdings when you initially begin to research a company, but as you continue to follow that company you will need to look elsewhere to monitor inside buys and sells. Investors can keep tabs on transaction statistics via the Internet on sites like Yahoo! Finance and gurufocus.com.
Caveat emptor
The proxy statement is an often overlooked document that can provide important insight to a company's management, the driving force behind profitable success. Of course, the information must be taken in context. For example, after reviewing the compensation of a company like ATP Oil & Gas, check out the same information for industry competitors like Hercules Offshore and companies with similar revenues, like Tootsie Roll, before forming any investment decisions.
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