Excellent management can make the different between a mediocre business and an outstanding one, and poor management can run even a great business into the ground | 7 Analyzing a Company-Management Excellent management can make the difference between a mediocre business and an outstanding one and poor management can run even a great business into the ground. Your goal is to find management teams that think like shareholders executives that treat the business as if they owned a piece of it rather than as hired hands. Unfortunately managers like this are more rare than you might think. People buy stocks all the time without checking out the folks in the executive suite and the excuse I hear most often is that its tough to assess management without meeting them face-to-face. Hogwash. There are many many ways to get a feel for the folks running a company that have nothing to do with looking the CEO in the eye. No one can run a public company without leaving a trail of pretty strong objective evidence behind. My advice is to divide the management-assessment process into three parts compensation character and operations. 104 ANALYZING A COMPANY-MANAGEMENT Compensation Compensation is the easiest of the three areas to assess because the bulk of the information is contained in a single document usually called the proxy statement. This is the form that companies mail shareholders around the time of the annual meeting and it details how much executives are paid and what perks they get. You can find this form online at or . Look for form DEF14A. Here s what to look for in a company s compensation plan. First and most important how much does management pay itself This is detailed in the aptly named summary compensation table. Generally I prefer big bonuses to big base salaries and restricted stock grants to generous option packages. Bonuses mean that a good portion of the pay is at least theoretically at risk and restricted stock means the executive loses money if the share price declines. That s just the tip of the iceberg though. First look at the raw level of cash compensation to see if it s reasonable. .
