The proper way to hold a pick is between the pointer finger and thumb of your right hand. Place the pick on the thumb-side of your curved pointer finger. Then place your thumb on top to complete a small oval as shown in pictures.
Notice that the point of the pick is out just enough so that you can hit the strings without scraping your fingers. A majority of the pick is hidden by your fingers. The pick also generally points out perpendicular to the thumb.
The rest of the fingers can either be held loosely as in the first picture, or balled up in a fist like in the second picture.
There is some debate about how to best hold a pick. Some claim a balled up fist is more stable, some say the open palm is more comfortable and easier to play. One of my favorite local bands has a guitarist that holds his pick with his thumb and middle finger. It worked for him, but I surely do NOT recommend it. I assure you, guitarists have been successful with many different styles of pick holding. It does not take long to change it later either.