Coca-Cola’s chief, was paid $20.4 million last year.
Coca-Cola sent out its annual report
and proxy statement to shareholders.
red-and-white report was relatively predictable. Until you get to Page 85.
page that stopped an analyst who works for David Winters, a longtime money
manager and founder of Wintergreen Advisers, in his tracks.
little quick math, the analyst determined that the company planned to award
stock worth about $13 billion to its senior managers over the next four
years, based on the company’s current stock price. Getting out his
calculator, the analyst estimated that between the proposed compensation
plan and a previous plan, the company had allocated as much as $24 billion
toward stock-based rewards for its senior people.
couldn’t believe it,” said Mr. Winters, a longtime Coco-Cola shareholder
with about 2.5 million of the company’s shares in his fund. “I was so
that late on Friday, Mr. Winters sent a letter, which he released publicly,
to Coca-Cola’s shareholders and its board. Coca-Cola has disputed some of
his calculations, but Mr. Winters still says he sees the plan as excessive.
“We can find
no reasonable basis for gifting management 14.2 percent of the share capital
of Coca-Cola, worth $24 billion at today’s share price. No matter how well a
management team performs, it is unfathomable that they would require such
astronomical sums of money to provide motivation,” he wrote. “This
compensation plan appears to place the economic well-being of management far
ahead of the interests of the company’s owners.”
compensation plan requires shareholder approval, so the company’s annual
meeting, excuse the pun, could be a little carbonated.
also sent a separate letter to one of Coke’s biggest and most influential
Warren E. Buffett, who controls 9.1
percent of the stock through
Berkshire Hathaway’s holdings.
often decried how excessive compensation is so difficult to rein in
precisely because shareholders have no direct voice in the negotiation with
management and because compensation committees are often comprised of lap
dogs rather than Dobermans,” he wrote. “In this situation, with Berkshire as
the largest shareholder of the company in question, you hold significant
sway over the process.”
Buffett’s son Howard Buffett, who his father has said will become the next
chairman of Berkshire Hathaway if he ever retires, is on the board of
who is also a Berkshire Hathaway shareholder and a huge fan of Mr. Buffett,
said he was dismayed by the proposed compensation plan because, “We want to
own Coca-Cola forever” and the compensation program “hurts the underlying
investment case.” Despite knowing Mr. Buffett and several of Coca-Cola’s
board members personally, he said he felt a fiduciary duty to go public with
his problems. “We can’t support this,” he said.
for its part, says Mr. Winters’s analysis “is misinformed and does not
reflect the facts.”
It is hard
to make an apples-to-apples comparison of Coca-Cola’s compensation program
to those of its rivals, like
Pepsi. Muhtar Kent, Coke’s chief
executive, was paid $20.4 million last year, which was down 33 percent from
the $30.5 million he was paid in 2012. In comparison, Indra Nooyi, PepsiCo’s
chief, was paid about $12.6 million in 2013.
said that the plan Mr. Winters criticized “is not limited to senior
executives, but extends to a large group of employees and is important for
incentive and retention. Approximately 6,400 were eligible in 2013. The
amount of long-term equity compensation awards granted each year are within
If that is
the case, each of Coca-Cola’s managers eligible would be entitled to, on
average, a little more than $2 million each. Of course, the bonus money
won’t be doled out equally.
it is worth noting that Mr. Winters’s $13 billion and $24 billion figures
are probably somewhat inflated. The calculation treats all shares — options
and restricted shares — alike. Executives can cash in on options only if the
stock price trades above the grant price.
is not likely that all of the current shares that Coca-Cola has allocated
for compensation will be paid out. When employees leave the company, they
forfeit restricted shares and options that had been granted to them. Those
shares are included in Mr. Winters’s calculation.
important, Coca-Cola’s senior managers need to meet specific performance
targets; if they don’t, they don’t receive the shares. Mr. Kent, for
instance, received 33 percent less in 2012 because the company didn’t meet
its targets. That’s the way pay for performance is supposed to work.
for Coca-Cola declined to comment beyond its public statement. Mr. Buffett
also declined to comment.
Winters argues that the compensation plan would dilute shareholders, who he
said had expected Coca-Cola’s share buyback program to make each share worth
more, not less.
necessity, a large portion of the company’s growth in per-share earnings and
value must come from shrinking the number of shares outstanding, so that
each share is entitled to a larger share of the company’s profits,” he wrote
to the board. “Now instead of meaningfully reducing shares outstanding and
growing value on a per-share basis, this share repurchase program will
merely help to offset the new shares issued to management under the plan.”
Mr. Winters, Coca-Cola’s last compensation plan, in 2008, planned to issue
280 million shares, split-adjusted; the new proposed plan jumps to 340
So, I asked
Mr. Winters: How much should Coca-Cola pay its senior people? He paused for
a moment. “I don’t know the answer,” he said. “But I know $24 billion is
“This is a 100-year-old company. They are the custodians of the secret
perhaps pausing for effect, he said: “They should be well paid.” Just how
well paid is up to shareholders.
Sorkin is the editor at large of DealBook. Twitter:
A version of this article appears in
print on 03/25/2014, on page B1 of the NewYork edition with the headline: A
Question of What’s a Reasonable Reward.
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