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Coca-Cola, Yielding to Criticism, Revises Its Plan for Executive Pay

Posted by Unknown on Wednesday, October 1, 2014

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Business Day |Coca-Cola, Yielding to Criticism, Revises Its Plan for Executive Pay



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Coca-Cola, facing sharp shareholder criticism of its executive pay, on Wednesday announced changes to the compensation plan that set off the squall.


The big question that now hangs over the company is whether the adjustments will satisfy the shareholders who had voiced their concerns over the plan, including Warren E. Buffett of Berkshire Hathaway.


Just over 83 percent of Coca-Cola’s shareholders approved the so-called 2014 equity plan at its annual meeting in April. Despite that support, discontent about the plan remained strong. On Wednesday, Coca-Cola’s board said that it had taken shareholders’ voices into account when devising the changes.


“Share owner input on this important topic has directly led to the development of these new guidelines, which are in line with the long-term interests of share owners,” Maria Elena Lagomasino, chairwoman of the board’s compensation committee, said in a statement.


One criticism was that the plan issued too many new shares. Shareholders often resist the issuance of new shares because it can dilute the value of their existing stake in the company. The critics also said that the plan left out too many of the company’s employees.


David J. Winters of Wintergreen Advisers, an asset management firm, spoke out fiercely against the plan when it was announced.


“It’s a capitulation,” he said of the changes announced on Wednesday. “But there needs to be a lot more detail.”


In recent months, Coca-Cola has reaped the benefits of a surprisingly successful marketing campaign that puts specific first names on Coke cans and bottles. Even so, shares in the company have risen less than the overall stock market this year. Investors are concerned that it will struggle to post solid sales when consumers appear to be moving away from sugary drinks.


At a time of such challenges, Coca-Cola’s compensation was probably going to come under closer scrutiny. Mr. Winters’s campaign struck a nerve. Mr. Buffett did not vote against the compensation plan at the annual meeting, choosing to abstain instead. He did, however, describe the plan as “excessive.”


Mr. Buffett did not return a call on Wednesday seeking comment on whether the changes were sufficient.


Notably, Coca-Cola is not actually reducing the number of shares it intends to issue under the plan. Instead, it is substantially lengthening the period over which it expects to issue those shares. The company is going to reduce the amount of stock-based compensation that it pays out in the form of stock options.


Coca-Cola is also going to pay cash to most employees in the plan, and focus the stock-based compensation on a much smaller number of employees. Before, all 6,500 employees included in the plan were eligible for stock awards. Now, fewer than 1,000 employees will be receiving stock, Petro Kacur, a Coke spokesman, said.


But the shift to cash may draw new criticism. Some stockholders back compensation packages that include a lot of stock, believing that it aligns the interests of shareholders with those of employees. Cash awards may weaken that link, they assert.


Mr. Kacur, however, defended the shift to cash payments.


“They are still designed to attract and retain world-class talent, and align their pay with performance,” he said.


But Mr. Winters said that he needed more information.


“Who’s really getting this money and what is the criteria?” he said.



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