Is Coca-Cola’s Executive Compensation All Wrong?

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Source: Getty Images

Source: Getty Images

Coca-Cola’s (NYSE:KO) executive team is under fire from Wintergreen Advisers, a money management firm that operates the Wintergreen Fund (NASDAQ:WGRNX)(NASDAQ:WGRIX) and owns 2.5 million shares of Coca-Cola stock on behalf of clients. The ownership stake is relatively tiny — just a fraction of a percent of Coca-Cola’s 4.41 billion outstanding shares and valued at about $96 million — but it is large enough to empower its owners to speak out.

In a series of letters to Coca-Cola management and the company’s shareholders, including a separate letter to Berkshire Hathaway (NYSE:BRKA)(NYSE:BRKB) Chairman and CEO Warren Buffet, who is a major shareholder, Wintergreen Advisers argued that the company’s executive compensation plan amounts to “an unnecessarily large transfer of wealth from Coca-Cola’s shareholders to members of the Company’s management team.”

Here’s how: Combined with an already approved compensation schedule, the new proposed Coca Cola equity plan will dilute the stock by 14.2 percent over the next four years. This would be done in the usual way, by issuing a tremendous amount of stock and options to the company’s top management (or, in other circumstances, as part of an acquisition or to finance debt). The 2014 compensation plan would issue 340 million shares alone, split between options and full-value shares, worth approximately $13 billion as of March 24.

“In effect, the Board is asking shareholders for approval to transfer approximately $13 billion from all of our pockets to the Company’s management over the next four years,” said David Winters, Wintergreen Advisers’ CEO, in his letter to Coca-Cola board members. “When combined with awards from previously approved compensation plans, this figure rises to $24 billion.”

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