David Winters, CEO of hedge fund Wintergreen Advisers, was handed a moral victory after his battle to oppose an enhanced pay package for The Coca-Cola Company (NYSE:KO) executives received support from Coke’s largest shareholder Warren Buffett. That public show of support, however, came after the board voted on the executive pay package. Now comes Coke’s earnings and once again Winters position regarding Coke is vindicated, but that and $4 will purchase a cup of coffee at Starbucks Corporation (NASDAQ:SBUX). He may be right, but does it matter?

David winters Wintergreen Advisers

David Winters says Coke remains stuck in neutral

“Despite increased spending on brands and promises of improvement just around the corner, Coke remains stuck in neutral,” David Winters said in a statement to ValueWalk. As previously reported, the company reported slowing growth and stagnate earnings. Winters argument had been that such a rich compensation program wouldn’t be a problem if the company were a growth story. But that isn’t the case.

“Growth is sluggish, progress in re-franchising North American bottlers is stubbornly slow, and costs continue to rise,” Winters said.

Problem with Coca-Cola management compensation

The problem with Coke management compensation is the company is at a unique point in its history. With the popularity of its carbonated beverages declining, in order to remain relevant management needs to figure out how it will grow in the future, which could require out of the box thinking and product development or acquisition that might even compete against the old sugar-water based formula.

“Coca-Cola’s management and board of directors continue to demonstrate an unwillingness or an inability to return The Coca-Cola Company (NYSE:KO) to profitable growth,” David Winters said.

The problem with Coke’s compensation plan is it rewarded the executives before they solved the puzzle of future growth. Although Winters was roundly criticized by the mainstream business TV as being openly critical of an industry icon in Muhtar Kent, Coke’s president. But all Winters was saying is that management needs to be rewarded after they perform for shareholders, not before. For his part, Winters maintains his stance on the Coke compensation plan as excessive given performance. The latest earnings appear to bear this out, but does it matter?

“Although Coca-Cola claims that its corporate governance is “Best in Class,” there has been no progress to withdraw the 2014 Equity Plan, which in our opinion reflects a failure of corporate governance and which could massively dilute shareholders while rewarding the top 5% of management for mediocre performance,” David Winters concluded.