David Winters (Once Again) Explains Opposition To KO Comp Plan
Source: Wintergreen Funds

Coke ‘hijacked’ shareholder buyback: Winters

David Winters, Wintergreen Advisers CEO shares his opinions on Coca-Cola’s compensation strategy. Winters believes the amount of shares issued to executives is excessive and Coke is hijacking its shareholder buyback program.


well, you know, again, if you focus on the facts, not sort of the shell game of information that the company has put out there, they’re trying to dilute — you know, again, from coe can cola numbers, the shareholders by 14.2%. if you do it in a more shareholder friendly calculation, it’s 16.6%. it’s a vast amount of money. the company isn’t doing that well. they say you’re taking that number out of context. i’m just going to very quickly summarize what they’ve said. they repurchase shares, which makes up for some of the dilution effect there. the plan dictates the employees who leave the company forfeit the equity compensation yet to be vested. because it’s tied to company performance, there’s no guarantee they’ll receive some of the compensation that you’re identifying right now. so there’s the context. well, there are a couple of points to this, bill. first of all, not that many people leave. you know, it’s a great deal to stay at the coca-cola company. they’ve moved actually the performance targets down. and, you know, the reality is that a huge portion of the company’s wealth is being transferred to management. now, the buyback program has been hijacked by the company. it was originally put in place to benefit all shareholders. increasingly, due to the size of the dilution, which we believe is massive, more and more of that buyback actually has to go to offset the dilution. so, you know, when you look at it realistically, there’s an awful lot of money being transferred from the shareholders’ pockets to management of a company that’s not growing very fast. it’s just not right. we think it’s wrong. david, to your point about growth and share performance, the company’s rebuttal is that it is tied to performance of the shares. and in fact, muhtra kent received 30% less in his total compensation last year because of the underperformance of coke shares. i know you question sort of the murkiness of those incentives, but there’s something to be said for that. that the management should be rewarded and not just management — more than 6,000 employees — for how well the share does. here’s the thing. it’s 5% of the employees getting this money. 5%. the other thing is that a big part of muhtar’s compensation — and we like muhtar. he’s a very personable fellow. i admire him. if you go to the proxy statement, a big piece of his comp is because the pension value declined last year. they’ve also given top management a lot more options. and options are rocket fuel. so the thing you really have to focus on is not the shell game but the magnitude, the huge amount of money that’s going from the shareholders to the management at a time that the company’s not doing that well and that the buyback program has been hijacked to slink this massive dilution or shrink part of it. david, are you disappointed in warren buffett with all of this? he doesn’t have a problem with this. well, he hasn’t commented. we don’t know whether he has a problem or not. we’re huge warren buffett fans. we own shares in berkshire. i think buffett has been very open over the years that excess compensation is a bad thing. and when you look at the amount of money that is being transferred from the owners of the company to the management, it’s just — it’s mind bogglingly huge. david, what’s under dispute

Coca-Cola responds to David Winters

Gloria Bowden, Coca-Cola associate general counsel, responds to investor David Winters public campaign protesting Coke’s compensation plan. Winters says the plan dilutes shareholder value and rewards Coca-Cola management.


well, i think there’s been a lot of misconceptions out there about this plan and a lot of the numbers out there are really just plain wrong. and i think it’s important to ly step back and think about the reasons we have this plan. we’ve been granting equity awards to you our employees for years at the coca-cola company and this plan does nothing to change the equity practices that we’ve had in the past. you know, a plan is just a vehicle. it’s just a way to deliver equity awards. so, this new plan allows us the ability to continue to grant equity awards in exactly the same way as we have in the past. one of the argument against that and why he says this is, in fact, new and different is that you’re issuing more shares at a lower base. and, therefore, the dilution is greater. yeah. actually, the real dilution over the last three years has been less than 1% a year and we expect it to be in that range going forward. this plan actually is very much in line with the plans that we have put forward to shareholders in the past and that have had shareholder approval. one of the numbers getting a lot of attention from mr. winters, he says he calculates over the next four years you would dilute existing shareholders 14% to 16%. we’re talking $26 billion to $28 billion op of cokes existing shares. you debate that number? we do. when you start with dilution you can start with a number but there are many things thatave to be deducted from that number. things, for example, awards that would be forfeited, shares that are repurchased with employee proceeds from stock options, those things have to be deducted from that number, so we know it will not be that number. the real number on dilution is much more in line with past practices and historical practices which has been less than 1% per year. another one of your arguments has been this is very much performance based. it depends on what happens with the stock. how do you define those incentives for members of management? wow, there’s a number of first of all, a lot of these ways. awards are very dependent on stock price. our investors really like that because management doesn’t get paid unless the company performs and unless our investors get an additional return on theirs. and in addition our performance shares are based on economic profit. and that’s a great metric that we have disclosed very broadly in our proxy even the exact targets are in our proxy statement, we’re a leader in disclosure around that. i know it is performance based. last year the ceo and chairman actually made 30% less than he made the previous year. i think we have the number. made about $20 million for the year. but then if you look at it versus other industry executives, for instance, the ceo of pepsico made $12.6 million. how do you explain that gap for those who would

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