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 look at that and say he’s paid way more than the industry average? right, sara, what’s important to know that a lot of the numbers in our proxy statement are what we call potential compensation. they are compensation and a person could realize if and only if our company performs. let me give you an example. we had performance shares coming due last year but because we did not meet a very challenging internal target that we had set, those shares are paying out at zero. so, when we reported that in the proxy statement several years ago that was reported at a potential of $5.6 million for the ceo. the actual payout is going to be zero.
David Winters’ fight with Coca-Cola
Activist investor David Winters is questioning the dual chairman and CEO role of Coca-Cola’s Muhtar Kent. CNBC’s Sara Eisen reports.
certainly, david winters upping the ante in his fight against coca-cola’s proposed pay plan. he’s questioning the ceo’s role as chairman of the board, the dual role. winters is wondering whether it’s a good thing for shareholders to have the ceo actually leading the board as well in light of mr. winters’ claims that coke’s equity plan is, quote, one of the most outrageous grabs of shareholder wealth in the history of commerce. that was a quote that he mentioned earlier on a webcast that he held on the topic this afternoon. coke fired back immediately defending kent’s dual role saying our board is satisfied that combining the roles of chairman and ceo has served our shareholders well over time. we’ll continue to do so making the point that coke is enormous, it operates it more than 200 countries and it’s an important thing to have the ceo and the chairman represented with a single voice for the bottlers, for the consumers, for the customers, and for the shareholders. if you haven’t been following this back and forth, winters has been calling on shareholders to vote against the equity plan at the april 23rd annual meeting. he sent a series of leaders to coke’s board, to warren buffett, the largest shareholder, and to other shareholders saying that it dilutes the shareholders and excessively rewards management. coke completely disputes his math, calls it misinformed, says it does not reflect the facts that he’s overstating the delieu tiff impact of the plan. where this goes from here, david winters owns about 2.5 million shares of coke. it’s less than a percent. he says he’s in it for the long haul but certainly not backing down from this fight on executive comp. in fact, escalating it here, kelly, ahead of the meeting.
David Winters questions Muhtar Kent’s role at Coca-Cola
CNBC’s Sara Eisen reports David Winters of Wintergreen, who owns 2.5 million shares of Coca-Cola, is questioning the dual role of Muhtar Kent being chairman and CEO of Coke.
welcome back to power lunch. i’ve got some breaking news here on coca cola. got just off the phone with david winters, owns two and a half million shares of coca cola. he is questioning the dual role of the chairman and ceo of coca cola. he is angry about the compensation plan to be voted on at the next shareholders’ meeting andupped the ante, questioning the dual role. coca cola says our board is satisfied that combining the roles of chairman and ceo has served our shareholders well over time and will continue to do so. just looking at coke shares, pretty much unchanged from the latest between david winters and coca cola. back to you guys.