The Coca-Cola Company (NYSE:KO) management today announced a change of course in their controversial management compensation package, citing “shareholder engagement” at multiple points in the news release as a consideration. Such “shareholder engagement” to which the company coyly refers was said to be a conversation with Warren Buffett.
Coca-Cola ‘s decision influenced by Warren Buffett?
When asked about the motivation for changing their executive management compensation package, the source of a year-long, intense fight, The Coca-Cola Company (NYSE:KO) was transparent in their comments. “The Company listened carefully to shareowners, including Warren Buffett,” Coke said in an email to ValueWalk.
The new management plan was publically announced, a key component was missing. The company announced the new plan without releasing any public discussion on the issue – or revealing a board of directors vote. Key decisions that earlier had required a board of directors vote appear to be kept behind the scenes. Coca-Cola responded to this by acknowledging “The final decision on adopting the Guidelines was made and approved by the Compensation Committee and supported by the full Board.” It is unclear if deliberations of that decision will be made public.
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy, have produced a 12.6% annualised return over the past 26 years. The funds added 7.7% overall in the second half of 2022, outperforming the 3.4% return for Read More
Warren Buffett was a key component in the fight over the Coca-Cola management proposed compensation package. He had indicated in a CNBC interview he was uncomfortable with the package, but abstained from voting against it — a move that drew criticism from activists who felt if there is something wrong it should be addressed, not pushed under the rug.
Coca-Cola mentions compensation more than in previous news release
Some of the activist points that were said to be generally acknowledged as valid points by hedge fund insiders appear to be addressed. The plan has increased transparency regarding equity awards, investor dilution appears to be reduced and fewer shares will be issued as rewards, the The Coca-Cola Company (NYSE:KO) statement read. It ended the paragraph description of how it was changing its ways by pledging to “renew commitments to continue an open dialogue with shareowners on compensation matters,” a topic that was mentioned more than any other in the news release.
“Shareowner engagement has produced positive results for our Company on a variety of fronts, including on compensation matters,” said Maria Elena Lagomasino, Chair of the Company’s Compensation Committee. “Shareowner 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 shareowners.”
Behind the scenes, sources indicate that “shareholder engagement” took place at a high level to persuade Coke to end what was widely considered among hedge fund investors who spoke to ValueWalk to be an overreaching and aggressive compensation package. The real issue was the extent to which Coke management benefited without delivering much growth or performance.
“It’s not like The Coca-Cola Company (NYSE:KO) was a high-tech growth stock,” hedge fund manager David Winters once told ValueWalk. It was Winter’s “reluctant activist” hedge fund, Wintergreen Advisors, that approached Coke behind the scenes to encourage a less aggressive compensation plan, one more tied to the interests of shareholders.
Muhtar Kent on Coke’s redesigned management compensation plan
In a statement, Muhtar Kent, the powerful chairman and chief executive officer at Coke, acknowledged what was said to be a major behind the scenes point of discussion. Kent said the revised management compensation plan was designed to “further align compensation to the long-term interests of shareowners.”
The Coca-Cola Company (NYSE:KO) says that their compensation has always been aligned with shareholder interests. “Long-term equity compensation has always been tied to shareowner interests and will continue to be so under these Guidelines,” Petro Kacur, Media Relations Director for Coke, said in an e-mail to ValueWalk. “Beginning in 2015, performance metrics applied to long-term awards will provide a more balanced approach to incentives, increase alignment with local operations and pay for results that employees can more directly influence.”
For Winters a long battle appears to have won. The campaign Winter’s organized was interesting in that it didn’t outwardly hit Coke or its board of directors below the belt. Many activist campaigns are documented to terrorize the board of directors with social consequences that is construed in some circles as reputational blackmail. For his part, Winters never attacked the ethics or smear the individual reputation of The Coca-Cola Company (NYSE:KO) management.
It is unclear at this time what exactly motivated The Coca-Cola Company (NYSE:KO) to change course on the topic. Winters is documented to have engaged in an outreach campaign to Coke’s top institutional shareholders. Some of these efforts were made public, but many of the behind the scenes conversations were in a more frank and open tone.