Wintergreen Advisers owns 2.5m+ shares on behalf of clients in the The Coca-Cola Company, and CEO Winters (below, first photo) wrote to the firm’s board last Friday, as well as Warren Buffet, whose Berkshire Hathaway conglomerate is the largest Coke stockholder with 9.1%, attacking the remuneration proposal.
Winters warns that the plan, outlined in Coke’s 2014 proxy statement, would significantly erode the per-share value of Coke shares (4.4bn are outstanding today), by an estimated 14.2% - by handing management, led by CEO and chair Muhtar Kent (seated, below) a mix of 60% options and 40% shares.
‘Staggering transfer of value’ under fire
Winters says this will result in the issuance of 340m new shares – worth a staggering $13bn.
“In effect, the board is asking shareholders for approval to transfer approximately $13bn from all of our pockets to the company’s management over the next four years,” Winters writes.
Combined with awards from previous compensation plans this figure rises to $24bn, he adds.
“This is a staggering transfer of value from shareholders to management. Shareholders are, in effect, being asked to give Coca-Cola management…14.2% of the company,” Winters says.
“These billions of dollars given to management will come at the sole expense of the many teachers, nurses, federal and state government employees, and union members, who have invested their hard-earned saving in Coca-Cola shares, either directly or through pensions and mutual funds.”
At a time when Coke faces slowing growth in sales and profit, Winters insists it is not in the interest of shareholders to compound company headwinds by diluting the value of their holdings.
'Winters is misinformed' - Coke fires back
But the company hit back today in a statement sent to BeverageDaily.com: "The recent statement by Mr. Winters about our 2014 Equity Plan is misinformed and does not reflect the facts," a spokesperson said.
"The long-term equity compensation program is tied directly to the achievement of specific business goals and the financial health of the Company. Therefore, if the Company does not meet these goals, these awards are not earned. This pay-for-performance philosophy has been a consistent cornerstone of the program through the years and remains unchanged.
"The board fully stands behind the Company’s compensation program and believes this plan incorporates performance metrics that link the interests of employees to those of Company shareowners," it added.
Winters states in his letter that Coca-Cola is a "mature business in a low-growth industry…a large portion of the company’s growth in per-share earnings and value must come from shrinking the number of shares outstanding, so each share is entitled to a larger share of company profits".
“Rather than shrinking the number of slices in the pie and increasing the size of each of our slices, management wants to take a $13bn bite out of the pie at the expense of all shareholders,” he adds.
“It not seems that the company’s executives are more interested in increasing the value of their own accounts, with shareholders footing the bill.”
In a separate letter to Buffet urging Berkshire Hathaway to vote down the deal, Winters also notes the proposed plan allows the Coca-Cola Compensation Committee to exclude write-downs, impairments and other extraordinary items when assessing executive pay levels.
“They can, in effect, move the goal posts closer once the ball is in the air,” he added.
'The facts are as follows' - Coca-Cola
But expanding on its statement above, The Coca-Cola Company said that "contrary to the statements of Mr Winters, the facts are as follows":
- The proposed 2014 Equity Plan will not change the Company’s long-term equity compensation practices. The plan is not limited to senior executives, but extends to a large group of employees and is important for incentive and retention. Approximately 6,400 were eligible in 2013. The amount of long-term equity compensation awards granted each year are within industry norms.
- We repurchase significantly more stock than what is related to grants under our equity plan, so that shareholders receive significant value. Share repurchases in 2013 totaled $4.8bn, and in 2012, $4.5bn. Of these amounts $1.3bn and $1.4bn respectively, were related to equity plan activity. We plan to continue that practice.
- As noted in the proxy, actual dilution is anticipated to be less than the potential calculations as they do not take into account the impact of the share repurchase program and any equity awards under existing plans that are not earned or are cancelled, terminated or forfeited.
- The 2014 Equity Plan incorporates a number of “best practice” and shareowner friendly provisions, such as no re-pricing of stock options, no liberal share counting and “double-trigger” change in control vesting.
(Photo of Muhtar Kent: Stefen Chow/Fortune Global Forum)