Why is a conservative, shareholder-friendly, all-American company like Coca-Cola trying to dilute shareholders by 14.2 percent in order to enrich 6,400 members of senior management? And why is one of its biggest shareholders, Berkshire Hathaway CEO Warren Buffett, a long-time critic of executive compensation, silent about a proposed stock plan that Wintergreen CEO David Winters calls a "big grab?"
The move is as uncharacteristic of Coke as is the silence of Buffett. "Coca-Cola said we were misinformed, but it's all on page 86 [of the the company's proxy filing]," Winters said today in an interview with FA News.
Coca-Cola's new stock option plan vests over four years and pays top executives $24 billion in option grants.The soft drink maker's old plan vested over six years and gave management $280 million in options. The company's market capitalization is about $170 billion.
Companies with giant stock option programs are typically technology or biotech concerns where human capital is critical and expensive. "[Coke] is a 100-year plus company. The employees are essentially custodians of the secret formula," Winters said. "Nothing is radically new except that management wanted to dramatically increase compensation and shorten the vesting formula."
Winters, who says he has owned Coca-Cola shares forever, notes that the company's stock hasn't performed well recently. Its key businesses face serious headwinds as global concerns about obesity mount. Mexico recently imposed a special tax on soft drinks and U.S. politicians like former New York City Mayor Michael Bloomberg have tried to ban big-gulp soda bottles. "To seriously dilute your investors [at this time] doesn't help," he added.
Coca-Cola is even stumbling when it comes to some of the basic tasks of business execution, an area where it was once considered superb. It recently was forced to pull its Coke and Diet Coke slurpees off the market only one month after they were rolled out due to refrigeration problems.
Winters is also miffed by Buffett's silence. "Buffett has always been very vocal about executive pay. This seems inconsistent with what he has written for years and years."
Winters says he can't figure out the reason behind what he calls Coke's "big grab." Are they so worried about the future of the soft drink business that they want to take the money and run? Or do they think that when emerging markets fully recover Coke's sales will surge? Winters candidly admits he doesn't know why they are doling out options like a company that is fearful of losing its top biochemical engineers or software code writers..
Coke is one of America's most widely owned stocks and it is held by millions of ordinary Americans and most institutions. The "big grab" comes at a time when concerns about wealth disparity and income inequality have become major political issues, and Winters wonders why Coke would want to pour gasoline on the fire and inflame the debate.
Moreover, Coke shares are heavily owned by many of its employees, vendors and suppliers in labyrynthian food chain. Like outside investors, they have been excluded from the select 6,400.
As a global value investor, Winters has 20 percent of his fund's assets in Switzerland and none in the European Union nations. "Switzerland has seven or eight million people and they are apolitical," he said. "They love to do business with everyone."
Swiss companies like Nestle are "conservative, focused on the long term and they don't dilute their shareholders by 14.2 percent," he said.
