Coca-Cola deserves protest vote one way or another

April 23, 2014

By Richard Beales
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Coca-Cola is set to face bubbling discontent at its annual shareholder meeting on Wednesday. Several shareholders, led by Wintergreen Advisers, object to the $180 billion drinks giant’s equity pay plan. Some, including pension funds from Ontario and Florida, want the chairman and chief executive jobs split. Nearly a quarter voted against top executives’ compensation last year. With the stock underperforming, it’s no wonder investors are grouchy.

The plan to renew and beef up the company’s share plan for 6,400 or so employees isn’t all bad. Many investors reckon senior-ranking people should own stock, and the details are laid out transparently. Its size, however, has raised eyebrows. Coca-Cola says if all awards under the plan proceed, existing shareholders would be diluted by more than 14 percent, a stake worth $25 billion at the company’s current market value. Buybacks and other factors reduce the figure, according to the company.

Part of the objection to such a big potential transfer of value is Coke’s track record. Its shares have lagged the S&P 500 Index this year and over 12 months, five years and 10 years. For seriously long-term investors, the stock price only fairly recently regained a peak level above $40 that had last been reached in 1998.

Albert Meyer, founder of investment fund Bastiat Capital, has calculated how Coke’s historical earnings and cash flow numbers would look had it paid employees a similar – even slightly higher – value in cash rather than options or stock granted under past plans. On average, he estimates little change for the past seven years, which stacks up well against other companies he has analyzed. A big difference, though, is an overhang of already-granted options and restricted stock at the end of 2013 that could cost more than $4 billion to mop up. A bigger equity plan will only increase what amounts to a liability to employees.

Meanwhile, the pay for Coca-Cola Chairman and Chief Executive Muhtar Kent, at $30.5 million for 2012, was one reason for last year’s protest vote against compensation. His package dipped to $20.4 million for 2013, but some shareholders still think Coke rewards executives too well. One helpful check might be to appoint an independent chairman. And with the pay of directors, top executives and equity recipients requiring some 50 pages to summarize, a vote against the new equity plan is another way to protest.

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