The Coca-Cola Company’s (KO) shares reached a 52-week high of $43.07 on Oct 3, soon after the cola giant announced the scaling back of its executive pay on Oct 1, succumbing to investor pressures.
In March this year, Wintergreen Advisers, an investment fund, had reportedly criticized Coca-Cola’s proposed 2014 management pay package as unreasonably high, at a time when the company was seeing declining revenues and profits.
David Winters, chief executive and founder of the investment fund, which owns a significant equity stake in the company, had then sent a letter to the board. It notified that the cola giant’s 2014 equity plan would transfer an unreasonable amount of wealth to its senior managers, leaving a “raw deal” for investors. The letter was also sent to fellow shareholder and investor, Warren Buffet, CEO of Berkshire Hathaway Inc. (BRK.B) — the largest shareholder of Coca-Cola.
Buffet had reportedly been urged to vote against the 2014 plan at the company’s annual meeting in April. Warren Buffet, however, reportedly abstained from voting for the plan even though he found it to be “excessive” due to his loyalty for the company. However, the plan was voted through by over 83% shareholders in the annual meeting.
In March it was rumored that the equity plan would have transferred roughly $13 billion to members of management over the next four years in the form of stock options and shares, leading to significant dilution of Coca-Cola shares.
Under its new guidelines, Coca-Cola’s 2014 equity plan will now provide employees fewer shares and stock options, and grant more performance-based awards and cash bonuses beginning in 2015. The new guidelines will extend the number of years the shares will last under the existing plan, “by using fewer shares each year”. The company also pledged to increase transparency about equity awards and formalize the share buyback programs to minimize dilution.
Maria Elena Lagomasino, heading the company’s Compensation Committee, said that shareholder concerns led to the changes in the compensation plan.
The jump in Coca-Cola’s share price indicates that shareholders seem to like the changes. However, some analysts believe the new guidelines may give rise to fresh criticism, questioning the authenticity of the shift to cash payments.
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Coca-Cola carries a Zacks Rank #3 (Hold). Better-ranked beverage stocks include Pepsico, Inc. (PEP) and Monster Beverage Corporation (MNST), both carrying a Zacks Rank #2 (Buy).
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