The proxy statements filed by public companies prior to their annual meetings are not always interesting to read. But Coca-Cola’s (KO) has caught my attention, thanks to some diligent work by David Winters of Wintergreen Advisers, LLC. Like many companies, KO is putting its compensation plan up for a non-binding shareholder vote. However, it turns out that when you wade through the various elements of Annual Incentive Compensation, stock options, Performance Share Units and Restricted Stock, the company has estimated that as much as 500 million shares of KO could transfer from the owners to management depending on meeting various performance metrics. The potential dilution could be as much as 14.2% according to KO’s own documents, some $24BN of value based on its current market capitalization. In 2013, 6,400 employees received some type of long term equity compensation, so this amounts to just under $3.8 million per eligible employee.

What makes this even more staggering is that Berkshire Hathaway (BRK) is the largest shareholder in KO and one would imagine that Warren Buffett’s support of owner-oriented corporate governance would have been more fully reflected in this plan. Perhaps he was unaware of the details, but it looks like a shocking attempt to unreasonably enrich KO’s management.

The details listed above are not prominently featured; KO’s proxy statement that was mailed to shareholders omits the pertinent facts listed above. For those you have to go to the electronic filing and read the supplemental information, something I was only prompted to do by Mr. Winters raising the issue.

An interesting sidebar from my perspective is that the Compensation Committee is chaired by Maria Elena Lagomasino, fondly known as “Mel” (her initials) when she ran the Private Bank catering to Chase Manhattan’s wealthy clients (prior to its merger with JPMorgan). I didn’t work closely with Mel, but she was generally well liked and respected by those that knew her. Sadly, Mel’s judgment in overseeing the development of this plan has come up short. Perhaps she’s trying to create a whole new class of high net worth clients among the ranks of KO’s senior management. 

We are shareholders in KO and BRK (as is Wintergreen Advisers). My faith in the judgment of KO’s management is somewhat shaken by this plan. They note that only 77% of shareholders voted in favor of the 2013 compensation plan last year, and incredibly this 2014 plan was drawn up as a shareholder-oriented response to last year’s low approval rating. We find the 2014 plan an egregious and unnecessary transfer of shareholder wealth to management, and shall be voting against its adoption. We’re interested to hear what Warren Buffett thinks.

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