Warren Buffett calls out Coke’s ‘excessive’ executive pay plan

Some investors believe that the equity plan will take billions of dollars from shareholders

Nearly one month after the initial dispute rang out between shareholders of The Coca Cola Company and the company’s executives over executive pay, Warren Buffett has come out criticizing the plan. 

The equity plan — passed on April 23 without Buffett’s vote — has been decried by shareholders as a way for executives to make money by doing nothing. David Winters, an investor in Coca Cola and a hedge fund manager, led the way for angry investors to claim that the plan will erode the share value of Coca Cola’s shares, and it will dilute the value that belongs to existing shareholders over time by 14.2 percent. The plan is one based in equity investment, and will award executives around $13 billion over four years — $13 billion that Winters and others claim will be unfairly taken from shareholders.

Buffett’s insurance company, Berkshire Hathaway, is one of the largest owners of Coke’s stock, according to CNN. But, despite Buffett’s calling out of the compensation plan as “excessive,” his no-vote provides little backing for his words. CNN’s interview with Buffett quoted him as unsurprised as Coca Cola’s board voted to approve the compensation plan for executives. He said that boards — which should be pay watchdogs — usually are not: "The [compensation committee] comes in and say here's what we did, and they don't give you any details it's just an overall. And does anyone stand up and say no no I object? I have never seen it happen.”

Coke’s people have responded to Buffett’s disapproval: "The Coca-Cola Company Board respects Mr. Buffett's philosophical stance on equity-based compensation. As our largest shareowner, Mr. Buffett is an avid supporter of the Company and its management team, and has been a wonderful counselor through the years.”

The horse is out of the barn now with the approval of the company’s executive pay plan, whether or not it is fair to shareholders. So investors like Winters seem to be out of luck, but the pay system certainly did not go into motion without some very public criticism.

 

Further reading:

 

Directors, investors diverge on executive pay

NACD releases framework to define supplemental executive compensation

Is Intel’s executive compensation shift really a ‘cultural change’?

Contributing Author

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Juliana Kenny

Juliana Kenny is a contributor to InsideCounsel.com, covering a range of topics including patent litigation, conflict mineral laws, executive compensation, and antitrust regulation. Juliana earned B.A.s...

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