Coca Cola’s recently approved payment plan for the next four years has come under very public fire for its “excessive” compensation for executives. Indeed, that is the word Warren Buffett used to describe the plan. The head of Berkshire Hathaway came out last week decrying Coca-Cola’s pay plan, but in an interview with Fortune, he has somewhat backtracked on his statements criticizing the plan, and has defended his abstaining from the vote that took place approving the measure.
The payment plan’s biggest fault, according to critics, is that it will deliver $13 billion in equity to executives over four years. Some shareholders have come out angrily protesting such a plan they claim will take money from investors and put it in the pockets of Coke’s executives for little reason. David Winters, an investor in the company and hedge fund manager, has led the charge of critics, but the equity plan was approved anyway. It is worth noting that Buffett’s son voted to approve the plan as he also sits on Coke’s board.
Buffett’s remarks last week that criticized the pay plan earned him his own critics as Buffett had abstained from voting against the measure when it came time. But in his recent interview, he claims that abstaining sent enough of a message, and that it is considered a “loud voice” coming from Berkshire Hathaway in opposition to the plan. He also somewhat retracted his “excessive” call-out:
“I don't think it is out of whack with the value an outstanding executive could bring. If you run a multibillion-dollar company the difference between a 10 and an eight is huge in terms of value. I don't think it is out of line in terms of entertainers or sports figures. Still, almost on a voluntary basis, I think it should be somewhat restrained in some cases.”
Buffett appears to be shrugging his shoulders at the whole thing, suggesting that it is basically inevitable that conglomerates like Coke are going to overpay their executives, and there is little that shareholders — even investors as powerful as Buffett — can do about it. He also mentioned last week that, while he did think the plan is excessive, he has accepted the reality that boards are rarely the overpay watchdogs that they are supposed to be. This stance is in stark contrast to one he took years ago when he famously mentioned that large shareholders were the only ones who could minimize excessive company overpayment of executives.