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Coke and investor spar over 2014 compensation plan

A woman walks past a Coca-Cola truck truck at a distribution center in Alexandria, Virginia October 16, 2012. REUTERS/Kevin Lamarque
A woman walks past a Coca-Cola truck truck at a distribution center in Alexandria, Virginia October 16, 2012. REUTERS/Kevin Lamarque

By Lisa Baertlein

LOS ANGELES (Reuters) - Wintergreen Advisers, which says it owns more than 2.5 million shares of Coca-Cola Co on behalf of clients, on Thursday intensified its critique of the proposed 2014 equity compensation plan of the world's biggest soda maker.

David Winters, the chief executive officer of Wintergreen, outlined his concerns with the compensation plan late last month in letters to Coca-Cola's directors and investors, including Warren Buffett, CEO of Berkshire Hathaway Inc , which is Coca-Cola's largest shareholder.

In those letters, Winters characterized the plan as "an unnecessarily large transfer of wealth from Coca-Cola's shareholders to members of the company's management team."

He is urging the company's board to yank the plan and replace it with a different one.

On Thursday, Winters took his argument to CNBC, saying that the company's stock-buyback program aimed at improving investor returns "has been hijacked by the company."

Coca-Cola said on Thursday that the proposed equity compensation plan is not just for senior management. About 6,400 employees participate in the plan globally.

Winters "continues to overstate the dilutive impact of the plan," Coca-Cola said in an emailed statement.

The skirmish comes after Coca-Cola reported 2013 volume and revenue that fell short of internal expectations. U.S. soda sales fell for the ninth straight year in 2013.

PERFORMANCE PAY VS PROFITS

At the heart of the dispute is a compensation plan that would include 500 million shares, including stock options and performance share units.

Stock options would account for 300 million of those shares and 40 million would be so-called performance share units, or PSUs, which are only awarded if certain profit and other financial goals are met. Each PSU would count as five shares under the plan.

Winters said that the new plan, when combined with equity awards from existing plans, could result in dilution of 14.2 percent or more.

On Thursday, he told CNBC that Coca-Cola also moved its performance targets down.

Winters has dubbed the plan "grossly outsized for a company with earnings growth in the single digits" and "a bad precedent for corporate America."

In its proxy filed in early March, Coca-Cola disclosed that the plan's potential dilution could be 14.2 percent if performance targets were met and all awards were earned.

In that filing, Coca-Cola also said that the decrease in its targets for the 2012 through 2014 PSU award and the 2013 through 2015 PSU award was due to the projected negative impact of currency exchange and the expectation of a more challenging macroeconomic environment over the three-year performance periods.

"If the company does not perform, no compensation is realized," Coca-Cola said in its statement.

All PSUs for the 2011 through 2013 period were forfeited because the company did not meet its targets and PSUs for 2012 through 2014 are not on track to be paid out, Coca-Cola said.

"Actual dilution related to existing equity plans over the last three years has been less than 1 percent per year and is expected to be in this range going forward," the company said.

(Edited by Ronald Grover and Jan Paschal)

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