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Summary

  • Coca-Cola's equity compensation plan has been rebuffed by Warren Buffett.
  • In private talks, he's informed Coke management the plan is excessive and offered ways to reduce the plan's dilutive effects.
  • If a smaller plan comes to fruition, Buffett will have done right by shareholders, and himself.

Earlier this week, I complained not only about Coca-Cola's (NYSE:KO) equity compensation plan, but also about Coke's largest shareholder's reaction to the plan. In that article I described Berkshire Hathaway's (BRK.A, BRK.B) Warren Buffett as failing Coke shareholders due to his inaction at the company's annual shareholder meeting. At that meeting the company's ridiculous equity compensation plan received 83% of the vote, passing easily. Buffett said he didn't want to publicly disapprove of management and thus, didn't cast a vote at the meeting. I was very disappointed with this but news has broken that he may, in fact, be doing something about this issue.

Apparently, Buffett has been privately pressuring Coke management to reduce the plan's dilutive effects before they are implemented for 2015. Buffett has spoken to Muhtar Kent and his son, who sits on Coke's board, about the plan and his reservations regarding just how large it is. In the works are a reduction to the sheer size of the plan, reducing the number of options available to each employee, increasing the vesting period to something longer than four years and finally, increasing the number of performance units in relation to options granted.

Any of these moves would be terrific for Coke shareholders but in concert, would represent a win for investors. Coke's plan to dilute shareholders by up to 14% simply to pay its employees was eye-opening and unacceptable to many investors. As I said in my earlier article, I have no problem paying up for great talent but diluting shareholders of a $180 billion company by 14% is beyond comprehension given the amount of money at stake. These steps by Buffett are laying the groundwork for less excessive compensation in the future.

I do think it's kind of funny that Buffett thinks there is a difference between him simply voting against the measure and "privately" pressuring Coke management. Considering he is one of the richest men in the world and the most famous investor this country has to offer, little he does is actually private. I appreciate that he didn't want to rock the boat with management but voting against the measure would have been a more expeditious way to accomplish the same goal instead of his "private" talks with Kent. The fact is that he can't have private talks, particularly with Coke management, and by having these talks about the compensation plan, he is disapproving of management. Just because he didn't cast a vote as such doesn't change anything because he's still voting against the plan after the fact.

I love the move by Buffett to do what is right by Coke shareholders (and himself) because the plan, as laid out, is ridiculously excessive. I appreciate that someone is willing to step up to management and tell them to rethink what they are doing. And there is no one better to do so than Buffett because he is Coke's largest shareholder and, well, he's Warren Buffett. If this turns out to reduce Coke's compensation plan I will withdraw my previous view that he failed shareholders; but we'll wait and see first.

Source: Justice For Coca-Cola Shareholders