Wintergreen Advisers today issued a report on The Coca-Cola Company’s
(NYSE:KO) 2015 Proxy Statement.
David J. Winters, CEO of Wintergreen Advisers, said: “While there has
been progress in some areas at Coca-Cola, the board continues to give
Muhtar Kent and his team excessive rewards, and we question whether many
Coca-Cola directors are able to vigorously act for all shareholders
given their overlapping business interests.”
“Meanwhile, Coca-Cola lags behind while other consumer brands like Heinz
and Kraft pursue bold restructurings. Coca-Cola’s board and management
lack a sense of urgency to address Coca-Cola’s problems and increase
shareholder value. There are three big questions around Coca-Cola,”
Winters said:
“What is keeping Coca-Cola from carrying out transformative strategies
like those implemented at Heinz and planned for Kraft?”
“Why
does this management continue to receive excessive compensation while
missing the performance targets set by the board?”
“When will
the board act to correct this situation?”
Liz Cohernour, Chief Operating Officer of Wintergreen, said:
“Wintergreen plans to vote against Coca-Cola’s directors because we
believe they have not exhibited the leadership and independence needed
to restore shareholder confidence and return the company to profitable
growth. We urge Coca-Cola shareholders to carefully consider these
issues.”
The report notes that a year ago Wintergreen brought attention to what
it saw as serious pay and governance problems at The Coca-Cola Company,
beginning with a proposed equity compensation plan it called “Coke’s Big
Grab” for its potential for whopping payouts to management. Coca-Cola
later said it would curtail the plan.
This year, the Wintergreen report notes, Coca-Cola’s proxy statement
contains better disclosure than a year ago regarding the value of equity
incentive compensation and required performance hurdles for management.
Importantly, it shows Coca-Cola did not issue secret bonus shares – the
much-criticized stock awards granted without criteria. However, the
proxy statement shows Coca-Cola is falling short in other important
areas.
Wintergreen believes the Coca-Cola 2015 Proxy Statement:
-
Contains a misleading characterization of CEO Muhtar Kent’s pay.
Coca-Cola’s proxy statement says Muhtar Kent “respectfully declined”
his annual incentive award, suggesting he took a meaningful pay cut.
In fact, the board increased his stock and option awards, making his
total pay about even with 2014.
-
Shows missed performance targets that were apparently overlooked when
awarding pay for top managers. Coca-Cola managers failed to meet two
out of three of their annual performance targets, and met only the
very bottom end of the third.
-
Lowers performance hurdles for management in 2015 versus 2014.
Coca-Cola’s management not only failed to meet its performance targets
in 2014, but the 2015 proxy shows the Coca-Cola board has lowered the
2015 performance bar for the coming year, making it easier for
management to earn their annual bonuses.
-
Understates the dilutive effect of Coca-Cola’s equity compensation
awards. Coca-Cola touts a figure of “$4.2 billion in gross share
repurchases” on two different locations in their 2015 proxy statement,
when in fact, net of dilution from equity compensation, buybacks were
only $2.6 billion in 2014. Similarly, the company says it repurchased
98 million shares in 2014, but its shares outstanding only declined by
36 million because of the dilutive effects of equity compensation.
-
Raises questions about the directors’ ability to be forceful advocates
for all shareholders. Many board members have overlapping business
interests, and several have business ties with investment bank Allen &
Co. - whose CEO is Coca-Cola director Herbert Allen. Wintergreen
believes these business ties can make the board an insular club rather
than a vigilant protector of shareholders’ interests.
The Wintergreen report is available at: http://www.wintergreenadvisers.com
About Wintergreen Advisers
Established in 2005, Wintergreen is an independent global money manager
that employs a research-driven value style in managing global
securities. As of March 31, 2015, Wintergreen Advisers had approximately
$1.5 billion under management on behalf of individuals and institutions
through its mutual fund and other clients, and is based in Mountain
Lakes, New Jersey. For further information on Wintergreen Advisers,
please visit www.wintergreenadvisers.com.
Additional information regarding Wintergreen’s views on the issues at
The Coca-Cola Company may be found at www.FixBigSoda.com.
For information, forms and documents regarding Wintergreen’s U.S. mutual
fund, please visit www.wintergreenfund.com.
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