Coca-Cola Co. said Wednesday that it will scale back
its executive-compensation plan before it goes into effect next year,
responding to pressure from billionaire investor Warren Buffett and
other shareholders who criticized the equity awards as excessive. The
revised equity compensation plan will issue fewer shares to management overall
and replace equity awards for lower-level executives with cash bonuses. It will
also replace stock options with performance-share units as the predominant form
of long-term equity compensation.
The Atlanta-based beverage giant is scrambling to pacify
investors impatient with the company's recent performance after it failed to
meet its revenue growth targets last year, pulled down by weak soda sales in
the U.S. and elsewhere.
Some shareholders also have criticized the
equity-compensation plan, which passed easily at the company's annual
shareholder meeting in April with 83% of votes cast in favor. But "yes''
votes represented just under half of outstanding shares, after including
abstentions and non-votes, and some major shareholders voted against the
proposal.
Mr. Buffett abstained but spoke out publicly against
the equity pay plan after the vote, calling it "excessive.'' Mr. Buffett's
conglomerate, Berkshire Hathaway Inc., is Coke's largest
shareholder with 9% of the company's stock. The powerful investor has
frequently criticized pay plans that rely heavily on stock options as
"lottery tickets'' that often generate outsized rewards.
Coke said the majority of employees will begin receiving
long-term incentives as performance cash awards in 2015. For executives who
remain eligible for equity awards, two thirds will be performance-share units
and one third will be stock options by 2016. April's plan had called for 60% in
options and 40% in performance-share units. Performance-share units are a form
of stock in which individuals earn shares based on a certain performance
measure.
Equity grants will also have an annual "burn rate'' of
no more than 0.8% in 2015 and an average of 0.4% for the remainder of the
10-year plan. That compares with 1.7% so far in 2014. Burn rates refer to the
number of shares granted as a percentage of outstanding shares.
Mr. Buffett spoke with Coke Chief Executive and Chairman Muhtar
Kent several times this year about his concerns. But Coke directors also
want to make sure that top executives have enough incentives to keep top talent
at the company.
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