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UPDATE 3-Coca-Cola, bowing to pressure, amends employee equity plan
October 1, 2014 / 2:32 PM / 3 years ago

UPDATE 3-Coca-Cola, bowing to pressure, amends employee equity plan

(Adds comments from David Winters and CalSTRS)

By Anjali Athavaley and and Devika Krishna Kumar

Oct 1 (Reuters) - Coca-Cola Co, facing criticism from Warren Buffett and other investors for its outsized employee share rewards, said it had adopted new guidelines that will limit its executive compensation plan starting next year.

The company said its new guidelines would facilitate a shift towards performance shares and cash awards and be less heavily weighted toward stock options. Coke said it decided to amend its plan based on shareholder input and the move would minimize dilution to shareholders.

Coca-Cola shares were up 13 cents to $42.79 in late afternoon trading on the New York Stock Exchange.

"We heard positive feedback, not so positive feedback, and everything in between," said Maria Elena Lagomasino, chair of Coke's compensation committee, in a letter to shareholders posted on the company's blog. "We know that not all of our shareowners agree on every issue, especially on a topic like equity compensation where views can vary greatly."

About 83.16 percent of shareholders voted for the company's 2014 equity plan when it came up for renewal in April, according to a Coca-Cola filing following the company's annual meeting.

However, the approval figure included a significant number of shareholders who had abstained from the vote, according to Reuters calculations.

Buffett, whose Berkshire Hathaway Inc holds 9.1 percent of Coca-Cola and is the company's biggest shareholder, was among those who abstained.

The billionaire said in an interview with Bloomberg that while he considered the plan to be "excessive" he did not vote against it out of loyalty to the company. (bloom.bg/YU1bnP)

The most vocal critic of the company's equity plan has been Wintergreen Advisers, which owns less than 1 percent of Coca-Cola on behalf of clients. It says the plan greatly diluted the holdings of current shareholders.

"We think this is a major capitulation by the Coca-Cola Co.," said Wintergreen Chief Executive David Winters in an interview Wednesday. He said, of the new guidelines, "we think the announcement is vague, and that we have a lot of questions which hopefully, they're going to answer."

Winters said that until he saw more details of the plan, he couldn't agree that it was less dilutive to shareholders. "Furthermore, it appears they want to pay out a lot more cash, and cash comes out of shareholders' profits," he said.

Wintergreen said in September that proxy filings with the Securities and Exchange Commission showed that funds managed by State Street, Fidelity and Capital Group voted against the plan.

But another shareholder applauded the move by Coke. "Clearly communicating to the market how the company plans to use its equity is always a positive move as CalSTRS sees things," said Ricardo Duran, spokesman for the California State Teachers' Retirement System, the second largest U.S. pension fund.

Under the new guidelines, Coke's compensation committee will limit the grants under the equity plan to an annual "burn rate" of no more than 0.8 percent in 2015. The burn rate refers to the number of shares granted as a percentage of outstanding shares.

Coca-Cola said it expected shares authorized under the equity plan to last the full term of 10 years.

Reporting by Devika Krishna Kumar in Bangalore and Anjali Athavaley in New York; Editing by Simon Jennings, Ted Kerr and Andrew Hay

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