(Updates with buybacks in the 12th paragraph.)
April 23 (Bloomberg) -- Warren Buffett owes it to shareholders of his Berkshire Hathaway Inc. to vote against Coca-Cola Co.’s executive-compensation plan, said David Winters, a money manager who controls stakes in both companies.
Winters has waged a campaign since March to persuade investors to reject the soft-drink maker’s proposal, which comes to a vote today. The new plan, in addition to ones already enacted, could transfer $29.8 billion to the managers, he said. He wants the plan withdrawn, calling it a “raw deal.” Investors including the Ontario Teachers’ Pension Plan and Calvert Investments have sided with him.
Winters appealed directly to Buffett, who controls the biggest stake in Atlanta-based Coca-Cola and has criticized companies that offer lavish stock awards to managers. The billionaire chief executive officer used to be on the board of the world’s biggest soda maker, and his son is a director.
“His fiduciary duty is to all of the Berkshire shareholders,” Winters said of the billionaire in an interview yesterday. Buffett shouldn’t vote based on “any other extraneous factors.”
Winters said his letters to the Berkshire CEO on the matter have been met with “radio silence.” Buffett, 83, didn’t respond to a request for comment sent to an assistant. Petro Kacur, a spokesman for Coca-Cola, declined to comment on the stance of its largest shareholder.
“Irrational and excessive comp practices will not be materially changed by disclosure or by ‘independent’ comp committee members,” Buffett wrote in a 2007 letter. “Reform will only occur if the largest institutional shareholders -- it would only take a few -- demand a fresh look.” He has shunned handing out stock as compensation at his own company.
Buffett has rarely clashed in public with the managers of the businesses in which Omaha, Nebraska-based Berkshire owns stock. He described his equity-investing strategy as “passive” in a letter to shareholders this year.
Coca-Cola listed terms of the compensation plan last month in a proxy statement. Numbers in the filing show that the company could grant 340 million shares and options under the new proposal, according to calculations from Winters’s firm.
That would be in addition to the 388 million outstanding equity awards and 3.6 million additional “holdback shares” from prior plans. Coca-Cola said it granted long-term equity compensation to about 6,400 employees in 2013.
Winters calculates that existing shareholders will be diluted by 16.6 percent. That represented $29.8 billion of Coca- Cola’s market value as of yesterday’s close in New York.
“There’s no gray area,” said Winters, whose firm Wintergreen Advisers LLC held about 2.5 million shares of the soft-drink maker’s stock and 1.2 million Class B shares of Buffett’s company at the end of December. “It’s a bad plan. It’s bad for Coca-Cola. It’s bad for Berkshire.”
Coca-Cola said stock repurchases, including $4.8 billion of buybacks in 2013, cushion the dilution tied to employee awards. Dilution related to equity plans has been less than 1 percent annually over the past three years, “and is expected to be in this range going forward,” the company said in a presentation. Coca-Cola also said that the link of the pay to performance means that all the potential awards may not be earned.
The California Public Employees’ Retirement System, the biggest U.S. public pension, is among investors who have supported the equity plan.
Winters said he likes Coca-Cola because of the value of its brand and popularity of its namesake beverage. The soft-drink maker, led by CEO Muhtar Kent, has returned 120 percent over the last five years, including dividends. That compares with 148 percent for the Standard & Poor’s 500 Index.
The company said that its board “fully stands behind” the plan and that it links the interests of employees and shareholders. “The new proposal is consistent with prior equity plans and industry norms,” Coca-Cola said.
Alan Johnson, a managing director at compensation consultant Johnson Associates, said the compensation plan provides an incentive for employees.
“Would you rather them be paid in cash, which is gone today, or to be paid in some kind of stock or stock option, which is linked to the success of the company,” he said in a phone interview. “What Coke is saying is, ‘We allocate a lot of the pay we need to offer people in stock, and we think that’s a good idea.’”
Berkshire’s Coca-Cola holding has climbed more than 12-fold since Buffett began accumulating the stake in the 1980s. It’s now valued at $16.3 billion.
The annual meeting is scheduled to begin at 12:30 p.m. in Atlanta.
--With assistance from Duane D. Stanford in Atlanta.