A Question of What’s a Reasonable Reward

Earlier this month, Coca-Cola sent out its annual report and proxy statement to shareholders.

The red-and-white report was relatively predictable. Until you get to Page 85.

That’s the page that stopped an analyst for David Winters, a longtime money manager and founder of Wintergreen Advisers, in his tracks.

Doing a little quick math, he determined that the company planned to award stock worth about $13 billion to its senior managers over the next four years, based on the company’s current stock price. Getting out his calculator, his analyst estimated that between the proposed compensation plan and a previous plan, the company had allocated as much as $24 billion toward stock-based rewards for its senior people.

“I just couldn’t believe it,” said Mr. Winters, a longtime Coco-Cola shareholder with about 2.5 million of the company’s shares in his fund. “I was so stunned.”

So stunned that late on Friday, Mr. Winters sent a letter, which he released publicly, to Coca-Cola’s shareholders and its board. Coca-Cola has disputed some of his calculations, but Mr. Winters still says he sees the plan as excessive.

“We can find no reasonable basis for gifting management 14.2 percent of the share capital of Coca-Cola, worth $24 billion at today’s share price. No matter how well a management team performs, it is unfathomable that they would require such astronomical sums of money to provide motivation,” he wrote. “This compensation plan appears to place the economic well-being of management far ahead of the interests of the company’s owners.”

The compensation plan requires shareholder approval, so the company’s annual meeting could be a little carbonated.

Mr. Winters also sent a separate letter to one of Coke’s biggest and most influential investors, Warren E. Buffett, who controls 9.1 percent of the stock through Berkshire Hathaway’s holdings.

“You have often decried how excessive compensation is so difficult to rein in precisely because shareholders have no direct voice in the negotiation with management and because compensation committees are often comprised of lap dogs rather than Dobermans,” he wrote. “In this situation, with Berkshire as the largest shareholder of the company in question, you hold significant sway over the process.”

Mr. Buffett’s son Howard Buffett, whom his father has said will become the next chairman of Berkshire Hathaway if he ever retires, is on the board of Coca-Cola.

Mr. Winters, who is also a Berkshire Hathaway shareholder and a huge fan of Mr. Buffett, said he was dismayed by the proposed compensation plan because, “We want to own Coca-Cola forever” and that the compensation program “hurts the underlying investment case.” Despite knowing Mr. Buffett and several of the Coca-Cola’s board members personally, he said he felt a fiduciary duty to go public with his problems. “We can’t support this,” he said.

Coca-Cola, for its part, says Mr. Winters’s analysis “is misinformed and does not reflect the facts.”

It is hard to make an apples-to-apples comparison of Coca-Cola’s compensation program to its rivals, like Pepsi. Muhtar Kent, Coke’s chief executive, was paid $20.4 million last year, which was down 33 percent from the $30.5 million he was paid in 2012. In comparison, Indra Nooyi, PepsiCo’s chief, was paid about $12.6 million in 2013.

Coca-Cola said that the plan Mr. Winters criticized “is not limited to senior executives, but extends to a large group of employees and is important for incentive and retention. Approximately 6,400 were eligible in 2013. The amount of long-term equity compensation awards granted each year are within industry norms.”

If that is the case, each of Coca-Cola’s managers eligible would be entitled to, on average, a little more than $2 million each. Of course, the bonus money won’t be doled out equally.

In fairness, it is worth noting that Mr. Winters’s $13 billion and $24 billion figures are probably somewhat inflated. The calculation treats all shares â€" options and restricted shares â€" alike. Executives can cash in on options only if the stock price trades above the grant price.

Moreover, it is not likely that all of the current shares that Coca-Cola has allocated for compensation will be paid out. When an employee leaves the company, they forfeit restricted shares and options that had been granted to them. Those shares are included in Mr. Winters’s calculation.

Perhaps most important, Coca-Cola’s senior managers need to meet specific performance targets; if they don’t meet the targets, they don’t receive the shares. Mr. Kent, for instance, received 33 percent less in 2012 because the company didn’t meet its targets. That’s the way pay for performance is supposed to work.

A spokesman for Coca-Cola declined to comment beyond its public statement. Mr. Buffett also declined to comment.

Still, Mr. Winters argues that the compensation plan would dilute shareholders, whom he said had expected Coca-Cola’s share buyback program to make each share worth more, not less.

“By necessity, a large portion of the company’s growth in per-share earnings and value must come from shrinking the number of shares outstanding, so that each share is entitled to a larger share of the company’s profits. He wrote to the board, “Now instead of meaningfully reducing shares outstanding and growing value on a per-share basis, this share repurchase program will merely help to offset the new shares issued to management under the plan.”

According to Mr. Winters, Coca-Cola’s last compensation plan, in 2008, planned to issue 280 million shares, split-adjusted; the new proposed plan jumps to 340 million shares.

So, I asked Mr. Winters: How much should Coca-Cola pay its senior people? He paused for a moment. “I don’t know the answer,” he said. “But I know $24 billion is excessive.”

He added, “This is a 100-year-old company. They are the custodians of the secret formula.”

Then, perhaps pausing for effect, he said: “They should be well paid.” Just how well paid is up to shareholders.

Andrew Ross Sorkin is the editor at large of DealBook. Twitter: @andrewrsorkin