The Coca-Cola Company announced yesterday that its compensation committee has adopted what it calls Equity Stewardship Guidelines for its new 2014 Equity Plan, which was approved by the stockholders at its April annual meeting. In addition to being yet another interesting development in the company’s ongoing battle with some investors over the 2014 plan, this move is a creative response to stockholder concerns about executive compensation. And with proxy season around the corner, it also gives companies with similar plans or issues something to think about as they prepare their proxy disclosures.

Coca-Cola’s Equity Plan Saga.

In April, Coca-Cola’s board proposed a new long-term equity incentive plan. Almost immediately, David Winters, the CEO of Wintergreen Advisors, objected to the plan, claiming that it was excessive and unfairly dilutive to the stockholders. After considerable back and forth in the media, including two supplemental proxy material filings by Coca-Cola and comments from Warren Buffet, whose Berkshire Hathaway is a major stockholder and whose son is on Coca-Cola’s board of directors, the plan passed with the affirmative vote of 83% of the shares voted (constituting 49% of the shares outstanding).

But the story did not end there. Mr. Buffet disclosed that Berkshire Hathaway abstained from voting its shares because he did not want to publically express disapproval of the company’s management. Later SEC filings by a host of major investment and pension funds indicated that they voted against the plan. These developments called into question the level of support for the plan among the company’s largest investors and spurred another round of communiques from Mr. Winters and media coverage.

On October 1st, Coca-Cola announced its new Guidelines by issuing a press release and, interestingly, posting them on its Unbottled blog.

The New Guidelines.

The Guidelines state that the company will:

• Manage grants under the 2014 plan to a specified annual burn rate so that the shares authorized under the plan will last for its full ten-year term,
• Disclose in its proxy statement each year the actual dilution, burn rate and overhang for all existing equity plans,
• Use 100% of proceeds from option exercises to repurchase shares in order to minimize dilution, and
• Encourage open dialogue with stockholders regarding equity compensation.

Takeaways.

Without getting into the renewed back and forth between Coca-Cola and its stockholders regarding the extent to which this amends the operation of the plan or constitutes an admission by Coca-Cola that the plan was flawed, it is worth noting that the battle over equity compensation does not end with the annual meeting. For some companies, compensation is a year-round issue, calling for careful stockholder engagement and management of the company’s compensation message. (See this Doug’s Note.)

It is also worth considering whether the type of information addressed in Coca-Cola’s Guidelines and to be included in its proxy statements in the future would be useful disclosure for other companies, particularly those with a history of activist investors and executive compensation issues.