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Investor criticizes Coca-Cola management's compensation

Are Coca-Cola executives getting too sweet a deal?

Value investor and fund manager David Winters thinks so. But the Atlanta beverage giant called his statements "misinformed" and said they "do not reflect the facts."

Winters, CEO and founder of Wintergreen Advisers, sent letters to Coca-Cola's shareholders, its board, and shareholder Warren Buffett, criticizing the company's proposed 2014 equity plan, which Winters said "will significantly erode the per-share value of Coca-Cola shares."

Muhtar Kent, CEO of The Coca Cola Company speaks at the 2013 Clinton Global Initiative.
Adam Jeffery | CNBC
Muhtar Kent, CEO of The Coca Cola Company speaks at the 2013 Clinton Global Initiative.

"If approved, this plan in conjunction with previous equity compensation plans, will dilute existing shareholders by a company estimated 14.2 percent," Winters wrote in one of the letters.

"The company expects that the 2014 plan will award a mix of 60 percent options, 40 percent full value shares, resulting in the issuance of 340,000,000 Coca-Cola shares," he continued. "At the current share price, these shares would be worth approximately $13 billion. In effect, the board is asking shareholders for approval to transfer approximately $13 billion from all of our pockets to the company's management over the next four years."

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However, Coke disputes this characterization.

"The 2014 Equity Plan incorporates a number of 'best practice' and shareowner-friendly provisions, such as no re-pricing of stock options, no liberal share counting and 'double-trigger' change in control vesting," Coca-Cola said in a written statement to CNBC.

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"The long-term equity compensation program is tied directly to the achievement of specific business goals and the financial health of the company," the company explained. "Therefore, if the company does not meet these goals, these awards are not earned. This pay-for-performance philosophy has been a consistent cornerstone of the program through the years and remains unchanged."

Coke added that the equity plan is not a change in the company's long-term equity compensation practices. "The plan is not limited to senior executives, but extends to a large group of employees and is important for incentive and retention," the company said. "Approximately 6,400 were eligible in 2013. The amount of long-term equity compensation awards granted each year are within industry norms."

One concern Winters expressed in his letters was that the equity plan would offset the value of Coke's ongoing share repurchase program. In the letter, Winters said he suspected that the repurchased shares would merely offset the stock issued by the equity plan.

"At a time when Coke is facing slowing growth in both sales and profit, we do not believe it is in the best interest of shareholders to compound the company's headwinds by significantly diluting shareholders," Winters wrote.

But Coke said: "We repurchase significantly more stock than what is related to grants under our equity plan, so that shareholders receive significant value."

"Share repurchases in 2013 totaled $4.8 billion, and in 2012, $4.5 billion," Coke said. "Of these amounts $1.3 billion and $1.4 billion, respectively, were related to equity plan activity. We plan to continue that practice."

According to the company, the actual dilution of the program is expected to be less than some calculations because of the share repurchase program and the fact that some equity awards may not be earned or may be canceled, terminated or forfeited. This is noted in Coke's proxy.

According to the latest 13F filing with the Securities and Exchange Commission, Wintergreen owned about 2.5 million Coke shares at the end of last year and has been building its position in Coke in recent quarters. Wintergreen also is a large shareholder in Buffett's Berkshire Hathaway.

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In a separate letter to Buffett—whose Berkshire Hathaway owns a 9.1 percent stake in Coke and is its largest shareholder—Winters said: "The excessive compensation of management and the expense it imposes upon long-term shareholders has been a topic you have frequently touched upon."

"You have often decried how excessive compensation is so difficult to reign 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. ... We believe Coca-Cola is setting a poor precedent with regard to corporate pay practices with this proposal, and as a leading global corporation, others will inevitably and unfortunately follow their lead," Winters wrote.

Last year, Coca-Cola CEO Muhtar Kent was paid $20.4 million, down 33 percent from total compensation in 2012, according to a filing from Coke on March 7.

The beverage giant is expected to hold its annual shareholder meeting on April 23 in Atlanta.

—By CNBC's Sara Eisen. Follow her on Twitter @SaraEisen. Christina Cheddar Berk contributed to this report.

(UPDATE: This story was updated to reflected comments from Coca-Cola in response to Winters' letters.)