Coca-Cola Co. passed its controversial stock incentive plan with the votes of 83 percent of shareholders, and one high-profile abstention: Warren Buffett who said, Solomonically, that he couldn’t vote for it, but couldn’t vote against Coca-Cola’s management either.
How much the multi-year plan will cost Coke depends on whom you ask. Money manager David Winters, a critic of Coke’s pay, has thrown out numbers as high as $24 billion. Tim Fernholz at Quartz comes up with a number closer to $5 billion for the 300 million options and 40 million shares Coke gives out. Using the Chicago Board Options Exchange calculator, which values a 10-year Coke option at $4.67, you’ll get a lower value. Buffett merely thinks it’s excessive, without a dollar figure.
Forget exactly how much those Coke incentives may cost. Here’s a better question: What’s Coca-Cola getting for its outlay? Based on its previous options plans, not very much.
Coke hasn’t had to vote on an options plan in a while because it’s just now exhausting the allocation of 120 million shares provided for in its 2002 plan. Many of those sat unused for years because the incentive programs didn’t succeed in juicing the stock.
Coca Cola first issued options to a broad swath of employees in 1999. Shares, which then stood at $33.78, spent the next three years falling. By the time it introduced a plan in 2002, shares were down to $27. It took more than five years for Coke to get to 30 bucks a share, and more than eight years for the shares to consistently stay there.
If there’s any connection between Coke’s option grants and share performance, it’s not evident. One good thing about paying employees with options is that they share in the wealth when times are good. But the prospect of stock gains doesn’t make their work better. Employees like options in the way that polar bears like fish. Just don’t expect that throwing fish at a bear will make it suddenly learn to dance.