Coke alters executive pay formula

Atlanta Business Chronicle - by Joe Rauch Staff writer

The Coca-Cola Co. is undergoing a major executive pay change, resulting from a two-year-long debate with the Securities and Exchange Commission about increased compensation disclosure.

Ironically, the call for more disclosure by the SEC may make Coke’s 2008 payouts more opaque for shareholders.

The discussion centers around how the world’s biggest beverage
bottler discloses and computes its annual pay bonuses for its highest
ranking executives, leading to a Feb. 23 change of its 2008 pay
practices.

Coke’s annual bonus pay plan is typically the largest cash payout
Coke makes to its most senior executives. In 2007, the company paid $15
million collectively to its five senior executives, according to its
2008 proxy statement.

Corporate governance experts are questioning if the SEC is pushing too far.

“Too much specificity is incredibly common right now,” said Paul Lapides, director of Kennesaw State University’s
Center for Corporate Governance. “The ultimate question becomes: How
much do shareholders need to know before it starts to hurt the
business?”

Instead of using established formulas to compute this year’s payout,
Coke’s compensation committee will determine the payouts at its own
discretion.

“In utilizing its discretion, the Compensation Committee considered
a number of quantitative and qualitative factors, including, but not
limited to, volume growth, earnings per share growth, global volume and
value share gains and overall company operating performance in the
current economic climate in order to make its decision,” said Crystal
Warwell Walker, a Coke spokeswoman.

Previously, Coke computed the annual payouts by measuring the
performance of the company against several internal performance goals
and projections, established at the beginning of each year.

Coca-Cola used pre-defined, internal targets for net income, pre-tax
profits and specific volume sales, in part, to define what the company
senior executives earn.

But the SEC took issue with Coke’s disclosure of the pay plan, beginning in summer 2007.

That year, Coke’s top five executives collectively received $11.5 million in annual incentive payouts.

“Your disclosure regarding the annual incentive is lengthy and
somewhat difficult to understand without attaching value to the factors
you use,” an Aug. 21 letter from the SEC to Coke states, regarding the
company’s March 2007 proxy statement.

The company disagreed, noting that disclosing the specific targets
could provide its competitors unfair insight into Coke’s business plan,
placing it at a competitive disadvantage.

“Disclosure of the specific targets would not materially increase an
investor’s understanding of the annual incentive program and would
result in competitive harm,” Coke replied in an Oct. 26, 2007, letter.

The discussions continued throughout the end of 2007. A Dec. 19, 2007 letter to the SEC

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