Coca-Cola will link executive pay to company employees

Dive Brief:

Coca-Cola will consider the wages it pays all of its employees when setting executive salaries, aiming to bring them into closer alignment, the New York State Common Retirement Fund said in a statement.
Following the agreement with the beverage giant, the fund, which is among the company's top 50 shareholders with 9,275,387 shares as of the end of 2019, withdrew a shareholder resolution against the company. Coca-Cola agreed to add language to its upcoming proxy statement that said "the compensation approach used to set CEO and (named executive) pay" would be the same one it uses to determine compensation for the broader workforce.
The New York State Common Retirement Fund said CEO pay at the largest U.S. companies "has risen dramatically," while average wages, adjusted for inflation, "have made only meager gains." The fund said some figures show the pay ratio between CEOs and the typical worker has increased by nearly 1,400%.

Dive Insight:

Shareholders have long grumbled over the tens of millions of dollars given to some CEOs and the complex formula used by corporate boards to calculate how much salary, bonuses and stock awards they are given. A Wall Street Journal story found the average compensation in 2018 for bosses overseeing companies in the S&P 500 was $12.4 million, up 6.6% from the prior year and the highest level since the Great Recession. The paper found that only two of the highest-paid CEOs ranked in the top 25 for shareholder returns in 2018.

The argument for companies, of course, is that if shareholders are being rewarded through a rising stock price then executives should be rewarded as well. But the complaint by the New York State Common Retirement Fund is less about the level of pay and more that it is so much higher than what rank-and-file employees get; while CEO pay has soared, paychecks of other workers hasn't come close to keeping pace.

"We are encouraging companies to adopt executive compensation policies that take their entire workforce into consideration," Thomas DiNapoli, the New York State Comptroller who serves as the trustee of the New York State Common Retirement Fund, said in the release announcing the deal. "I commend Coca-Cola for taking this step to help ensure that pay for its top executives is in line with the company’s overall compensation philosophy and long term performance, not simply on what executives at other companies are making."

Coca-Cola is not the only company the New York State Comptroller has pushed for changes in how it calculates its executive pay. It also has reached deals with Archer Daniels Midland, Microsoft, CVS Health and Macy's.

Coca-Cola CEO James Quincey made about $18.7 million in 2019, according to a company spokesman. He was paid $16.7 million in 2018. As of April 1, 2019, Quincey’s base salary was increased 6.7% to $1.6 million "to align (it) with the competitive market," the beverage company said in a recent proxy.

Since Quincey took over in May 2017, he has been working hard for his money. The Atlanta company has been aggressively transforming itself to include more better-for-you beverages such as teas, coffee, water and sports drinks while making changes to its core soda portfolio.

Under Quincey's leadership, Coca-Cola acquired Topo Chico premium sparkling mineral water, purchased a minority stake in premium sports drink maker BodyArmor and spent $5.1 billion to purchase Costa Coffee, a U.K. brand with shops and retail products.

Coca-Cola also has invested and innovated in its core soda offerings — such as the debut of its first Coke-branded energy drink, smaller cans and Coca-Cola Zero Sugar to reflect the fact that people want less of the sweetener. It's also releasing a new sparkling water brand called Aha this month, the company's first major new brand launch since 2006.

The moves seem to be paying off. During Coca-Cola's most recent fiscal year, sales rose 9% to $37.3 billion, while net income rose 39% to $8.9 billion. Coca-Cola's stock has been on an upward path since Quincey took over, increasing 20% to roughly $52 a share even after a recent broader market slide that punished most equities.

Still, that kind of progress may not be enough for some watchdogs. As groups such as the New York State Common Retirement Fund continue taking a closer look at executive pay, the onus will be on companies to prove execs deserve those salaries, and that those who work underneath them are being fairly compensated as well.