In March 2014, David Winters, the CEO of an investment management firm named Wintergreen Advisers, protested

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Description and questions

In March 2014, David Winters, the CEO of an investment management firm named Wintergreen Advisers, protested The Coca-Cola Company’s proposal for a new stock-based compensation plan. Winters wrote letters to Coca-Cola’s board of directors and Coca-Cola’s largest shareholder, Warren Buffett, and posted these letters publicly. Winters argued that the stock-based compensation plan would severely dilute earnings per share for existing shareholders. The objective of this assignment is to understand and evaluate Winters’s argument.
First, consider Coca-Cola’s past stock-based compensation by studying its 2013 10-K. If necessary, assume that Coca-Cola’s average stock price in 2013 was the same as the average price at which Coca-Cola repurchased shares.

  1. Consider the company’s sales and repurchases of common stock in 2013. What was the average price per share at which the company issued stock to employees for stock compensation plans?
  2. Why do these per-share proceeds differ from the average market price per share?
  3. Given the number of shares issued to employees related to stock compensation plans, what was the company’s total loss (in dollars) on issuing shares to employees and repurchasing the same number of shares at the market price?
  4. How does this total loss number compare to the total stock-based compensation expense in 2013?
  5. Why is this comparison meaningful and/or relevant?
  6. In what ways is this comparison misleading?

Next, consider Coca-Cola’s past stock-based compensation paid to its top executives, as disclosed in the compensation tables of the 2014 proxy statement. The proxy statement sets the agenda for the annual shareholder meeting and describes any matters on which shareholders will vote at the annual meeting. At the annual meeting, shareholders vote to elect the board of directors and approve the auditor. Shareholders also vote on whether to recommend that the board of directors approve the proposed executive compensation plan. The compensation tables in the proxy statement describes the amounts and forms of compensation for the five highest paid executives at the company.
If necessary, assume that Coca-Cola’s average stock price in 2013 was the same as the average price at which Coca-Cola repurchased shares.

  1. Based on the five highest paid executives’ vested options in the table on the outstanding equity awards at the end of fiscal 2013, by how many incremental shares do these options increase the denominator of diluted earnings per share?
  2. In what way or ways does this adjustment to the number of shares outstanding understate the total cost to shareholders of issuing options to employees?
  3. Under what condition or conditions does this adjustment to the number of shares outstanding provide a fair reflection of the total cost to shareholders of issuing options to employees?

Finally, read and consider David Winters’s letters, as well as Coca-Cola’s responses.

  1. Winters claims that the authorization of 340 million shares would dilute shareholders by 14 percent and cost shareholders $13 billion. Why do these figures exaggerate the costs of the equity plan to shareholders?
  2. In what ways do Coca-Cola’s responses fail to address Winters’s criticisms of the share-based compensation plan?

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In March 2014, David Winters, the CEO of an investment management firm named Wintergreen Advisers, protested

Our academic experts are ready and waiting to assist with any writing project you may have. From simple essay plans, through to full dissertations, you can guarantee we have a service perfectly matched to your needs.

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Description and questions

In March 2014, David Winters, the CEO of an investment management firm named Wintergreen Advisers, protested The Coca-Cola Company’s proposal for a new stock-based compensation plan. Winters wrote letters to Coca-Cola’s board of directors and Coca-Cola’s largest shareholder, Warren Buffett, and posted these letters publicly. Winters argued that the stock-based compensation plan would severely dilute earnings per share for existing shareholders. The objective of this assignment is to understand and evaluate Winters’s argument.
First, consider Coca-Cola’s past stock-based compensation by studying its 2013 10-K. If necessary, assume that Coca-Cola’s average stock price in 2013 was the same as the average price at which Coca-Cola repurchased shares.

  1. Consider the company’s sales and repurchases of common stock in 2013. What was the average price per share at which the company issued stock to employees for stock compensation plans?
  2. Why do these per-share proceeds differ from the average market price per share?
  3. Given the number of shares issued to employees related to stock compensation plans, what was the company’s total loss (in dollars) on issuing shares to employees and repurchasing the same number of shares at the market price?
  4. How does this total loss number compare to the total stock-based compensation expense in 2013?
  5. Why is this comparison meaningful and/or relevant?
  6. In what ways is this comparison misleading?

Next, consider Coca-Cola’s past stock-based compensation paid to its top executives, as disclosed in the compensation tables of the 2014 proxy statement. The proxy statement sets the agenda for the annual shareholder meeting and describes any matters on which shareholders will vote at the annual meeting. At the annual meeting, shareholders vote to elect the board of directors and approve the auditor. Shareholders also vote on whether to recommend that the board of directors approve the proposed executive compensation plan. The compensation tables in the proxy statement describes the amounts and forms of compensation for the five highest paid executives at the company.
If necessary, assume that Coca-Cola’s average stock price in 2013 was the same as the average price at which Coca-Cola repurchased shares.

  1. Based on the five highest paid executives’ vested options in the table on the outstanding equity awards at the end of fiscal 2013, by how many incremental shares do these options increase the denominator of diluted earnings per share?
  2. In what way or ways does this adjustment to the number of shares outstanding understate the total cost to shareholders of issuing options to employees?
  3. Under what condition or conditions does this adjustment to the number of shares outstanding provide a fair reflection of the total cost to shareholders of issuing options to employees?

Finally, read and consider David Winters’s letters, as well as Coca-Cola’s responses.

  1. Winters claims that the authorization of 340 million shares would dilute shareholders by 14 percent and cost shareholders $13 billion. Why do these figures exaggerate the costs of the equity plan to shareholders?
  2. In what ways do Coca-Cola’s responses fail to address Winters’s criticisms of the share-based compensation plan?

Our academic experts are ready and waiting to assist with any writing project you may have. From simple essay plans, through to full dissertations, you can guarantee we have a service perfectly matched to your needs.

GET A 40% DISCOUNT ON YOU FIRST ORDER

ORDER NOW DISCOUNT CODE >>>> WELCOME40

 

 

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