There is no doubt that Coca-Cola Co., when measured by total shareholder returns, has been a remarkable winner during the 11-year tenure of Roberto C. Goizueta as chief executive. Since he became ceo in March, 1981, Coke shareholders have racked up combined price appreciation and dividends that yielded a compounded 31.7% a year. Of the 300 companies with the largest equity capitalization, only 5% of ceos outdelivered Goizueta.
Even so, an item in the text of Coke's annual report for 1991 raises an important question about compensation of ceos who produce outstanding results--and whose rewards rightly set a standard for other companies. Goizueta was awarded 1 million shares of restricted stock. The question: Even though performance is at the highest level, can compensation be too high?
The stock, worth $59.5 million at the time and $81 million at today's stock price, is part of a package that includes a salary of more than $1 million, deferred compensation of $180,000, and a bonus of $1.9 million. The year before, in 1990, the Coke compensation committee granted the ceo 500,000 free shares, now worth $40.5 million. In 1988, Goizueta received the equivalent of 400,000 shares, now worth $32.4 million. During the 1984-86 period, the committee granted him 900,000 shares, bolstered by an agreement to pay his federal and state income taxes on the stock upon retirement that adds 35% to the value of the grants, making them worth $98.4 million at current prices. To paraphrase the late Senator Everett M. Dirksen, eventually numbers like this add up to real money.
Beyond the sheer size of Goizueta's pay, there are other broad issues. The chairman of Coke's compensation committee is Herbert Allen, whose investment banking firm has received almost $24 million in fees from Coke-related deals. Allen may be a wise choice as a director, but his key role in setting Goizueta's pay suggests a conflict of interest. Finally, Goizueta is hardly the only one responsible for Coke's success--yet he is the only one so disproportionately rewarded. Why pretend Coke is a one-man band? Yes, ceo performance counts. But it isn't the only thing. In all, Coke has sent the wrong message about executive pay.