CtW Investment Group's Position

Coca-Cola Enterprises, Inc. (CCE) has a history of rewarding poor-performing executives with excessive severance packages. When John Alm left CCE in December 2005 after serving only two years as CEO and presiding over lackluster sales and earnings growth and poor stock performance he received $2.1 million; $6.5 million credit to his CCE supplemental savings and investment account with an $859,000 pension enhancement; $4 million in stock; and, healthcare.

 In awarding this package, the Board defied the severance guidelines adopted by the Compensation Committee earlier that year.  In consultation with Frederick W. Cook & Co., which in 2006 was profiled in the New York Times (Corporate America’s Pay Pal, October 15, 2006) as an architect of inflated compensation packages, CCE’s Compensation Committee recommended, and the Board approved, severance benefits for Alm that exceeded the maximum allowable under the guidelines - by more than 50 percent.

 While certain severance agreements may be appropriate in some circumstances, Change to Win believes that their potential cost warrants shareholder approval. Therefore, Change to Win is proposing that CCE shareholders urge the Board of Directors to seek shareholder approval for future severance agreements with senior executives that provide benefits in an amount exceeding 2.99 times the sum of the executive’s base salary plus bonus. 

  Last year this same resolution garnered support from 38 percent of the vote by investors, up from 33 percent in 2008. In fact, 2009 was the fourth consecutive year that this same resolution won more than 30 percent support, which represents majority support when discounting shares held by The Coca-Cola Company and insider holders. Despite this majority support from outside shareholders year after year, CCE has not adopted the resolution.

 Change to Win believes that adopting a clear corporate governance policy that gives shareholders a say regarding certain severance agreements would insulate the Board from manipulation and avoid rewarding bad management and poor performance. A growing list of companies has adopted similar policies, including CCE’s largest shareholder, The Coca-Cola Company.