Cream butter in a large mixing bowl; gradually add 1/4 cup sugar, beating until light and fluffy. Add water and 2 teaspoons vanilla, mixing well; add flour, stirring well. Stir in pecans.
Shape into 1/2-inch balls. Place 2 inches apart on ungreased cookie sheets; bake at 300° for 20 minutes or until lightly browned. Cool completely on cookie sheets.
Combine 4 cups sugar, milk, 1/2 teaspoon vanilla, and salt in a medium mixing bowl; beat with a wire whisk until smooth.
Dip cookies in glaze; roll in coconut.
Note: Coconut may be tinted, if desired.