Coca-Cola Case Study
The Coca-Cola Company
In 2006, The Coca-Cola Company adopted a new compensation plan for its Board of Directors. Its main point is that, the members of the Board get payed if the Company meets the performance goals it targeted. During a period of 3 years (mid-point of the Company´s performance strategy), yearnings per share must raise at a compound rate of 8% a year. The plan foresees a flat fee of $175.000 in stock each year, with no extra payments. When the performance goal is met, at the end of the stipulated period, the share units will be payable in cash at the market price. In case of non-compliance of the plan, the Directors would receive nothing. These measures don’t only imply a change in the payment system but have also implications in the motivation, attitudes and decisions the Board of Directors will take. Both this issues, and the Organizational Culture will be further developed.
The new compensation plan brings changes
Coca-Cola´s shareholders are trying to get maximum commitment from its Board of Directors. The idea is that the directors will be working beside the company’s top managers, with everyone making the same effort to reach a goal, that is in the shareholders’ interest, instead of sitting and judging the performance of their hired hands. Regardless of the nature of company´s specific achievements, they tend to have one thing in common. Their strategy is goal oriented. With this all-or-nothing approach, shareowners try not only to align their interests with the Board´s interests, but also motivate it through Goal Setting. This tactic is extremely important because it drives one´s attention in attaining one purpose (8% of growth per year). If successfully implemented, this measure could regulate the effort of the Directors and also orient them to results. Studies have shown that “the level of effort expanded is proportionate to the difficulty of the goal”. In this case, a raise of 25.97% in earnings per share for a period of 3 years,
In 2006, The Coca-Cola Company adopted a new compensation plan for its Board of Directors. Its main point is that, the members of the Board get payed if the Company meets the performance goals it targeted. During a period of 3 years (mid-point of the Company´s performance strategy), yearnings per share must raise at a compound rate of 8% a year. The plan foresees a flat fee of $175.000 in stock each year, with no extra payments. When the performance goal is met, at the end of the stipulated period, the share units will be payable in cash at the market price. In case of non-compliance of the plan, the Directors would receive nothing. These measures don’t only imply a change in the payment system but have also implications in the motivation, attitudes and decisions the Board of Directors will take. Both this issues, and the Organizational Culture will be further developed.
The new compensation plan brings changes
Coca-Cola´s shareholders are trying to get maximum commitment from its Board of Directors. The idea is that the directors will be working beside the company’s top managers, with everyone making the same effort to reach a goal, that is in the shareholders’ interest, instead of sitting and judging the performance of their hired hands. Regardless of the nature of company´s specific achievements, they tend to have one thing in common. Their strategy is goal oriented. With this all-or-nothing approach, shareowners try not only to align their interests with the Board´s interests, but also motivate it through Goal Setting. This tactic is extremely important because it drives one´s attention in attaining one purpose (8% of growth per year). If successfully implemented, this measure could regulate the effort of the Directors and also orient them to results. Studies have shown that “the level of effort expanded is proportionate to the difficulty of the goal”. In this case, a raise of 25.97% in earnings per share for a period of 3 years,
Bibliography: Chairman of the Board and Chief Executive Officer The Coca-Cola Company Chairman of the Board of Directors on April 23, 2009 Herbert A