Coca-Cola Case Study

Topics: Board of directors, Corporate governance, Chairman Pages: 10 (3424 words) Published: March 5, 2011
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, is an ambitious wish, and may not represent sustainable growth for the long run. However, it can encourage the Board to develop strategies and action plans in order to achieve their aim and of course, be remunerated at the end. Coca-Cola plan is to reward and motivate the Directors only extrinsically, that is financially. This method can be the easiest to implement, but not always brings the desired outcomes. The new compensation plan may not only bring new norms to the Board of Directors, but also try to change the Organizational Culture and adapt it to the changing environment. The Conceptual Framework for understanding Organizational Culture can highlight the link between the company´s culture and its output.

Group and Social Processes

Asa Candler was the man who transformed coca-cola in a profitable business. Between 1980 and 1990 the company's sales increased 4000%.

Organizational Culture

Coca cola vision is maximizing long-term return to shareowners while being mindful overall responsibilitie s

Remuneratio n of CocaCola directors used to be fixed, with the new plan will be dependent on their performance.

Collective Behaviors

The payment system can influence the way Directors and Managers exercise their Leadership qualities and rights.

The directors are going to strive to create maximum value for shareholders, but on the other hand, ethical problems may arise in the company.

Organizational Outcomes

Organizational Practices


Effectiveness Growth Stress Possible ethical problems

Putting the plan into action
The change in the form of payment in Coca-Cola can result if the Directors will be motivated to do their jobs better than before. This is possible if the Board perceives the compensation for their effort being fare enough, and if they believe in the company´s growth prospects. Not only must these conditions be satisfied, but also the Directors must be more extrinsically motivated. The relative importance...
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