Assignment 2 – Compensation Plan Outline
Ginger Renee Wigglesworth
Dr. Anthony Jacob
December 2, 2012
Evaluation of Coca Cola's Compensation Plan
Coca Cola uses a market-based compensation plan in which employees receive compensation that is comparable to the market rate. The market-based system is used for hourly employees and for entry level managers that receive a salary. The company also uses a merit pay system for increases, with employees able to earn a rate of compensation above the market rate based on their performance as evaluated in standardized reviews (Coca Cola, 2012). Managers holding positions above a specified level as well as employees in certain critical areas are salaried. Some of these managers also receive stock options as a part of their compensation based on performance, which is intended to align the interests of senior managers with the interests of the shareholders. Appropriateness of Compensation Plan
The existing compensation plan is appropriate for Coca Cola because it balances the financial goals of the firm with the expectations of employees. With a market-based compensation system the employee theoretically exchanges job security and control over the labor process in exchange for a salary that is comparable to the amount they could receive in other organizations performing similar tasks (Bamberger & Meshoulam, 2000, p. 43). This approach is suitable for compensation plans for hourly employees performing routine tasks that are unskilled or semi-skilled in nature. It is also suitable for organizations that are not heavily unionized. Coca Cola vigorously opposes unionization and uses its wage and benefits package as one of the strategies to prevent unionization, which has been successful in many of the firm's domestic facilities. The approach also provides the firm with flexibility to adjust wages to local market conditions, paying employees more or less based on the prevailing wage in the region.
The approach of paying managers and key employees with a salary is appropriate for Coca Cola because these employees are a source of competitive advantage for the firm. The salary approach enables the Coca Cola to adjust the amount of compensation as necessary to attract and retain individuals with the necessary talents and skills to create a unique value proposition (Bamberger & Meshoulam, 2000, p. 43). The use of stock options as part of the compensation plan is also appropriate for increasing commitment of managers to the firm, which reduces turnover. Most Beneficial Internal/Market Ratio
The most beneficial compensation system for Coca Cola is to maintain a ratio of internally consistent and market consistent compensation systems of 1:1. The internally consistent system is necessary to ensure that Coca Cola compensates their employees based on factors such as their experience, skills and characteristics. This approach is necessary to ensure that the compensation system is equitable throughout the company. It is necessary to ensure that the employees remain committed to the firm and that they perceive the firm is treating all employees fairly. Because many of the positions at Coca Cola do not involve highly skilled labor, employees can find similar positions at other organizations. The internal consistency is intended to reduce turnover. Establishing internal consistency in which the pay scale reflects the employee's skills also encourages employees at Coca Cola to obtain more training, which benefits the firm in the long run by increasing the amount of knowledge assets.
The market based compensation system should be balanced with the internally consistent system because of the company's need to attract external talent, particularly for key positions. Although the internally consistent system can be adjusted for differences in cost of living in various regions where the company operates, these adjustments may not be sufficient to...
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