The Coca-Cola Co. is launching a new compensation plan in the hopes of holding its board more accountable for the company’s performance. Starting this year, the soft-drink giant will pay its directors in units of stock and pay them only when the company meets defined performance targets.
Under the plan, directors will be paid in equity-share units each year equal to a flat fee of $175,000. Coke set an initial three-year performance target of 8 percent compounded annual growth in earnings per share. The company will use its 2005 earnings per share of $2.17 as the base for this percentage growth calculation.
If the company hits the performance target at the end of the performance period, the directors will get paid in cash for their share units. If Coke misses the target, directors will forfeit all their share units and dividends.
The new plan replaces one in which directors received an annual retainer of $125,000, of which $50,000 was paid in cash and $75,000 accrued in share units. The old plan also provided added fees for chairing board committees and attending board and committee meetings. Under the new plan, all of these fees have been eliminated.
“This all-or-nothing approach to board compensation aligns the interests of our directors with those of shareowners more closely than any other compensation formula I have seen,” said Neville Isdell, chairman and chief executive officer.
The new plan, however, does provide the option for the Board of Directors to make a one-time cash award to any new director.