Jan 18, 2019 in Analysis

Background Information

Coca-Cola Company is a worldwide beverage company based in Atlanta. It was initiated in 1886 and from then the company has concentrated on distributing and manufacturing soft thirst-quenchers, and coke (Senker & Foy, 2012). Most importantly, the company deals with non-alcoholic drinks, such as sparkling and still infusions. Some of the commonly manufactured sparkling thirst-quenchers include ready to drink fluids that contain carbon. In this category, there are carbonated and flavored waters, as well as vigor beverages. Additionally, the company produces non-carbonated and spicedliquids, juice drinks, sporting beverages and ready to drink teas and coffee. The company, additionally, manufactures beverage constituents, spring syrup, flavoring inducements and powders for water products (Hays, 2014). It is, nevertheless, clear that most of Coca-Cola’s operations are carried out by third parties. Most of its products are sold in the market using brand names such as Coca-Cola, Diet Coke, Sprite, Dasani, Minute Maid, PowerAde, Fanta and Aquarius, among other products. The company operates globally with over 300 brands. It controls its global markets through the use of controlled bottling and independent bottling distributors, retailers, wholesalers and partners (Senker & Foy, 2012).

Existing Compensation Plan

As earlier observed, Coca-Cola’s compensation strategy is based on the salary philosophy. The compensation package offered to employees is, therefore, dependent on what other local companies are offering. Employees within the company are hired in various levels, depending on the existing operations (Society for Human Resource Management, 2010). Therefore, all these employees are put in different job groups based on qualifications and the duties conducted. However, the overall pay per each worker is strictly tied to the company’s overall performance. In this regard, the company does not pay its workers’ salaries that are higher than what the company makes. Coca-Cola has established an executive compensation committee which carries regular auditing to ascertain what each employee should get. The salaries, in this respect, are not static, but completely flexible. The principle of flexible remuneration is aimed to ensure consistent performance among the workers (Lipman & Hall, 2008). The workers are well aware that their salaries would significantly reduce if production, quality and sales decrease. Therefore, the principle has encouraged consistent growth within the company, given that all employees do their best for the good of the company.

Most importantly, the overall compensation plan within the company is based on individual qualification. The company has, therefore, initiated a remuneration scale which is based on skills, and competencies and duties performed. In most cases, the company adopts the compensation plan based on the market rate (The Coca Cola Company, 2013). However, employees are guaranteed of a higher pay, since it further applies a merit pay scheme. Consequently, most workers at the company receive a 1% pay raise above the normal market rate.

In this regard, the company’s compensation plan is clearly outlined in the company’s vision. The vision puts a lot of emphasis on consistent and sustainable growth. In addition, the vision aims at retaining and attracting world class talents, so as to ensure the outlined consistent growth. Therefore, the compensation plan adopted is more like a reward than a salary (Society for Human Resource Management, 2010). In actual terms, the company seeks to reward the workers for their consistent efforts in facilitating sustainable growth. The compensation plan is also developed in line with the interests of the shareowners. According to the current compensation plan, the responsibilities of employees go up, as the company grows. The consistent growth is attributed to quality performance among the workers. In this regard, the compensation is ought to rise. As a result, the workers’ compensation is tightly tied to performance.

Therefore, the current compensation plan is based on two main metrics, namely comparable earnings per share and unit case volume. The two metrics directly correlate with the shareowner value. The company recognizes that the compensation plan to be adopted must satisfy not only workers but also the shareholders (The Coca Cola Company, 2013). At the end of the day, the company must make profits even after paying the workers. Therefore, the workers receive a pay rise when the unit case volume goes up. In addition, the workers get better remuneration wherever the comparable earnings per share go up. The company takes this to be the best compensation plan, though it has received numerous criticisms from other companies. However, the plan can only work in multinational companies that are assured of consistent growth. Small companies are frequently faced by periods of recession due to the changing global market position. In such a case, many workers in small companies would not welcome such a compensation plan (Lipman & Hall, 2008).

However, the performance-based compensation plan is most pronounced among the senior executive managers. In most cases, their pay is not guaranteed. The company sets financial goals in every financial year. These goals are set for both the business unit and corporate performance. The remuneration plan is further differentiated based on what individual director achieves. In this respect, Coca-Cola’s accumulative performance is evaluated based on the consistent progress towards vision 2020 (The Coca Cola Company, 2013). Each manager’s performance is critically analyzed in terms of people, productivity, planet, portfolio, partners, profits, as well as other strategic priorities. The plan does not, therefore, refer to profits only but to all the company’s strategic priorities.

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Therefore, tally sheets are reviewed for all workers before any compensation is made. Therefore, any careless loss incurred by the company due to preventable mistakes of the workers is deducted from the workers’ pay (Hays, 2014). The move is aimed at ensuring consistent caution in the execution of workers’ duties. However, the company moves to mitigate all undue risks that may significantly affect the overall company growth. All risks regarding compensation, such as utilization of caps on payments, retention provisions, clawback provisions and multiple performance targets are significantly reduced. There is a robust risk assessment strategy, where all the stated risks are evaluated and mitigated.

The Ratio Applied That Is Internally and Externally Consistent

The compensation ratio applied by the company is 1 % pay rise than the normal market remuneration ratio. The ratio follows three principal elements of total direct remuneration. These elements include annual incentive, base salary and long-term equity remuneration. In this respect, employees receive 1 % pay rise in the annual incentive, base salary and Long-Term equity. The plan is mainly applicable for the branch managers, department heads, country representatives and general employees. In the plan, the workers receive 9% as base salary, 26% as annual incentive and 65% as long-term equity remuneration. In most cases, the base salary acts as a basic salary for the employees (Hays, 2014).

Current Pay Structure

After applying the above compensation ratio, the compensation committee outlines the salaries for all employees in various job scales. The salaries are then determined based on the scope, breadth and complexity of roles played by the workers (Senker & Foy, 2012). The remuneration is fair since employees with similar experience, responsibilities and historical performance receive similar salaries. Coca-Cola Company has 5,500 employees who are paid based on the long-term equity compensation. The current salaries are grounded on skills, time in role, experience, fairness, potential and previous performance. The salaries are deliberated on the basis stock options, as well as performance share units (SPUs). In this regard, the employees at the Coca-Cola Company are given 40% of the Performance Share Units and 60% of the stock options. The company deeply holds that stock performance depends on workers’ performance (Hays, 2014). Equity vehicles are used in the company since stock options always correspond to the profits made and PSUs reflect a long-term performance of the company.

In addition, compensation within the company increases in three significant situations. Firstly, the salaries are increased based on Annual Merit Increase. All base salaries are reviewed annually, so as to ascertain if there are possible merit increases. However, the merit increases are not automatic neither guaranteed. Any increase, as earlier noted, takes into consideration various factors such as performance, experience and market practices (Hays, 2014). Pay rise can also occur in case of changes in roles or promotions. However, change in roles does not guarantee an automatic pay rise. Finally, the employees receive pay increments as a result of market adjustments. The market adjustments depend on market forces and what is stipulated in the international labor laws.

Recommendations

Following the discussed remuneration plan, it is clear that Coca-Cola is a global company with a large number of employees. Therefore, it is hard to achieve internal consistency. One of the main problems incurred in many companies is suspicion among the workers due to unfair terms of remuneration (Lipman & Hall, 2008). The company should, therefore, establish a neutral committee or an external consultant who should deal with all pay calculations. There are instances when pay rates do not reflect the importance of the job performed by a particular employee. The company, in this regard, should conduct a thorough scrutiny on all jobs performed within the company. The analysis will help to ascertain the worth or the significance of each work. An informed judgment should then be made on what values are accrued to each job. The values identified should then be used to determine the remuneration scale. In this respect, all workers would be satisfied with the offered pay rates.

The company should also restructure its compensation plan. A compensation plan based on overall company performance may not be the best plan for a company like Coca Cola. The cumulative performance is dependent on many forces, alongside the performance of workers. Laxity among workers within one department may affect the remuneration of workers across the company (Lipman & Hall, 2008). In this respect, the company should adopt a remuneration plan that is based on departmental performance. Workers within a specific department would, therefore, work bearing in mind that low performance would not be spread across the whole company. The strategy would boost sustainable and consistent departmental growth which would result to overall company growth.

Extra Benefits within the Company

Apart from the normal remuneration, Coca-Cola Company has other added benefits to its employees. The company offers a comprehensive health insurance to all its workers. The medical cover takes care of all medical issues, such as Accidental Demise and Disability, Dental, Reliant-on life insurance, and Group life cover, Business travel Accident Insurance, Long-standing Incapacity Cover, Short-range Incapacity Cover and Worker Aid Program. There is a medical and dental coverage for all workers, including on-site medical attention for workers who may incur injuries while working. Additionally, the company has initiated a comprehensive retirement scheme for all its members. Measures have also been initiated to ensure that the workplace environment is secure. The company offers regular training programs, regular leaves, vocational holidays, health clubs, job sharing and mentoring programs. However, these are almost the same to the ones offered by many other competitors in the industry.

Conclusion

Coca-Cola is a complex company with about 5,500 employees. The company deals with soft drinks that are purely non-alcoholic. It has adopted a compensation plan that is based on performance. The company offers a base salary and annual incentives based on the profits made. Its equity vehicles make use of Stock Options, as well as Performance Share Units (PSUs) to calculate pay rates. Out of the two, the workers enjoy 60% pay from the stock options and 40% from the SPUs. Remuneration ratio is dependent on base salary, annual incentive and Long Term Equity Compensation in the ratio of 9%, 26% and 65%, respectively. However, the paper recommends adoption of a different remuneration plan that is based on departmental performance and adoption of measures that enhance internal consistency.

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