Food & Beverage: Coke to Board, “All or nothin’ compensation.”
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Manufacturing News, Source : The Manufacturer US
Published : 07 Apr 2006 15:52
Coca-Cola has announced announced a radical compensation plan that will grant directors $175,000 in equity share units per year – provided the company meets its performance targets.
The compensation for falling short of that performance: zilch.
The performance target is 8 percent compounded annual growth in earnings per share, over a three-year period.
Coke’s high-profile, 14-person board includes such heavyweights of business as -
• Chairman and CEO E. Neville Isdell, elected in 2004;
• Ronald Allen, CEO of Delta Airlines;
• J. Pedro Reinhard, CFO of Dow Chemical Co.
• Cathleen P. Black, President of Hearst Magazines
• Warren E. Buffett, Chairman and CEO of Berkshire Hathaway.
Buffett is an outgoing member, and hails the move as making Coca-Cola a “model of corporate governance.”
The Wall Street Journal points out that tying pay to performance has historically encouraged exerutives to focus on short-term and unsustainable gains “and have played a role in a wave of corporate scandals.”
True, but the highest-profile cases (e.g., Enron) do not involve boards, who act as ersatz juries, double-checking one another. Those high-profile cases tend to involve founders and/or executives from the c-level and v-level, for example, Enron founder Kenneth Lay and former CEO Jeffrey Skilling, WorldCom CEO Bernard Ebbers, and Qwest Communications CEO Joseph Nacchio.
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