Compensation Plan

Compensation plan outline

Coca-Cola updates their compensation plans on regular basis. They have been quite flexible in designing their compensation plans. However, if there is one thing that has remained constant, it’s their incentive based culture. Coca-Cola has devised such compensation plans that they motivate the employees. One of the most important approaches adopted by the company is their group incentive plan. Group incentive approach compels the members to aim for set objectives keeping in view the rewards linked with achieving them. It is necessary that the group incentive plans are effectively communicated to the personnel and are easily achievable and measureable. (Banker, Potter & Srinivasan, 2000)

- Evaluate the existing compensation plan to determine if it is the most appropriate for your company. Explain your rationale.

Coca-Cola claims that its compensation program is designed in such a way that it is able to attract the top leadership with talent who possess an entrepreneurial spirit. They also claim that their plan helps in retaining this talent and trains them in such a way that they effectively carry out Coca-Cola’s business strategy in order to achieve Coca-Cola’s business targets.

Coco-cola’s compensation plan directly links the compensation of the executives and managers with the company’s performance in the stock market. Since the individual compensation of the personnel is directly linked with the Coca-Cola’s financial performance, it is likely that the managers will work harder and will make sure that the company succeeds in the stock market financially. Upon performing well in the stock market, the compensation of the managers also rises along with their net worth. The compensation plan makes the managers more responsible towards their actions. They are more concerned about how their actions affect the company. (Brown, Sturman & Simmering, 2003) Hence, the existing compensation plan is appropriate for the company. This is because it ensures the long term growth of Coca-Cola. However, the only concern is the under-average cash compensation of the employees. Although this might be fine while Coca-Cola has a high stock value, perhaps, in the face of the decrease in Coca-Cola’s share price, it is more likely that its employees sell its shares and leave the company. This is a huge potential problem for Coca-Cola and it should be careful about it.

Coca-Cola needs to work more on their incentive plans by paying extra heed on developing a group oriented compensation culture. This culture should be preferred over individualism. Working in teams makes employees realize their true worth in an organization. Teams cannot work efficiently is there is not an effective compensation plan linked with it. There should be enough incentives and motivation for the personnel to engage the workforce with interest. The criteria of judging the employees should be their overall performance. The employees who provide timely and quality work should be rewarded with regular monetary awards and good bonuses. Other than that, encouragement and appreciation by the managers is an effective technique to boost the morale of the employees.

- Determine the most beneficial ratio of internally consistent and market consistent compensations systems for the company you selected.

The executives at Coca-Cola receive more in monetary bonuses and compensation than in the past year. These benefits for the senior executives used to be below average in the past. Compensating the managers in terms of stocks of the company makes itself clear that the company’s long term future is the main concern of the management. Since their salary is directly linked with Coca-Cola’s performance in the stock market, it is more likely that the managers will make sure that the company succeeds. If the company performs well in the market, there will be a significant increase in managers’ net worth. This is an interesting and effective incentive design. It not only helps in retaining the talent within the organization but also makes sure that the managers are concerned about the long term future.

Apart from all these, a lot of potential problems also exist with stock compensation design. There was an issue in which the stocks paid by company were backdated to make them more valuable. Coca-Cola’s image was made negative to some extent due to this issue.

Hence we can say that the compensation ratio that is used by Coca-Cola is more or less internally consistent. It is market consistent as well. However, it is recommended that company increase the proportion of cash compensation in comparison to the stock compensation.

- Evaluate the current pay structure used by your company and assess the recognition of employee contributions.

Coca-Cola has a pay structure that is mixed in nature. This is effective to some extent. Their compensation design is an amalgamation of incentive based and individually focused compensation approaches. The employees working at senior levels still get more payment in Coca-Cola. There are provisions for bonuses and hence the company also has person focused compensation approaches to some extent. It would be a good idea for Coca-Cola to move towards making the compensation structure more individualistic as it is already incentive based to some extent.

Coca-Cola recognizes the important role of workforce contributions for the success of the company. So, they reward their employees with extensive discounts on the purchase of their products. Not only the upper management but lower management also get this benefits. Even the internees are provided discounts on the products made by Coca-Cola.

Coca-Cola has been continuously trying to improve its planning activity and strategy for its compensation program and its pay structure. Coca-Cola’s pay structure is based on four compensation principles which are: sustainability, affordability, equity, and external competitiveness. They introduced the performance based payment structure throughout their company. The pay for performance design has various benefits and drawbacks. The biggest disadvantage is the unwanted pressure on personnel to get the tasks done in specified deadlines. The pressure situation of this kind can have negative impact on the workforce as they would always be focusing to deadlines rather than providing quality work.

As far as the financial nature of pay structure is concerned the company offers handsome pay to its employees overall. The employees are paid according to their skill sets, experience and performance. The reward system is totally merit based and not guided by any personal likings and disliking. On the whole the compensation plan of Coca-Cola is balanced in nature as it never takes the credit away from hardworking individuals. Another advantage associated with Coca-Cola’s pay structure is its evolving nature as it keeps on adapting itself to the needs of time. The employees are aware of the fact that their effort and service is not going to go down the drain and as a result they give out their best to extract the same for them.

- Make two (2) recommendations for improving the effectiveness of the discretionary benefits provided by the company you selected.

There are many ways in which the effectiveness of the benefits provided by Coca-Cola can be increased. First of all, the whole compensation and payments design should be individually tailored. It means that the employee realizes the fact that his or her performance and efforts for the company are being observed with admiration by the company. This recommendation would help to motivate the employees. Secondly, it is important not only to give monetary award or bonuses but also increase the opportunities to grow and develop in the company. This can come in the form of promotions for the employees. Sometimes, these kinds of benefits are more effective than monetary ones. Also, in order to increase the effectiveness of the discretionary benefits it is important to link the total benefit received to the work performance of the employees.

The most important trait of any compensation plan is its cost effective nature. The second recommendation is that Coca-Cola needs to craft such a plan which benefits employees to greatest extent. The compensation plans of other companies need to be constantly reviewed in order to incorporate latest trends and methodologies. The environmental factors cannot be ruled out as well; therefore the compensation plan needs to take the surroundings into consideration. The rules and regulations of particular geographical location need to be monitored and the plan must be adjusted accordingly. There are several state laws and regulations regarding financial matters that can affect compensation plan so Coca-Cola needs to devise its plan keeping them in mind. (Hodgetts & Luthans, 1993)

- Evaluate the types of employer-sponsored retirement plans and health insurance programs provided by the company you selected and compare them to that company’s major competitors.

Employer sponsored retirement and health insurance plans are an important part of every organization’s payment packages these days. The post-retirement benefits are basically, the fixed amount of money which is to be paid to the retiree when he / she retire form a job or service. The complete monetary package of the pension which is to be paid to the pensioner usually includes a number of packages such as: defined contribution plans and defined benefit plans. The Postretirement benefits can vary from company to company. Similarly health insurance plans are also provided by company’s these days which basically cover total expenses of healthcare of employees and their families.

Coca-Cola retirement plan is currently being managed by fidelity and is pretty much standard. Although the 401k plan has a good matching rate, it needs to be innovated and revised. Some other retirement plans being adopted by some of the competitors of Coca-Cola include: Qualified retirement plans, which are eligible for levying tax.

Similarly healthcare plan of Coca-Cola is an average one according to the employees as it is not comprehensive enough to bore the medical expenses of employees all the year around. The private healthcare is expensive and companies need to allocate right budget for that. Most of the competitors of Coca-Cola are also offering a similar sort of healthcare plan mainly due to the cost associated with primary and secondary healthcare facilities.

References

Banker, R. D., Lee, S. Y., Potter, G., & Srinivasan, D. (2000). An empirical analysis of continuing improvements following the implementation of a performance-based compensation plan. Journal of Accounting and Economics, 30(3), 315-350.

Brown, M. P., Sturman, M. C., & Simmering, M. J. (2003). Compensation policy and organizational performance: The efficiency, operational, and financial implications of pay levels and pay structure. Academy of Management Journal, 46(6), 752-762.

Hodgetts, R. M., & Luthans, F. (1993). US multinationals' expatriate compensation strategies. Compensation & Benefits Review, 25(1), 57-62.