Busi 342 db3 replies | Business & Finance homework help
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Randy Shepherd DB 3
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Coca Cola began a pay for performance program in 2014 according to news reports from CNBC. Then in 2015 the company revamped this system, “Beginning in 2015, performance metrics applied to long-term awards will provide a balanced approach to incentives, increase alignment with local operations and pay for results that employees can more directly influence,” (CNBC, 2014).
Coca Cola has a Compensation Committee which oversees all compensation programs for the company. In describing the reasons for the compensation systems used at Coca Cola, the Compensation Committee issued this quote. “(We are) focused on fostering a high-performance culture and continuing to align pay and performance against the key strategic drivers of long-term growth.” (Coca Cola Unbottled Our Blog, 2016). This is a component of performance management. “Performance management is a series of activities designed to ensure that the organization gets the performance it needs from its employees” (Mathis, 2017, Chapter 10-1)
The majority of the focus of the Compensation Committee is on the performance compensation of the executives of Coca Cola. The compensation program is guided by three principles.
1. Pay for Performance. The great majority of pay for executives should be at-risk and performance-based with metrics aligned to the Company’s financial results and business strategy and have a clear connection to the employee’s individual performance.
2. Maintain programs that will attract and retain critical talent, while reinforcing a high-performing and accountable culture. Compensation programs should be competitive in the marketplace and designed to retain talent over the longer term, while holding employees accountable to the Company’s strategy and values.
3. Consider the Coca-Cola system. Employees are required to operate and have influence in the context of a broad and complex global Coca-Cola system, which includes the independent bottling partners. While the Company had approximately $42 billion in reported net operating revenues in 2016, the Coca-Cola system generates more than $100 billion in revenues, operates in over 200 countries and employs more than 700,000 people. The executives and employees must not only manage the business but also support its bottlers and other partners. This alignment and a shared vision of success are critical to drive long-term growth.
This compensation program rewards top executives with bonuses and stock options which more than double their salaries. The executives who benefit are expected to deliver results in leading the company in growth in the beverage industry. “The long term incentive program will continue to provide awards to a broad-based population of employees. The majority of employees currently eligible for long-term awards will begin receiving long-term incentives as performance cash awards in 2015, which will continue to provide competitive incentives consistent with the Company’s pay for performance philosophy.
Coca Cola has also expanded this concept of Pay for Performance to its advertising agencies. If the agency doesn’t deliver advertising that works to increase profits, then Coca Cola only pays them for the cost of the advertisement but not additional profits. This has led to increased innovation in the advertising of their product. This pay for performance model is risky for the advertising agency, because they may have hundreds of employee hours invested in a television commercial and if it doesn’t do well in the market place, then that advertiser doesn’t make a profit. On the other hand, Coca Cola is a large wealthy company, and the advertising agency would be rewarded handsomely for a successful campaign. “If the agency is able to really add value to the Coke products, the agency can earn as high as 30 percent profit” (Trendsupdates.com)
In looking at the history of Coca Cola and what brought about this pay for performance change, the article “Corporations as Partners: “Connected Capitalism” and The Coca-Cola Company” by Robert J. Foster alludes that former CEO Neville Isdell, the CEO of the company from 2004 to 2008, had a mindset of partnering with other corporations and NGO’s to improve the company’s brand as well as change the world for the better. “Profits and progress, Isdell claims, need not conflict: “In fact, one demands the other” (Foster, 2014). It appears this mindset of the company led ultimately to the current compensation program.
The American dream is built on hard work and being rewarded for that work. While everyone needs money and resources to sustain life, the most important thing is to live for Christ in all we do and put his cause above all worldly pursuits. Proverbs 14:23 “In all toil there is profit, but mere talk tends only to poverty”.
Foster, R. J. (2014), Corporations as Partners: “Connected Capitalism” and The Coca-Cola Company. PoLAR, 37: 246–258. doi:10.1111/plar.12073
Mathis, R. L., Jackson, J. H., Valentine, S. R., & Meglich, P. A. (2017). Human resource management.
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Forum: Forum 3 (Modules 5 and 6)
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Forum: Forum 3 (Modules 5 and 6)
Pay-for-performance philosophy – “A financial reward system for employees where some or all of their monetary compensation is related to how their performance is assessed relative to stated criteria. Performance related pay can be used in a business context for how an individual, a team or the entire company performs during a given time frame (Performance Related Pay, n.d.).”
Auto makers are a large corporation that use the pay-for-performance philosophy. After many years of assembly line workers putting cars together it is now evolved into several departments working to bring a vehicle together. Auto Makers are providing incentives and using the pay for performance model to make high quality cars faster. The United Auto Workers Union have already settled with General Motors and have a tentative agreement with Ford and they are wrapping up talks with Chrysler (DuBois, 2011).
The driving reason behind the United Auto Workers Union and the auto manufacturers to create a pay-for-performance model, is to create the incentive to its employees to work better and faster. Incentives to make the same car, but with less errors and less time give an employee something to strive for and not just come in for a solitary paycheck. United Auto Workers and the auto manufacturing companies are trying to create more auto jobs in America; therefore, GM and Ford have offered sign on bonuses and profit sharing plans for the entry level workers coming in at lower salaries (DuBois, 2011).
Many major companies and the government included, are considering going to a pay for performance model to help in the low cash flow issues. In the tough economic times, top working employees need to be compensated for their superior performance. Companies must make sure that they clearly communicate the types of compensation that they will offer in the pay for performance models. When getting the employee geared up for making more by working harder there will be a shift in the overall performance that will help in the end keep companies open. All workers can work to a common goal to perform better to create a better produce and in the end, make more money for themselves and the companies that they work for (DuBois, 2011).
There are some not so nice side effects of the pay to perform models that can lead to criminal activity or the undoing of the entire company. With enough money to be had good people can do some bad things and when selfishness takes over there can be a mess. There must be clear boundaries for incentives, what is and is not allowed, before any wrong doing can begin. Several examples of Pay-to-Perform gone wrong are Enron, Galleon, UBS and Wells Fargo to name a few (Khan, 2016). “If corporations want to promote conscientious behavior, then conscious needs to be given a breathing room. How much for your integrity? Does everyone has a price? George Washington supposedly said few men have the honor to withstand the highest bidder (Khan, 2016).”
DuBois, S. (2011, October 07). Why automakers are adopting pay for performance. Retrieved from Fortune: http://fortune.com/2011/10/07/why-automakers-are-adopting-pay-for-performance/
Khan, R. (2016, October 12). There’s a problem with ‘pay for performance’. Retrieved from Business Insider: http://www.businessinsider.com/theres-a-problem-with-pay-for-performance-2016-10
Performance Related Pay. (n.d.). Retrieved from Business Dictionary: http://www.businessdictionary.com/definition/performance-related-pay.html