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Coke to pay all-or-nothing

Coca-Cola would pay its directors only if goals are met, leaving its board with no compensation if targets are missed.

india Updated: Apr 06, 2006 11:56 IST

Coca-Cola Co said on Wednesday it would pay its directors only if earnings growth goals are met, leaving board members at the world's largest soft drink maker with no compensation if targets are missed.

Under the new plan, which takes effect in 2006, directors would receive share units each year equal to a flat fee of $175,000. If the company meets a goal of 8 per cent compounded annual earnings growth over the next three years, the units would be payable in cash, Coca-Cola said in a statement.

Should profit growth fall short of the target during the three-year performance cycle, the share units would be forfeited, leaving directors with no pay.

The 8 percent target is the mid-point of the company's long-term performance goal.

Previously, Coca-Cola directors were given an annual retainer of $125,000, consisting of $50,000 in cash and $75,000 accrued in share units.

"It's a novel idea," said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. "Where it's unique is that if directors don't meet internally based targets, they get nothing."

Elson said Coca-Cola's plan would best keep directors motivated if the award were given in shares rather than cash at the end of the three years.

But he added the plan shows that Coca-Cola, which is rolling out new products to try and fuel sales, "has a long-term commitment to growth."

While the new plan eliminates fees for chairing committees and attending meetings, it gives the board the option to make a one-time cash award to new directors.

Coca-Cola shares fell 13 cents to close at $41.95 on the New York Stock Exchange.