The Coca-Cola Company
The Coca-Cola Company
The Coca-Cola Company is a leading producer of non-alcoholic beverages. It specializes in the production of popular soft drink brands such as Coke, Sprite, Fanta, Minute Maid, Dasani, and Del Valle. The company has a centralized global compensation strategy (Ford, Stephens & Cooper, 2007). Establishing bonus criteria, deciding on senior management compensation, and benchmarking compensation data is done at the corporate level. However, decisions about middle manager pay-increases, pension benefits, and operational employees are made at the local level. In addition, such factors as performance management, cost management, and talent retention for reward programs depend on the country in which the company operates.
In its compensation strategy, the corporate human resource management of Coca-Cola provides a standard salary philosophy whereby the total compensation package should be competitive with the best firms in the local market. Under this conception, local human resources personnel can develop policies and practices that match their business needs. The corporate human resource management group conducts a two-week familiarization session for local human resources team twice a year and enables information sharing between regions (Edwards & Lee, 2012).
There are three best practices that Coca-Cola Company emphasizes in its code of conduct: focus on customers, free flow of information, and confidentiality. To keep the focus on customers the company accentuates the importance of high-quality brands production that meet the demand of consumers. Coca-Cola also emphasizes the free flow of information. It requires its managers to create a comfortable environment for employees to report and share any information freely. Such an environment encourages innovation. The company underlines importance of innovation as a way to sustain growth of its business. Coca-Cola also supports confidentiality. The company requires all its employees to keep the company’s secrets. Coca-Cola does not disclose information such as technical or market data, strategies, projects, plans, methods, or even manufacturing processes (Coca-Cola, 2009).
The major compensation-related challenge Coca-Cola faces is its 2014 compensation proposal for executives. The company’s plan is to issue 14.2% of its equity to the top management in order to finance debt. The Coca-Cola is planning to issue 340 million shares (about $13 billion) over the next four years. The 340 million shares could be split between full-value shares and options for the top management. However, some shareholders expressed concerns about the plan; they argued that it amounted to a massive transfer of wealth from shareholders to the company’s executives. Therefore, the company might be forced to restructure its compensation plan in order to come up with a different strategy that is acceptable for all the stakeholders (Coca-Cola, 2014).
Compensation practices and their impacts
The company compensates its workforce using financial incentives. It gives monetary rewards that include competitive compensation and annual merit review. In any organization financial reward remains the greatest physical motivator. The Coca-Cola also provides equity plans for workers in particular grade levels. In addition, the company has a ‘Red Tag’ program that recognizes individual employee performance. The employee can be awarded points that are redeemable for merchandise or travel awards. Once a company shares its profits among employees, the incentives encourage them to make products of higher quality and dedicate themselves to perform higher level services. The Coca-Cola uses monetary incentives to motivate its employees for inventing cost-efficient products that improve productivity (Coca-Cola, 2014).
The Coca-Cola compensates its employees by providing them education benefits which include undergraduate scholarship funds and tuition reimbursement for dependants of Coca-Cola employees. The company also motivates its employees through learning as it creates favorable environments that enhance self-learning among the employees which stimulates them to become more productive.
The Coca-Cola compensates its employees through improved industrial relations with existing trade unions. Although trade unions prioritize the interests of their members, Coca-Cola benefits by collaborating with the unions. It is a successful multinational corporation that is suitable for workers and, therefore, convenient for the union and its members. The company benefits by negotiating collective agreements.
The Coca-Cola Company provides its employees with flexible retirement plans that are entirely funded by the company. This compensation strategy includes the 401(k) plan, choice of funds, and defined benefit plan. The company also provides discounts and conveniences such as employee discount program, automobile discount plan, on-site cafeteria, dry cleaning, credit union, concierge services, the company store, and free parking.
One of the impacts of Coca-Cola’s motivational strategies is talent retention. The company has a compensation strategy that clearly lays out career progression in the organization. Career progression helps in reducing employee turnover. The company has implemented a strategy of paying the top management above market. It also allows some employees a degree of control in choosing the amount of salary versus benefits they receive. In addition, the company provides its employees with compensation packages that fit their individual needs. As a result, the workers do not have sufficient issues of quitting the company due to benefit-related issues (Edwards & Lee, 2012).
Coca-Cola does not utilize pay for performance in all markets, and particularly in emerging markets where there is a collective culture. However, Coca-Cola uses pay for performance incentive in high-growth markets in order to acquire new skills. Coca-Cola supports initiatives and efforts by paying a greater share of the market earnings to employees who show higher potential while other workers receive the median. The company also segments its base pay into different development zones which makes it possible for workers to earn more as they become more proficient at their jobs. In doing so, the company can incentivize skill acquisition and promote employee retention (Edwards & Lee, 2012).
Effects of laws, labor unions, and market factors on compensation strategies
One of the factors affecting Coca-Cola’s compensation strategy is federal restrictions on executive bonuses. Companies are not prohibited from paying their executives any compensation; however, they are prohibited from deducting the compensation amount paid on their tax return. Thus, any company that compensates its executives will experience decreased profits and lower returns to the shareholders (Balsam, 2012). Therefore, Coca-Cola will not risk paying enormous cash performance rewards to its executives. Also, Coca-Cola’s executive retirement compensation strategies were illegal under federal retirement funding legislation because the company had structured such payments as retirement compensation obligations. However, Coca-Cola circumvented the legal hurdle by restructuring the retirement benefits as general obligations of the company.
The Coca-Cola Company faces challenges from labor unions that affect its compensation strategy. Labor unions advise their members on appropriate legal ways to pursue sufficient compensation from their employers. For example, when an employer wants to lay off a number of workers as a cost-reduction strategy, the labor unions can intervene to prevent unnecessary job cuts. Also, the labor unions can negotiate significant compensation packages for workers who lose their jobs or those who are discriminated at work. In February 2014, the Coca-Cola announced $1 billion cost cuts over the next 3 years. The company experienced declining profits caused by significant shortage in its sales. The company’s $1 billion cost-cut measures might not be realized due to potential opposition from labor unions.
Although Coca-Cola is a dominant company in the soft drinks industry, it faces unexpected challenges in addition to increasing competition from the PepsiCo. One of the unexpected challenges is the massive decline in its global sales. The decline is attributed to people’s change of preference; some people started to prefer non-carbonated drinks. Thus, it might happen that the company will not manage to pay substantial compensation benefits to its employees for a sustainable period (Ki et al., 2011).
Traditionally, Coca-Cola had a single-salary structure for most of its employees. The salary structure appeared to be not efficient. The employees had limited chances of career progression within the organization and the company found it difficult to retain employees and talent within the organization. However, things changed when the company overhauled its salary and compensation structure. The Coca-Cola adopted a new strategy whereby the total compensation packages were based on competitiveness with the best companies in the local market. Under this approach, local human resources personnel were allowed to develop policies that matched their business needs.
Coca-Cola started using pay for performance incentive in high-growth markets as a measure of acquiring new skills. The company started securing new skills by paying higher-performing employees a greater share of the market wage compared with the rest of the workforce. The company also segmented its base pay into various development zones where workers could earn more as they became more proficient at their jobs. The company benefited by retaining talent and reducing employee turnover in the organization (Edwards & Lee, 2012).
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