Establishing effective incentive plans in an organization is a milestone in promoting employee and stakeholder commitment to the mission and objectives of the company. This is because to serve as and engagement and motivational practice to these members (Ellig, 2007). Different organizations assume varied approaches in making incentive plan policies; all of which are tailored towards the sustainable realization of their objectives. The author will critically analyze the incentive plans of the Coca Cola Company. A discussion on whether the incentive plans help the organization to achieve its goals and objectives is also given.
The Coca Cola Company management employs economic value added and economic profit viewpoint as a strategic measure for its growth (Wilson, 1999). To achieve this, the company has three major objectives namely; 1) promoting its industrial growth so as to enhance its products demand across the globe; 2) engaging in innovative business practices such as marketing and human resource and customer management; and 3) long-term investment operations for improving its future competitive stand in the market (Wilson, 1999). Based on this strategic measures and company objectives, the company has put in place two incentive plans.
The first is the annual incentive plan which involves evaluation of preset objectives for sales of company products and economic profit in each division to determine the level of incentive to be given (Wilson, 1999). According to this incentive plan, the projections on unit sales of products and its equivalent economic profits objective is a concreted agreement between division and the senior managements of the company (Ellig, 2007). Determination of the value of incentives to be given to each division is based on an assessment of its actual performance against its objectives at the end of the financial year.
Based on this incentive plan, 100% incentives funding is given to divisions which meet their objective, with more or less funding given to those divisions which surpass of fail to meet objectives respectively (Ellig, 2007). In essence, the incentive funding is usually a calculated sum of funds aimed at awarding each participant to the achievement. On the other hand, the division management enjoys the privilege of determining the level of award for each participant depending on their personal or team performance to the realization of the objectives (Wilson, 1999). Such might range from zero to a maximum award value.
The other incentive plan employed by the coca cola company is the Stock Options award program. Incentive stock options programs encompass unique tax benefits to the targeted pool (Ellig, 2007). As practiced in the Coca Cola Company stock option awards are granted to divisions based on their performance to the objectives; sale of company products and gained economic profits (Wilson, 1999). Upon granting of the options to the division, the division management engages to determine and recommend the proportional individual option grants to be given depending on their performance in achieving the objectives.
Moreover, individual option grants remain within a dynamic range determined by grading level along a pre-specified range (Ellig, 2007). Therefore, just like annual incentive plan, the stock options incentive plan by Coca Cola Company put into consideration the economic profitability and product sales volume of a particular division to qualify the level of incentives to be given to the pool (Wilson, 1999). This strategic approach has brought numerous advantages in realizing the objectives of the company.
First, in the quest for the incentives, division management engages its devoted efforts in planning strategies that will guarantee delivery of projected product volumes and economic profits (Wilson, 1999). Another important aspect of the incentive plans of the company towards its objectives is that it encourages executives to pay more attention on the day-to day operations of their divisions not only to meet volume and profit objectives but above all to promote shareowner value through stock options (Wilson, 1999).
In addition, these incentive plans are crucial in improving a value-based management approach in the company, a factor which serves to mitigate poor economic performance (Ellig, 2007). As an emphasis to the competitive advantage brought by these incentive plans to the company, available statistics indicate that the stock-based market value of the company grew from $15 billion in 1986 to an estimated $165 in 1997 (Wilson, 1999). In addition, its profits have been increasing by about 20% per annum over the same period.
In conclusion, the incentive plans employed by the Coca Cola Company are quite reflective of its objectives. The company seeks to maintain its competitive position as a leading beverage company in the global market by employing economic value added and economic profit performance measure strategy for granting incentives. Through this, executives and associates have been forced to engage in concerted efforts towards meeting volume and profits objectives so as to enhance their shareowner value in the company.
On the other hand, since distribution of incentives is based on individual or team performance, individual associates are forced to increase their commitment to the objectives of the organization. This saw the company’s stock grow from $15 billion in 1986 to $165 billion in 1997. Therefore, the Coca Cola Company is a good example of how effective incentive plans can aid in promoting the profitability of an organization.