BACK to Latest
Coca-Cola Company Directors Page
BACK to Latest
Coca-Cola Company Directors Page
In accordance with rules adopted in 1992 by the Securities and Exchange Commission, as amended in 1993, the Compensation Committee of the Board of Directors of The Coca-Cola Company and related subcommittees (the "Committees") offer this report regarding compensation policies for executive officers and the Chief Executive Officer of the Company.
The Company's primary objective is to maximize share-owner value over time. To accomplish this objective, the Company has adopted a comprehensive business strategy. The overall goal of the Committees is to develop executive compensation policies and practices which are consistent with and linked to the Company's strategic business objectives. There are certain principles to which the Committees adhere in structuring the compensation packages of executive officers. They are as follows:
LONG-TERM AND AT-RISK FOCUS:
The majority of pay for senior
executive officers should be composed of long-term, at-risk pay to focus
management on the long-term interests of share owners. Less emphasis is placed
on base salary, annual incentives and employee benefits.
EQUITY ORIENTATION:
Equity-based plans should comprise a major
part of the at-risk portion of total compensation to instill ownership
thinking and to link compensation to corporate performance and share-owner
interests. Consistent with this philosophy, the Company encourages and in some
cases requires executives to hold stock delivered through equity-based plans.
MANAGEMENT DEVELOPMENT:
To support the Board of Directors in
fulfilling its responsibility of identifying future business leaders,
compensation opportunities should be structured to attract and retain those
individuals who can maximize the creation of share-owner value. The
compensation structure supports the Company's philosophy of moving potential
leaders throughout the system, exposing them to many types of markets and
operations.
COMPETITIVENESS:
The Company emphasizes total compensation
opportunities and focuses less attention on the competitive posture of each
component of compensation. The development of at-risk pay policies is driven
more by Company strategy than by competitive practice. Over time, the level of
the Company's competitiveness in compensation opportunities is based heavily
on the Company's stock price performance relative to other large companies. In
line with this principle, current total compensation competitiveness is
targeted in the top quartile of the range of total compensation of a
comparator group of companies described in the next section of this report.
These principles apply to compensation policies for all executive officers, and there is no differentiation in application to officers named in the compensation table, other executive officers or other key individuals covered by the executive compensation plans of the Company. Further, the Committees do not follow the principles in a mechanical fashion; rather, the Committees use experience and judgment in determining the mix of compensation for each individual. The Committees believe that current compensation practices and levels meet the principles described herein.
These principles have guided executive compensation practices since the early 1980's, and the Committees believe the performance of the Company during this period validates the appropriateness of the principles.
Continued growth in global volume, earnings and economic profit contributed to an addition in 1997 of $34 billion in the Company's market value. In 1997, the return to share owners, including dividends, was 28%, following a 43% return in 1996. The Committees believe that the long-term focus on value creation engendered by the compensation principles kept management focused on the strategies that position the Company for sustained growth. For precisely this reason, the Committees affirm their commitment to continuing the compensation policies that have contributed to past success and which ensure continuity of executive leadership.
The sections that follow illustrate these policies.
COMPONENTS OF EXECUTIVE COMPENSATION
The four primary components of
executive compensation are:
. Base Salary
. Annual Incentives
. Long-Term Incentives
. Benefits
Each category is
offered to key executives in various combinations, structured in each case to
meet varying business objectives, and to cumulatively provide a level of total
compensation in the top (fourth) quartile of the range of total compensation
offered by a comparator group. The companies selected for comparison of total
compensation differ from those included in the Performance Graph in an earlier
section of this Proxy Statement because the Company seeks talent from a broader
group of companies than the Food, Beverage and Tobacco Groups against which
performance is compared.
Total compensation comparators are selected by screening large public companies for such performance characteristics as profit growth and return on equity. Those companies exhibiting leadership in the performance measures over sustained periods are selected as benchmarks for the Company's total compensation standards.
The philosophy underlying each category is discussed herein.
BASE SALARY.
Base salary is targeted within the third quartile of the
range for the comparator group. Increases in base salary are at competitive
levels but occur at frequencies ranging from 12 months to 24 months, depending
upon performance, time in job, level of pay and other factors. The lag between
increases in base pay is designed to ensure that focus remains on the long- term
portion of the total compensation package. Increases in base pay are determined
by individual performance rather than Company performance, and are based on
subjective evaluations of all factors.
Mr. Goizueta did not receive a base salary increase in 1997.
Base salary for Mr. Ivester was increased by 56% effective in November 1997, reflecting his being named Chairman of the Board and CEO in October, 1997. Mr. Ivester received an increase of 10.3% in April 1997. The April 1997 increase was the first change in base salary for him in 18 months, and was based on his performance as President during that period.
With individual variation, base pay for the executive officer group generally falls within the targeted third quartile. Mr. Ivester's base pay falls in the lower third quartile.
ANNUAL INCENTIVES.
The Company has maintained the Annual Performance
Incentive Plan, and adopted the Executive Performance Incentive Plan effective
January 1, 1994. Executive officers may be selected for participation in either,
but not both, of these plans. For those executive officers participating in the
Executive Performance Incentive Plan, the Compensation Committee reserves the
right to grant discretionary bonuses based on subjective evaluation of each
executive officer's individual performance. Each plan is described below.
ANNUAL PERFORMANCE INCENTIVE PLAN.
Target annual incentives are
established for certain key executives, including participating executive
officers. The actual award is based on economic profit growth, unit case
volume increases and personal performance, and may be greater or less than the
target annual incentive. Below a threshold level of performance, no awards may
be granted. Generally, economic profit growth and unit case volume increases
are weighted higher than personal performance, but the weightings may be
adjusted to take into account unusual circumstances.
EXECUTIVE PERFORMANCE INCENTIVE PLAN.
This Plan was approved by share
owners in 1994. The Committees may approve some or all of the executive
officers for participation in the Plan each year, and executive officers
selected for participation shall not be eligible for participation in the
Annual Performance Incentive Plan. Target annual incentives are established
for each approved executive officer. The award is based on earnings per share
gain, unit case volume increases and change in share of soft drink sales, and
may be greater or less than the target annual incentive set under this Plan.
Nearly 95% of the award is determined from equal weightings on volume growth
and earnings per share, with the remaining amount determined by market share
change. Payments from this Plan are intended to qualify as tax-deductible
performance-based compensation under the terms of Section 162(m) of the
Internal Revenue Code of 1986. Opportunities are targeted within the third
quartile of the range of the comparator group.
Competitive 1997 annual incentive data is not yet available. Measured against historical competitive standards, cumulative annual incentives paid to executive officers generally fell within the targeted third quartile, with individual variation.
Mr. Goizueta earned an annual incentive award prorated to the time of his death of $2,500,000 for 1997 under the Executive Performance Incentive Plan. This award when annualized falls within the fourth quartile of historical competitive standards.
Mr. Ivester earned an annual incentive award of $2,000,000 for 1997, of which $1,365,000 was made under the Executive Performance Incentive Plan and $635,000 as a discretionary award. The total award falls within the fourth quartile of the historical competitive standards.
Both awards were based on the Company's strong performance in earnings and volume growth and the smoothness of the transition of leadership.
Annual incentives from various plans may be earned by about 6,400 employees each year.
LONG-TERM INCENTIVES.
Long-term incentives comprise the largest portion
of the total compensation package for executive officers. There are three forms
of long-term incentives utilized for executive officers, including stock
options, restricted stock and long-term incentive plans with cash awards. In any
given year, an executive officer may be offered participation in a single plan
or in a combination of plans.
As framed by the guiding principles listed earlier, the Company targets a level of total compensation for executive officers in the top (fourth) quartile of the comparator group range. Because base salary and annual incentives are targeted within the third quartile, the compensation focus for executive officers is clearly on long-term incentives. The scope of long-term incentive opportunities targeted for each executive officer is determined first by the difference between the desired level of total compensation and the combined amount of base salary, employee benefits, and annual incentives. The actual long-term incentive amount is influenced by both individual and company performance.pportunities are targeted within the third quartile of the range of the comparator group.
Factors which influence decisions regarding what form of long-term incentives to grant to a particular executive officer include individual performance, tenure with the Company, history of past grants, time in current job and level of, or significant changes in, responsibility. These subjective criteria are used for determining grant type for all executive officers.
In keeping with the principles set forth at the beginning of this report, in 1996 the Compensation Committee established stock ownership guidelines for officers and key employees of the Company. The guidelines range from two to ten times base salary, depending on job level, and are particularly aggressive compared to guidelines set by other companies. Only stock purchased by the individual is considered for purposes of meeting the ownership guidelines. Stock granted as matching contributions in the Thrift Plan or as restricted stock are not considered in measuring compliance with the guidelines. Penalties in the form of reduced future option grants may be applied to those who do not meet the guidelines within five years of becoming covered by the guidelines.
Each form of long-term incentive is discussed below.
RESTRICTED STOCK.
The Restricted Stock Award Plans are designed to
focus executives, including executive officers, on the long-term performance
of the Company for the duration of their careers. Contrary to competitive
practice, grants of restricted shares are subject to forfeiture until
retirement, death, disability or a change in control. In addition, grants made
after July, 1991 are forfeited if separation from the Company occurs before
age 62 and before five years have elapsed from the date of the grant. These
features result in the Company's ability to retain, throughout their entire
careers, those individuals who are key to the creation of share-owner value.
Currently, 51 key employees hold shares of restricted stock. In 1997, Mr. Goizueta did not receive restricted stock.
In 1997, Mr. Ivester was granted 150,000 shares of restricted stock. This grant was made prior to his election as Chairman and CEO.
STOCK OPTIONS.
Options provide executives with the opportunity to
buy and maintain an equity interest in the Company and to share in the
appreciation of the value of the stock. Stock options only have value if the
stock price appreciates in value from the date the options are granted.
Approximately 7,200 employees received option grants in 1996. This number grew
to approximately 8,200 in 1997.
Executives are encouraged to hold shares received upon the exercise of the options, linking their interests to those of share owners.
In 1997, Mr. Goizueta did not receive stock options.
In 1997, Mr. Ivester did not receive stock options.
LONG TERM PERFORMANCE INCENTIVE PLAN.
The Long Term Performance
Incentive Plan is a three-year performance plan. The two performance measures
which drive this plan are unit case volume growth and growth in economic
profit. The Compensation Committee believes that these factors are the key
contributors, over time, to the creation of share-owner value. Below a
threshold level of performance, no awards can be earned. Restrictions are
attached on one-half of any award earned for two years after the end of the
performance period. The role of this Plan is to maintain executive focus on
the drivers of the business at all times, regardless of periodic distortions
in the capital markets caused by external factors.
The weight of each factor varies throughout the matrix. Considering the entire matrix, each factor carries approximately a 50% weight.
Sixteen key employees participated in the long-term incentive plan described above in 1997.
Mr. Goizueta earned an award prorated to the time of his death of $1,719,717 for the performance period ending December 31, 1997 and prorata awards of $1,108,594 and $580,556 for plans in progress for the 1996-1998 and 1997-1999 performance periods, respectively. Actual growth in unit case volume and economic profit for each of the three-year periods determined the amount of the awards, which fell in the high end of the spectrum of potential awards.
Mr. Ivester earned an award of $1,072,855 for the performance period ended December 31, 1997. Actual growth in unit case volume and economic profit for the three-year period determined the amount of this award, which fell in the high end of the spectrum of potential awards.
BENEFITS.
Benefits offered to key executives serve a different purpose
than do the other elements of total compensation. In general, they are designed
to provide a safety net of protection against the financial catastrophes that
can result from illness, disability or death, and to provide a reasonable level
of retirement income based on years of service with the Company. Benefits
offered to key executives are largely those that are offered to the general
employee population, with some variation, primarily to promote tax efficiency
and replacement of benefit opportunities lost due to regulatory limits.
TAX COMPLIANCE POLICY
. A feature of the Omnibus Budget Reconciliation
Act of 1993 limits deductibility of certain compensation for the Chief Executive
Officer and the additional four executive officers who are highest paid and
employed at year end to $1 million per year, effective for tax years beginning
on or after January 1, 1994. If certain conditions are met, including the
removal of positive discretion in the determination of individual rewards,
compensation may be excluded from consideration of the $1 million limit. The
policy of the Committees related to this Act is to establish and maintain a
compensation program which maximizes the creation of long-term share-owner
value.
In 1994, share owners approved the Executive Performance Incentive Plan and a revised Long Term Performance Incentive Plan, both of which meet the conditions necessary for exclusion from consideration of non-deductibility. The Company's Stock Option Plan by its terms meets the necessary conditions. The actions taken evidence the approach of the Committees to comply with the intent of this Act. It must be noted, however, that the Committees are obligated to the Board and the share owners of the Company to recognize and reward performance which increases the value of the Company. Accordingly, the Committees will continue to exercise discretion in those instances where the mechanistic approaches necessary under tax law considerations would compromise the interests of share owners.
SUBCOMMITTEES.
Based on requirements of various tax and securities
rules and regulations, two subcommittees of the Compensation Committee (the
Restricted Stock Subcommittee and the Stock Option Subcommittee) met and took
action in 1997.
SUMMARY.
The Committees believe the executive compensation policies and
programs described in this Report serve the interests of the share owners and
the Company. Pay delivered to executives is intended to be linked to, and
commensurate with, Company performance and with share-owner expectations. The
Committees caution that the practice and the performance results of the
compensation philosophy described herein should be measured over a period
sufficiently long to determine whether strategy development and implementation
are in line with, and responsive to, share-owner expectations.
Herbert A. Allen, Chairman
Susan B. King
Paul F. Oreffice
Peter V. Ueberroth
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company is composed entirely of the
four outside Directors named as signatories to the Compensation Committee report
above, as was the case during fiscal 1997. Compensation Committee members do not
have any non-trivial professional, familial or financial relationship with the
CEO, other executive officers or the Company other than his or her directorship.
Herbert A. Allen, who serves as Chairman of the Compensation Committee of the Company's Board of Directors, is President, Chief Executive Officer and Managing Director of Allen & Company Incorporated ("ACI") and a principal share owner of ACI's parent. ACI has leased and subleased office space since 1977 in the building located at 711 Fifth Avenue, New York, New York. A subsidiary of the Company acquired that building in 1982 as an incidental part of a much larger transaction. The current lease, as modified from time to time, was entered into in 1985. In 1997, ACI paid approximately $2.113 million under the lease and it is expected ACI will pay approximately $2.184 million in 1998, and escalating payments in future years, under the terms of the lease. In the opinion of management, the terms of the lease, as modified, are fair and reasonable and as favorable to the Company as those which could have been obtained from unrelated third parties at the time of its execution.
The Company has made previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that incorporate future filings, including this Proxy Statement, in whole or in part. However, the following Performance Graph and the Report of the Compensation Committee of the Board of Directors of The Coca-Cola Company and its Subcommittees on Executive Compensation shall not be incorporated by reference into any such filings.
TOTAL RETURN
STOCK PRICE PLUS REINVESTED DIVIDENDS
THE MEASUREMENT PERIOD COCA-COLA THE FOOD,BEVERAGE (FISCAL YEAR COVERED) COMPANY S & P 500 & TOBACCO GROUPS - -------------------- --------- --------- ---------------- Measurement PT - 12/31/92 $ 100 $ 100 $ 100 FYE 12/31/93 $ 108 $ 110 $ 89 FYE 12/31/94 $ 127 $ 112 $ 94 FYE 12/31/95 $ 186 $ 153 $ 132 FYE 12/31/96 $ 266 $ 188 $ 158 FYE 12/31/97 $ 340 $ 251 $ 211
* Based on information for a self-constructed peer group of the Food, Beverage and Tobacco Groups of companies as published in The Wall Street Journal, which includes the following companies, but from which the Company has been excluded:
Anheuser-Busch Companies, Inc., Brown-Forman Corporation, Adolph Coors Company, Coca-Cola Enterprises Inc., PepsiCo, Inc., Whitman Corporation, Archer-Daniels-Midland Company, Campbell Soup Company, ConAgra, Inc., CPC International Inc., Dole Food Company, Inc., General Mills, Inc., H.J. Heinz Company, Hershey Foods Corporation, Hormel Foods Corporation, Kellogg Company, McCormick & Company, Incorporated, Nabisco Holdings Corp., The Quaker Oats Company, Ralston Purina Company, Sara Lee Corporation, Wm. Wrigley Jr. Company, Philip Morris Companies Inc., Universal Corporation and UST Inc.
The Wall Street Journal periodically changes the companies reported as a part of the Food, Beverage and Tobacco Groups of companies. At the time the Company's 1997 Proxy Statement was published, the Groups included American Brands, Inc. and Tyson Foods, Inc., which are now excluded.
The total return assumes that dividends were reinvested quarterly and is based on a $100 investment on December 31, 1992.