Summary
The Coca-Cola Company (KO) filed an 8-K on April 4, 2006, to announce a significant change in its compensation structure for non-employee directors, effective in 2006. The company has replaced the existing director compensation with a new equity-based plan that ties all remuneration to the achievement of pre-defined performance targets. This move aligns director incentives more closely with the company's financial performance, particularly earnings per share growth. Under the new "Compensation Plan for Non-Employee Directors," directors will receive equity share units valued at $175,000 annually, payable only in cash upon meeting a three-year performance target. This target is set at an 8 percent compounded annual growth in earnings per share, using the 2005 EPS of $2.17 as the base. Notably, all equity units and any hypothetical dividends will be forfeited if the performance target is not met. This replaces a previous structure that included a cash retainer and accrued share units, along with additional fees for committee work, all of which have been eliminated.
Key Highlights
- 1Introduction of a new equity-based compensation plan for non-employee directors, effective 2006.
- 2Director compensation is now entirely performance-contingent, with payouts dependent on achieving pre-defined targets.
- 3Annual equity grant value for directors set at $175,000.
- 4Payouts for equity awards will be in cash upon achievement of performance targets.
- 5A three-year performance target of 8% compounded annual growth in EPS has been established, using 2005 EPS of $2.17 as the baseline.
- 6Directors will forfeit all equity units and hypothetical dividends if performance targets are not met.
- 7Elimination of previous cash retainers, accrued share units, and additional fees for committee service.