Coca-Cola Co. announced an overhaul of its compensation system for directors Wednesday, saying they will get paid only if the company meets its financial goals.
Directors will be given share grants each year equal to $175,000. The grants will be payable in cash in three years provided the company increases earnings per share by 8% each year, Atlanta-based Coca-Cola said. Board members previously received an annual fee of $125,000, of which $50,000 was in cash and $75,000 in stock units.
Coca-Cola is making the changes as shareholders increasingly scrutinize the performance of directors. Two percent of the 2,000 largest public companies tie a portion of director pay to performance, according to a recent survey by Corporate Library, a corporate governance advisor. Eight percent of the 2,000 companies pay directors entirely in stock.
"The fact that directors might go without pay is meaningful," said Charles Elson of the University of Delaware's Center for Corporate Governance.
Under the new plan, board members will no longer receive extra pay for serving on committees and attending meetings.
"Shareowners understand that they are only rewarded when the company performs," said James D. Robinson III, a Coca-Cola director and chairman of the committee on directors and corporate governance, in a statement. "The Coca-Cola Co. board will hold itself to the same standard."
Shares of Coca-Cola fell 13 cents to $41.95.
Coca-Cola has 14 board members, including billionaire Warren Buffett, media entrepreneur Barry Diller, Chairman and Chief Executive E. Neville Isdell, former Delta Air Lines Inc. CEO Ronald Allen, former SunTrust Banks Inc. Chairman James B. Williams, and Peter Ueberroth, who organized the 1984 Summer Olympics in Los Angeles. Buffett is stepping down April 19.
The compensation plan will use 2005 profit of $2.17 a share as a base for determining the 8% increase. Coca-Cola's earnings per share rose 2% last year, 13% in 2004 and 44% in 2003.
If Coca-Cola misses its target in any three-year period, directors will receive nothing for that year when the equity-share units would have matured, spokeswoman Lee Winfield said, with adjustments permitted for one-time items.