The Coca Cola Company’s Value Based Compensation Model

By Barbara Bacci Mirque

Coke created some “compensation envy at the second day ANA’s Advertising Financial Management Conference by being one of the first companies to stop talking about value based compensation and actually implementing the model.  Their primary reason for sharing – from a company that likes to keep its secrets to itself - is that they want to work with other advertisers to see this adopted as an industry standard and by sharing their journey they hope it shortens that of other advertisers.  In 2008 they piloted the model and in 2009 they rolled it to 35 markets.  Their objective is to be fully on board with VBC by 2011.  Fee based compensation - based on inputs – is today’s primary compensation methodology.  The issue is compensation  methods become based on the amount of labor and tends to have little connection between the price paid and value received. 

So one of their first steps was to frame the principles under which they would operate and adopt a mind shift from how much time to what is the value of the work received?  The core thought here is that if you focus on the value the discussion alone is a more productive one.  For example one of the five value pieces they identified is what is the strategic challenge of the work – is it a strategy priority for the company or something they need to do that is not a priority?  Another is industry dynamics: is this agency uniquely qualified to do this work or are their four other agencies that could do it thus level setting what the market will demand.  The three other pieces to the equation are Budget Reality; Share of Work Management; and Talent.  From all of this they determine a value per deliverable and Sarah shared supporting charts and figures. Be forewarned – this is not just moving to a new agency compensation model, this is a change management exercise requiring top level support.

The ANA’s Advertising Financial Management Committee will be dissecting this in more detail.  ANA members interested in this topic should join the committee to become part of that conversation.

Comments

[Chris Hopf]

Trail blazers . . . leaders . . . well done . . . thanks for the post.

[Ron Baker]

I was thrilled to hear this news!

I can't put it better than my colleague Tim did, so all I'll say is congratulations Sarah Armstrong and all of your colleagues at Coca-Cola who are proving the worthiness of a model that forces agencies and clients to focus on the right thing--value creation for all!