Coca-Cola changes compensation plan

28 April 2009

ATLANTA: Coca-Cola, the soft drinks giant, is moving towards a "value-based" agency compensation system that will only pay for costs if campaigns do not deliver, but could offer margins of up to 30% if certain targets are met.

The company has previously announced plans to expand its operations and investment in countries including China and India.

At the ANA's Financial Management Conference, Sarah Armstrong, Coca-Cola's director of worldwide media and communication operations, said the company was looking to transform its approach.

It will determine the priority level of specific campaigns, and assess the ability of particular agencies to deliver on these projects, in order to establish the proposed scale of remuneration.

Armstrong argued that "we want our agencies to earn their profitability, but it's not guaranteed. We need them to be profitable and healthy, but they have to earn it through performance."

Coca-Cola launched the scheme in five countries last year, and will do so in a further 35 markets in 2009, and across all of its agency partnerships by 2011.

Armstrong said there were "some pointed questions" from agencies over the proposals, but observed that "they knew at some point someone would take this path; they just didn't know it would be us."

She added that the company had no "real concern" that the system would make its advertising more risk-averse, as it has a "fundamental belief that our agencies are competitive enough that they are going to bring their A-games no matter what."

Coca-Cola spends around $3 billion (€2.3bn; £2.0bn) globally on advertising, but has also announced a cost-cutting programme aiming to reduce expenditure across all of its operations by at least $400m by 2011.

Data sourced from AdAge; additional content by WARC staff