2017 was a pivotal year for our Company, and we look different today than we did just one year ago. In addition to completing the refranchising of our bottling operations in the U.S. and China, we executed our leadership succession plan and transitioned to a new Chief Executive Ofﬁcer, James Quincey, who announced his vision for the Company, as we continue to evolve to a total beverage company. Our growth strategy centers around a new operating model: where increased responsibility is placed on our local business units to accelerate performance; where we leverage new technologies to digitize our enterprise, externally—with customers and consumers—and internally to increase efﬁciency and productivity; where our corporate center is leaner and more agile, with our focus reoriented to key strategic initiatives, policy and governance; where we unlock the power of our people to drive growth; and where we deepen our enabling services to improve employee engagement. We also strengthened our long-standing link between the sustainability of our business and the sustainability of the communities we serve.
This new operating model is designed to enable an accountable, performance-driven growth culture—one with fewer employees, who are externally focused, empowered, fast and willing to take informed risks that will result in greater return for our shareowners. In short, we are focused on accelerating our transformation to a high-performing growth business.
Because the Company’s talent, incentive and reward programs are integral to achieving our growth strategy, in 2017 we undertook a comprehensive review of our compensation programs to ensure a continued focus on driving business growth and our desired high-performance culture. During the year-long review process, the Company asked for feedback from over 1,100 employees around the world, listened to feedback from you, our shareowners, reviewed external market data and researched the correlation between performance metrics and shareowner return over the past six years. As a result, three key focus areas for our compensation design emerged as we looked to reﬁne our compensation and talent strategy for 2018 and future years:
- Growth: Motivate and reward growth;
- Differentiation and segmentation: Invest in our top contributors and those with the greatest potential to drive future growth, giving everyone the opportunity to contribute and reach their full potential, while balancing our ability to attract and retain key talent; and
- Simplicity and transparency: Provide simplicity and a better line of sight for employees while also focusing on key growth metrics and driving long-term shareowner value.
Consequently, beginning in 2018, annual incentive plan performance metrics will be divided equally between net operating revenue and operating income, and the long-term incentive plan performance metrics will be divided equally among net operating revenue, earnings per share and free cash ﬂow. All participants in the annual and long-term incentive plans will be measured in part against the performance of the total Company, rather than just their operating unit or function, to ensure that everyone is invested in the total growth of the Company and is focused on its long-term success. We believe these metrics have a strong correlation to shareowner value, are easy to understand and will drive and reward growth behaviors and actions. We will continue to have a standing meeting each year dedicated to test the robustness and rigor of our incentive metrics and to drive our programs to adhere to our equity stewardship guidelines.
Progress toward non-ﬁnancial goals that are critical to our business and reﬂect our commitment to sustainability also adds value for our shareowners and other stakeholders. However, we listened to shareowners regarding the level of discretion that was exercised in the executive annual incentive plan in past years and developed scorecards for our most senior executives that identify the categories on which they will be assessed for the 2018 performance year and thereafter. We will continue to develop more rigor around setting and assessing non-ﬁnancial goals. We also reduced the maximum payout, and added a minimum threshold of performance that must be achieved before any payout is earned, under the executive annual incentive plan for 2018 and thereafter.
You will see in the Compensation Discussion and Analysis of our Proxy Statement the details of our compensation programs, including the speciﬁc decisions we made for the 2017 Named Executive Ofﬁcers and the rationale for them. We remain committed to listening to your feedback as we continue to evaluate and reﬁne the Company’s compensation programs.
Ms. Lagomasino, Dr. Gayle and Ms. Herman are members of the Compensation Committee of The Coca-Cola Company’s Board of Directors, chaired by Ms. Lagomasino. Lagomasino is the Chief Executive Officer and Managing Partner of WE Family Offices. Gayle is Chief Executive Officer of The Chicago Community Trust. Herman is Chair and Chief Executive Officer of New Ventures LLC.
The fairlife® brand is owned by fairlife, LLC, our joint venture with Select Milk Producers, Inc., and fairlife’s products are distributed by our Company and certain of our bottling partners.