Coca-Cola changed the director compensation plan to one that will pay members of the board of directors if the company hits financial targets. Under this plan, “equity share units” valued at $175,000 will be granted to each director if the company hits earnings targets. Directors will have to wait three years to cash in the units, and will be able to do so only if Coke posts compounded annual growth in operating earnings per share of 8% in 2006, 2007, and 2008. It is estimated that EPS will have to rise to $2.73 in 2008 (from $2.17 in 2005) in order for directors to get paid.

The old director compensation program gave directors $50,000 cash and $75,000 in share units each year regardless of Coca-Cola’s performance.

According to the Wall Street Journal:

Greg Taxin, chief executive of Glass, Lewis & Co., a San Francisco investment research and proxy-advisory firm, said Coke’s plan “sets up the wrong incentives” for directors by tying their pay completely to company performance. “I think it’s a scary thing to have an audit committee have those incentives,” Mr. Taxin said.