Disclosure of Strategic Performance Measures
(Commentary by David F. Larcker, James Irvin Miller Professor of Accounting, Director of Stanford Graduate School of Business Corporate Governance Research Program, And Brian Tayan, MBA ’03, Stanford GSB; Date: 7-02-2010)
Source: The Coca-Cola Company, Form DEF 14A, Filed March 5, 2009
Confidentiality, at what price? In May 2008, the Coca-Cola Company received a comment letter from the SEC requesting that the company improve disclosure on the performance targets used in the company’s bonus plan. Rather than comply with this request, the company decided not to award performance-based bonuses but instead to award discretionary bonuses. The difference matters, because the discretionary bonuses awarded were not tax deductible. The company explained the rationale behind its decision:
“The Company believed that disclosing the ranges would allow a competitor to recreate the matrix of business performance targets and use this information to determine our business strategy. […]The Compensation Committee weighed the additional tax cost versus the competitive harm in disclosing the plan targets and determined that the potential competitive harm significantly outweighed the additional tax cost, which was not material.”