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The Coca-Cola and PepsiCo are competing companies that manufacture and distribute soft drink beverages across the globe. With the increased competition, each company has come up with clear efforts on the ways to attract and retain competent and experienced staff. This has taken been done through their strategic plans embraced in their bid to boost employee performance as well as satisfaction. Both companies invested in different pension plans and tailored them to result to the respective needs of their employees, as well as to be aligned with their respective policies of employment. This paper is a culmination of the efforts to identify and contrast the pension plans of the two companies, to come up with their rates, to determine the best company to invest in as an investor, as well as to identify the company that offers the best terms for work as a potential employee.
Pension plans of Coca-Cola and PepsiCo
The Coca-Cola Company, based in Atlanta has embraced a new pension plan for its employees. This is the ‘cash balance pension plan’. This plan implied that the employees would receive annual weighted credits on pension, which is equivalent to the percentage of pay that the employee receives. The suggested credits were to start from a 3% of pay, and they would increase with one’s age. This pension plan also provides for the cash balance of the employee accounts to be credited with interest rates. This plan targeted the US salaried employees as well as those who were recruited on hourly basis. The plan served the company in the year 2010. The previous employees who worked under the traditional average pay plan, earned benefits in 2010 under this new plan. The company decide tom embrace this kind of pension plan at a season when many employers in the United States and other countries where the company have their subsidiaries are phasing out ‘defined benefit plan’; and replacing them with the exclusive ‘defined contribution plans’ for pension. The Coca-Cola top executives rejected this approach and invested in the ‘cash balance pension plan’.
Coca-Cola executives have advanced that this type of pension plan is more secure and risk free with regard to the benefits that is accrued to its employees who the company esteems. Further benefits that would be realized with this plan according to the company is that the ‘cash balance plan’ would be relevant for its employee forces which increasingly is becoming a mobile force. The plan is praised for it encompasses the employee’s career average pay, which in this case accrues faster than in the previous traditional pension plan that demanded that Coca-Cola employees have to serve for a number of years before they can claim significant amounts of pension benefits from their savings.
It is important to note that the Coca-Cola made significant gains with regard to its revenues after the introduction of this pension plan. This may send signals that the plan was welcomed by its employees, and thus the motivation improved results. Statistically, improvements of operating revenue shot from &31.9 billion from $28.9 billion in 2007. Funding of this pension plan was much more effective with the passing of the US Pension Protection Act. This made Coca-Cola to fund its pension plan without any fear of facing litigation. This funding of this plan was not tagged to age discrimination, and the company was happy with this provision.
On the other end, the PepsiCo Company, which also initiated a competitive pension, plan for its employees felt the need to embrace the ‘defined benefit plan’. This plan meant that PepsiCo employees would know the benefits that would be accrued and thus the one he or she will be entitled upon retirement. In this type of pension plan, funding was a major role of the company, where the PepsiCo Company invested in the fund not only for its own benefit, but also as an obligation to its workers. PepsiCo felt this was a relevant plan for its employees though in this plan, it was responsible for the investment risk.
The pension plan that PepsiCo embraced implied that the company’s employees received pay on retirement based on the time they have served or worked in the company, and secondly the history of their salary as analyzed at the time the employee retires from working. This pension plan is unlike the ‘defined contribution plan’ where the company makes contributions, without any promise of future benefits to its employees, and thus the employees ultimately take responsibility in the event of the occurrence of an investment risk (Stickney, 2010).
Relevant Pension Rates used by Coca-Cola and PepsiCo
Computation of the relevant pension amounts is heavily dependent upon the type of plan. For the Coca-Cola pension plan, their rates were varied, thus could only be established with average figures. However, in the Pepsi pension plan, the benefits that an employee would get is more definite thus could be easily calculated.
In the ‘defined benefit plan’ as embraced by PepsiCo, the plan often paid 1.5% of the final pay that the workers would receive.
In this plan, an em0ployee who had worked for 20 years for instance, revived pension benefits accruing to a 30% rate.
To establish this rate, 1.5% of the final pay is multiplied by the years of service. Thus, the calculation would be as follows:
(20 years x 1.5 %,) making the pension rate to accrue to 30% of an employee’s final average wage or pay (Besanko & Mark, 2010).
Company of Choice to Invest in
If I were a potential investor, I would invest in PepsiCo. This is because I would tag my decision not only to the revenues that are being raised by either of the company, but also to the liquidity ratios of the two companies. Coca-Cola raises more revenue however; its liquidity ration comes after the one of PepsiCo. As an investor, I would prioritize running away from high probable long term risks as compared to the short-term rewards.
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The current liquidity measurement ratio of Coca-Cola verses PepsiCo at 1.13 and i.44 respectively. This implies to me that PepsiCo is more capable to pay for its obligations as compared to Coca-Cola. From the audited report, Coca Cola’s debt management strategies, and the share repurchase program led to the company’s current liabilities to exceed its current assets by a margin (Kieso & Warfield, 2011).
The justification of this decision will encompass giving considerations to the risk of investment. In this case, I would be more confident to invest in PepsiCo because its liquidity ration implies that if suddenly the company were to pay the short-term creditors, it would remain with a 44% surplus with regard to its current assets. I would not invest in Coca-Cola on the other hand because if it did was required to pay the short-term obligations it has, it would remain with a minimal amount of surplus (only about 13%), and thus investing in it has more risks.
Employee’s Company of Choice
If I were a potential employee, the company I would rather work for is ‘PepsiCo’ Company. This is because of the kind of pension plan as well as its total reward schemes for its employees. The company alongside its ‘definite benefit plan’ or pension has a good total reward scheme that relates to all the benefits that its employees get. This includes the health and medical insurance that has encompassed provision for choice to be covered in one of more of the health insurance policy including; group legal, life insurance, medical, dental, disability Insurance, and flexible spending accounts. Other benefits were wellness which includes the company’s effort to improve health of the employee through ‘healthy living’, and ‘healthy money’ where the company has devoted itself to helping its employees build an effective financial plan. Other benefits are retirement benefits, and work-life benefits.
In short, in evaluating the pension plans of the two companies, both companies are doing well however, Coca Cola’s pension plan was well funded. This is after its projected benefit obligation value is subtracted from the fair value of its plan. From the PepsiCo report, the company has made sufficient use of its bond with regard to funding its pension liability.
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