Vayaderm Pharma
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2. If the EVA system is implemented as it currently structured, we foresee major problems both in the short and long run. This is due to the fact that if the EVA target and bench marks for the year of 2001 are based on the previous year sales for 2000, we would virtually guarantee that Sales Directors would not receive a bonus in perpetuity. Due to the fact that sales level would probably never reach the same level again, as new comer would enter the maket as well as old competitors such as JPL would reenter.
For this reason, we recommend some sort of system to be able to re align targets and EVA targets to reflect true market conditions
As the 'windfall' from 2000 is an extraordinary event that in all probability would not occur again, after careful review we recommend that Vyaderm Pharmaceuticals extend an stock options. The stock options would complement the existing Bonus Bank as established by the EVA system. The stock option plan is for managers whom qualify to covert a percent of their bonus into stock options due to the 'windfall' in the current year. These options will be offered at a 20% discount. The one time options program would work in the following manner:
Participants would be invited to invest 40% of their bonus paid in stock options at a 20% discount from market price exercisable at $24.80 only after 5 years (($20 current stock price 20% discount) * (11% cost of capital * 5 years)...