Essay on Vyaderm Pharmaceuticals Case Analysis

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Vyaderm Pharmaceuticals Case Analysis | | |

As consultant to Sanders and Myers, I would suggest they rethink the continuation of economic value added (“EVA”) bonus payout process. The proposed EVA bonus payout structure is supposed to be an objective way to gauge and reward employee performance; however, through no fault of their own, the Dermatology group is slated to undergo severe ebbs and flows in their incentive and could potentially wreak havoc on employee morale and retention.
For example, in Exhibit E, we see that the dermatology group stands to receive a $251, 451, payout as a result of a strong EVA at $31,361, a net gain of 28,440 vs. the 2009 EVA. We would also expect to see employees bank $131,451 in that same year.
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Despite having a positive EVA in 2002, the potential payout doesn’t even create a dent in the 2001 bank deficit. In 2002, the estimated bank is at $(62,232) and would likely take additional years to climb to a zero balance. To guard against impending morale concerns, a zero adjustment is almost mandatory, which I believe, flies in the face of the supposed objective nature of EVA.
In one of Vyaderm’s executive presentations, it was mentioned that negotiated targets encourage sandbagging. Although in some cases that may be true, negotiated targets allow for input of some common sense and deeper understanding of the competitive landscape. If there wasn’t an arbitrary/hardened/year-over-year goal set for the Dermatology division, the 2001 goal could have incorporated the insight that the competitive landscape was shifting with new entrants. As such, the miss versus the EVA target would have been lessened if not negated. My recommendation is to create a blend of EVAs in order to base merit incentives: 50% Corporate and 50% Business Unit. This blending minimizes the drastic swings an individual business unit’s performance can have on one’s merit potential by tempering it with a more steady performance base. I think that this pairing not only reduces the ebbs and flows in incentives, but it also connects a business unit decisions to the overall corporate goals and performance. As a manager, not only can they positively impact their own incentive