Articles

New Data on Change in Control and Executive Severance Agreements

There is no reliable data source on the size and scope of executive change-of-control and severance agreements in closely-held companies and tax-exempt organizations. We plan to respond to this need by conducting our own survey of practices in change-of-control and severance provisions.

Our data collection will be strictly confidential, and no information attributable to our participants will be disclosed.  If your private company or non-profit would like to participate in our surveys and receive valuable and confidential information to compare your organization's practices with those of others, please contact us.

The more organizations that participate, the more valuable and relevant to your needs will be our collected data.  Let's all address this void!

A Well-Designed Sales Compensation Program

It is a truism to say that a well-designed sales force compensation program should reinforce an organization's strategic objectives. However, many organizations have never developed a well formulated strategic sales plan. Developing a strategic sales plan is step 1 to developing an effective sales force compensation program.

The strategic sales plan should act as a "road map" for sales achievement. The plan should take into account the external conditions affecting the company's ability to achieve sales results, as well as the type of sales techniques and approaches that are necessary to accomplish these results. Some of these conditions include:

* Market demand

* Market maturity by market segment

* Competitive conditions

* Economic conditions in the market

* Strategic objectives by market

* Types of sales effort/behaviors desired

* Current/desired sales structure

* Current/desired future skills needs, and

* Other factors which may impact on a company's sales effort

Without a well formulated sales strategy, a company's sales efforts will be disjointed at best and highly ineffective at worst. Yogi Berra got it right when he said, "If you don't know where your going, you're liable to end up someplace else."

Sales people, in general, will play by the rules given in order to make commissions and/or bonuses -- in other words, "win." The sales compensation strategy as it is driven through the compensation program is meant to keep the players running in the right direction and prevent them from scoring touchdowns on the wrong end of the field.

Hospital Executive Compensation - Value Based Management

Value Based Management (VBM)
as a Best Practice for Healthcare Systems

 

Healthcare systems in the United States are facing nearly unprecedented challenges as well as opportunities.  From pending shifts in national health-insurance policies, to increased focus on quality of care amidst aging “boomer” populations, hospital systems around the country struggle to identify the best value for stretched resources in the face of often having to defend a tax-exempt status. Seeking to balance these dynamics with ongoing priorities around R&D as well as merger and acquisition activity in response to stressed economic conditions nationally, healthcare systems – like other highly-regulated industries – are turning to a Value Based Management business philosophy that aligns management interests to the creation of value by providing an effective formulary of healthcare services and products to minimize cost while maximizing positive outcomes. As a result, the practice of VBM begins by using the ultimate measure of value creation, known as Economic Value (also known as Economic Value Added or EVA).   

 

Economic Value is a financial performance measure of the true economic profit of an enterprise.  EV proposes that value is added only if the operations of an organization, commercial or non-profit, return more than its cost of capital.  It indicates the financial health of an organization and represents the true profit following allowance for taxes and the cost of capital.

 

EV = NOPAT - (Capital Invested x Cost of Capital)

 

where NOPAT is Net Operating Profit After Taxes, Capital Invested represents the total capital employed, and Cost of Capital represents the minimum return required to compensate for the risk of the investment..

 

Among the virtues of Economic Value are the facts that it:

1.      can be calculated throughout an organization, down to its smallest operating unit;

2.      can guide new developments and new opportunities; and

3.      is a financial analysis tool that can provide critical guidance through varying economic cycles.

 

Economic Value supplies a useful measure of year-over-year change.  If EV in an operation or enterprise is increasing, value is being created.  Conversely, if EV is declining, value is being lost or squandered. 

 

In the face of 21^st-century dynamics within the healthcare industry, Economic Value provides a range of critical benefits to healthcare systems, such as:

ü      Ensuring smarter capital deployment by identifying those investments which produce the best economic profit, as distinct from accounting profit;

ü      Fortifying evidence that a hospital is providing "community benefit" in support of its continued tax exemption under IRC § 501(c)(3);

ü      Allowing the evaluation and adjustment of compensation for executives, boards (as applicable) and employees at all levels across the system to maximize long-term value;

ü      Providing basis for compensation of "disqualified persons" under the intermediate sanctions provisions of IRC § 4958; and

ü      Empowering managers at all levels to make better decisions by providing them deepened clarity around operational and value impact at all levels of the organization.

 

For further information, please contact Al Candrilli or Paul Creasy of the Organizational Consulting Group at (216) 556-2624.