Vyaderm Pharmaceuticals Case Analysis

12 December 2016

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.

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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 by having a strong performance in their own unit, but that performance also positively impacts the total business.

Conversely, on the chance that their individual unit has an off year, they can rely on the corporate unit’s performance to minimize the sting of a lessened bonus opportunity given hopefully other units might have a better year. Given individual fates are simultaneously tied to both individual business unit and corporate performance; there is a higher likelihood of sharing best practices and developing synergies to improve overall performance. Appendix


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