Intellectual Property | General Counsel Law.

Incentive Compensation Traps: How to Avoid Them

True Story – Amazing Situation:
Got a call from a client with a major compensation problem: their NEW sales rep had just sold the largest services contract and was now, immediately, due a $5 million check.

The contract would take years to fulfill and the revenue would come in on a monthly basis. Yet by signing the contract with the customer, the client immediately incurred a $5 million expense.

Think about that for a second:
Congrats! We just signed the largest contract ever!

…now here is your $5 million dollar invoice due upon receipt.

How did this Happen?
They had a poorly designed Incentive Compensation Plan.

How Can You Avoid This and Grow Your Company?
Incentive Compensation Plans should be designed, structured and implemented to encourage employees to engage in activities that will increase the profitable operation of a Company.

In order to determine how to design a Plan, you must understand your Company’s:

Cash Conversion Cycle; and
Direct and Indirect Cost of Doing Business in the Profit and Loss Statement.

The Plan should be developed to work within your Company’s operation cycle and still drive the profitable results in compliance with employment law. This can be easy and beneficial if all elements are considered.

So what happened?
First, the company had to ask the employee to accept a payment plan. Think about that: one day she worked for the CEO, the next he worked for her – for five years.

Second, we had to restructure the Incentive Compensation Plan so it worked inside their company’s operations and culture, while compliant with federal and state law.

Third, the company’s culture took a hit because the sales team perceived something had been taken away from them. ‘Why pursue a big contract if they won’t pay you?’ was the sentiment.

What if the Employee had said “no” and demanded payment?
Well, she could have sued for Treble Damages plus attorney’s fees – that’s a $15 million lawsuit, which she would have won.

What should you do?
Design, structure and implement a Plan that has Annual goals, track them on a weekly and monthly basis – meaning: each Monday, confirm that the team is generating enough revenue to cover salaries and that they are on track to achieve some incentive pay – or they will leave. This audit and measure function helps leaders to manage daily and weekly activity to achieve short term goals and, as a result, attain long term goals while avoiding legal issues.

As COO of a 400 employee product and service company, I tracked each sale’s team and their members’ activity to ensure that goals were met, we knew each day how far off or over goal we were each month. This takes discipline and is the hallmark of a successful organization. Oh, it also tracked and confirmed the ROI on our marketing budget.

Too many times I come across companies with declining prospects and sales with no operational mechanism to fix it. Don’t be one of them.

Develop and use Incentive Compensation as positive accountability tool to attain goals and you can control your business destiny.

General Counsel P.C. has the expertise, skill and–the real key–unique experience of running companies as C Level Executives that makes a difference when advising our clients on: (i) structuring operations for efficiency and legal protection (which means more value); (ii) administration (not just overhead but value added elements); and (iii) Sales/Marketing (proper incentive based compensation causing the behavior that drives results!).

Call us for a consultation.

See your future. Plan your future. Control your business destiny.

Contact: Richard Trimber, rtrimber@gcpc.com
General Counsel, P.C. Corporate and Tax Practice Group
Telephone: 703-556-0411.

Intellectual Property in the United States

This summary of Intellectual Property Law in the United States was prepared by Andy Aitken, who leads General Counsel, P.C.’s Intellectual Property Practice. If you have any questions, please do not hesitate to contact them at 703-556-0411.

Intellectual Property Generally

Intellectual property law protects works that, although intangible, merit the attributes of personal property. As with personal property, intellectual property may be sold, leased, or simply maintained in order to exclude others from the use thereof.

Patent Rights

A utility patent protects any new, useful, and non-obvious invention. Patentable subject matter may include compositions of matter, machines, articles, or processes – even software, business methods, and modified organisms. A patent can be used to prevent others from making, using, importing, selling, or even offering to sell the patented invention within the United States for a period of twenty years from the date that the patent application was filed. Prior to issuance, patent applications undergo a rigorous examination by the United States Patent and Trademark Office. A utility patent is the sole means of protecting the functional characteristics of a new product or process. Design patents are directed to ornamental features of articles of manufacture. They have term of 14 years from the date of the patent grant.

Trademark Rights

A trademark is a word, phrase, or symbol that is distinctive of goods or services and is used in a manner that identifies and distinguishes a user’s goods or services from those of others. Trademark protection extends to words, phrases, pictures, sounds, and colors. Trademark rights derive from the use of a mark in interstate commerce, and operate to protect a mark from confusingly similar marks in the geographic area in which consumers recognize the mark. Trademark rights almost always exist prior to government registration, which extends the geographic scope of the mark throughout the entire United States and its territories. A foreign trademark owner with a trademark registered outside of the United States may, in certain circumstances, rely on that foreign registration to extend its trademark rights in the United States.

Copyright Rights

Copyrights protect original works of authorship fixed in any tangible medium of expression. Works of authorship are the outcomes of endeavors that require at least slight amounts of creativity; and the affixation requirement generally protects all expression other than unrecorded live performances. Copyright registration is not a prerequisite to obtaining copyright rights; instead, the copyright exists the moment that expression is affixed into a tangible medium. Foreign copyrights may be enforced in the United States according to international treaties that often obviate the necessity of registering a copyright in more than one country. Copyright protection extends beyond mere copying; a copyright owner may enforce its right against all who attempt to reproduce, make derivative works of, distribute, perform, display, and digitally transmit the copyrighted work without the owner’s permission. A copyright only protects the expressive aspects of work, and never the functional components. Lastly, to be a copyright infringer, one must actually have perceived the copyright owner’s original work.

Trade Secret Rights

A trade secret is secret information that can be used in a business enterprise to bestow a competitive advantage. Trade secret laws exist to punish competitors that attempt to acquire a trade secret by taking active, wrongful measures to acquire it. Although a secret may potentially last as long as the information remains secret, trade secret laws do not prevent others from acquiring the information of the trade secret through legitimate means, such as reverse engineering.

General Counsel, P.C. provides comprehensive legal representation for regional and international businesses and non-profit organizations. To best serve our clients, we have the following practice groups: Government Contracts; Labor/Employment; Corporate/M&A; Litigation; Intellectual Property; and Non-Profit Organizations. For more information, visit www.gcpc.com or contact Merritt Green, the firm’s Managing Partner at 703-556-0411.