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2008 Avaya Award
Please see below information from Avaya regarding the 2008 Avaya Award.
In Unity,
Ralph V. Maly, Jr.
VP- C&T
#############################################
To: Lois Grimes-Patow
R. Morrison
To: All U.S. Represented Employees,
Incentive plans such as the Avaya Award and STIP (Short Term Incentive Plan for Salaried Employees) must adapt and change as business conditions change to ensure that we reward the highest-impact drivers. As I explained during our all-employee broadcast earlier this month, we are changing our Avaya Award and STIP metrics to reinforce the behaviors that are most closely associated with Avaya’s success. Specifically, we will measure our success against three factors:
· EBITDA;
· Cash Flow from Operations;
· Customer Satisfaction.
EBITDA
(Earnings Before Interest, Taxes, Depreciation and Amortization) measures profitability from operations and is a key metric in determining the valuation of our company. This metric will represent 65% of our financial results.Cash Flow from Operations
measures how well we manage our assets and liabilities with a particular focus on working capital. Strong Cash Flow from Operations performance helps us fund our capital expenditure requirements and pay down debt. This metric will represent 35% of our financial results.For the first time in Avaya’s history, Customer Satisfaction will be used to determine Avaya Award and STIP. Many of you have expressed a desire to see this as part of our incentive formula, and we have made it happen. This metric will be used as a modifier in adjusting the initial financial score derived from EBITDA and Cash Flow from Operations (see examples in Q&A below).
We will continue to communicate ongoing progress regularly throughout the year. Periodic updates will keep us focused on the linkage between individual performance and business performance and will reinforce the value of an incentive program that serves as a key driver of a thrilling and rewarding work environment.
Please review the attached Q&A document that further explains the metrics and other important information regarding Avaya Award and STIP.
Lou
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Avaya Award Q&A
January 28, 2008
Q1: What is the Avaya Performance Factor?
A: The Avaya Performance Factor (APF) links Avaya’s overall business results to the payout under the Avaya Short-Term Incentive Plan (STIP) and the Avaya Award. At the beginning of each fiscal year, the Board of Directors establishes the financial goals used to determine the APF. For fiscal year 2008 (FY08), the APF will be calculated based on:
· EBITDA;
· Cash Flow from Operations;
· Customer Satisfaction.
Q2: What is EBITDA?
A: EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. It is a common metric used by many companies to measure profitability from operations.
Q3: Why are we using Cash Flow from Operations as a metric?
A: Including Cash Flow from Operations will motivate us to focus on key opportunities for improvement, including prudent expense management, effective cost control, efficient work processes, reduction of accounts receivable, simplification of the billing process, and improvement of installation timelines.
Q4: How will we measure Customer Satisfaction?
A: Avaya measures Customer Satisfaction using a customer survey. We administer more than 5,000 such surveys annually. Each respondent rates Avaya on a scale of one through 10; scores of 8-10 are categorized as Customer Delight, and scores of one through 4 are categorized as Customer Pain. Improvement will be equal to the increase in Customer Delight plus the reduction in Customer Pain.
Q5: How will Customer Satisfaction modify the STIP payout?
A: If FY08 Customer Satisfaction improves by at least three points over FY07, the APF will increase by 10 percent. If customer satisfaction does not improve by at least one point, then the APF will decrease by 10 percent. The APF will not be modified if customer satisfaction improves by one or two points.
Q6: How will the APF be calculated?
A: In FY08, EBITDA will represent 65% of our financial results, and Cash Flow from Operations will represent the remaining 35%. These results will then be adjusted by a Customer Satisfaction Modifier to determine the APF.
|
Financial Score |
Customer Satisfaction Modifier | |||
|
EBITDA Cash Flow from Operations |
65% 35% |
X |
90% |
No Improvement |
|
100% |
Improvement of at least 1 point | |||
|
110% |
Improvement of 3 points or more | |||
Q7: How will the Avaya Award be calculated?
A: The Avaya Award calculation remains the same as in FY07. For FY08, the target amount is $1,339 which will be increased if Avaya’s performance exceeds our financial targets or decreased if Avaya’s performance does not meet the financial targets at the same rate of increase or decrease as applied to U.S. salaried employees covered under the STIP Plan. The minimum amount is $580.
Q8: Who will be eligible for the Avaya Award?
A: For eligibility requirements, please refer to your collective bargaining agreement.