Complete 2012 forensic audit documents - Kansas Bioscience ...

KBA Forensic Audit Summary Page 26 of 30
Other Issues
Audit location Issue/Question Summary
Beginning on
page 97
Beginning on
page 104
In April 2005, before the KBA had any staff of its
own, the KBA contracted with KTEC to provide
various management, operational, and
administrative services. The one‐year contract
was not renewed. KTEC was focused on
accelerating the research, development, and
commercialization of new technologies in Kansas,
and made investments in some bioscience
companies that also received investments from
the KBA .
In 2009, the KBA contracted with Buck
Consultants to develop an executive
“compensation philosophy, the creation of a
comparison group, benchmarking KBA executive
compensation against a comparison group, and
provision of compensation plan
recommendations” (p. 105).
BKD notes that in fulfilling its purpose, “KTEC made investments in some bioscience companies
that also received investments from KBA. However, KBA management and [board members]
indicate that there was no program or agreement in place by which the two organizations would
cooperate or coordinate investments” (p. 98). BKD reports that this “lack of purposeful
syndication appears to be further supported by the 2009 Kansas, Inc., evaluation of KTEC” (p. 98).
BKD notes one exception, when KTEC and the KBA, along with other state partners, developed a
package of incentives to attract a Virginia bioscience company to Kansas. Also, “In April 2010, KBA
and KTEC jointly hired a federal research funding specialist … [to assist] with the writing of
proposals for federal funding and [provide] professional management counseling and technical
assistance to early stage companies. Until KTEC’s recent dissolution, this position was paid for
jointly by KBA and KTEC … [and] continues to be funded by KBA” (p. 99).
BKD reports that Buck found the total cash compensation (base salary plus bonus opportunity) of
the KBA CEO was at the 75th percentile of the market, the CFO/COO’s below the 75th percentile,
and the president of KBA’s HBV division slightly above the median. The CEO’s total remuneration
(cash compensation plus benefits and expenses) was at the 75th percentile of the market, the
CFO/COO’s between the 50th and 75th percentiles, and the president of HBV’s between the 25th
and 50th percentile. Buck made recommendations concerning the salaries to the board’s
executive committee, which used them in making recommendations to the board, which set the
CEO’s compensation. BKD notes that “it is unclear if Thornton utilized the Buck Consultants study
in setting compensation for the other executive officers” (p. 106). “In May 2010, the [board]
requested that Buck Consultants provide additional recommendations on Mr. Thornton’s
compensation arrangement” (p. 106) because Thornton’s annual salary review was being moved
from the month of his original hire to coincide with the KBA’s fiscal year. At this time, Buck
recommended a 4 percent increase in the CEO’s salary for fiscal 2011, to $260,000, and an
increase in the bonus opportunity for the CEO to 60 percent of base salary, “which would result in
total cash compensation of $416,000, which would exceed the … 75th percentile by $28,000” (p.
106). Buck “also recommended a revised structure for determining the bonus pay‐out, utilizing a
combination of [board] discretion and measurable performance against the KBA’s [annual
operating plan]” (p. 106). The actual fiscal 2011 employment agreement “for Tom Thornton had a
base salary of $265,000 and provided for a total bonus opportunity of 60 percent of base salary,
42 percent at the discretion of the [board] and 18 percent” tied to various performance metrics
(p. 107). “Therefore, Tom Thornton’s total cash compensation for fiscal year 2011 could have
totaled $424,000. BKD verified that Mr. Thornton did not receive any bonus payout for fiscal year
2011 upon his resignation” (p. 107). BKD recommends that the KBA board “consider the review of
the salary structure for all employees on a periodic basis and ensure that appropriate
performance metrics are established for all positions” (p. 107). (continued on next page)