By The Numbers

There has been some interest in understanding how compensation is awarded at Provectus. The most recent year's 14A filing notes, for bonuses, that "[O]ur Board of Directors has adopted a longevity bonus policy to recognize service on our behalf when we reach significant milestones and to award year end bonuses at the discretion of our CEO. In 2010 and 2009, we awarded bonuses for services rendered culminating with continued clinical trial development progress, especially due to the progression of the oncology and dermatology drug product candidates and other development in the clinic."

I asked management about their approach to compensation, and was pointed to such comments as are available in the annual proxy.

So, for both fun (you can't even begin to imagine what I think is fun...) and seriousness, I thought I would take a formulaic approach to compensation and model that of Provectus.

Step 1: Determine milestones. Take this table, for example, from the most recent year's 10-K filing (which of course we can add to for what also has occurred thus far in 2011).

Step 2: Create a scoring system. Try the table below, which I threw together. Of course, it's just my take, and remember that since we've already seen historical compensation, my modeling (and the tweaks to the scoring system) may be influenced by having seen the comp figures. Still, it's an attempt.

Step 3: Score. I've also added the end-of-year share price (or thereabouts). Founder Comp equals the total dollar compensation (salary, bonus, option awards, other comp) of a founder (i.e., Craig, Tim or Eric).

Step 4: Graph! When in doubt, create a pretty picture or two.

The first graph: Total dollar compensation v. Annual score.

Did I succeed in identifying (or generating) a relationship between management compensation? Perhaps. It looks "directionally" correct. I hate being qualitative in life. Too squishy. My EQ is kind of low. Numbers, numbers, numbers. And, oh yeah, formulas, algorithms, etc.

# Nevertheless, I could argue that comp appears to be deserved based on achievement/accomplishment.

The second graph: Annual score v. End-of-year share price.

This is just a painful graph. In my view, and the view of many others, the company has achieved and accomplished many things over these many, many years. All of this achievement/accomplishment seems to be coming to a head. A tipping point, perhaps!?! I try not to read too much into charts. My hope is that the observation or conclusion one might make or draw simply jumps out at you. In this case, the rise in score together with the share price in 2007 is interesting. It's like the market (Mr. or Ms., whatever you prefer) is skeptical of the company in the years that follow.

Of course, the year-to-year share price undermines the statement above (see #). Although, in my view, what matters is the end-game price.

For those of you playing at home: What's your score for 2011 and into 2012? Hints:

• Liver: Orphan drug status (3 pts); enrollment (0.5), treatment (0.5) and study (1) complete.
• Psoriasis: Enrollment (0.5) and treatment (0.5) complete. Study (1) complete in 2012?
• MM: SPA in 2012 (6 pts?).
• Dermatology: Term sheet in 2012 (6 pts?).

Remember, this is just a quantitative mental exercise one might use together with other diligence results and analyses.

2011: 6.0?

2012: >13? Kaboom!