outside income

TO: ALL SCHOOL OF MEDICINE FACULTY ON CLINICAL OR BASIC SCIENCE COMPENSATION PLANS

FROM:   Gerald Levey, M.D.
                Provost, Medical Sciences, and Dean
                UCLA School of Medicine

                Donald P. Becker, M.D.
                Senior Associate Dean, Academic Affairs
                UCLA School of Medicine

RE: OUTSIDE INCOME AND THE COMPENSATION PLANS

One of the most common inquiries by faculty to the Dean's Office relates to what is and is not allowed in the way of outside compensation for professional services. This problem has become complex with the introduction of many newer remuneration devices as stock or stock options. We have asked a special ad hoc faculty committee and the elected Faculty Executive Committee to advise on these matters. In addition to advising us on specific policies, our faculty advisory groups urged a broader dissemination of Plan rules, limitations, and interpretations and therefore we are distributing copies of this policy to all affected faculty. Copies of the complete Compensation Plan can be obtained from your Department Office or from the Dean's Office.

The fundamental principle of the Compensation Plans is that the University provides School of Medicine faculty with compensation above the level of the University base salary (usually in the form of "delta"), in return for which the University and the School of Medicine obtain the full-time professional services of the faculty member. Therefore, faculty on Compensation Plans need to recognize that all of their professional services are owed to UCLA. The interpretation is consistent with University regulations that determine the full-time obligations of faculty. The Compensation Plans are an important covenant among the School of Medicine, the University of California, and the public. Therefore, the administration of the UCLA School of Medicine is determined to guard vigorously the integrity of these Plans.

To provide clarification regarding the most common inquiries about the Plans, we have constructed the following question and answer pages. For further clarifications, please consult your Department Chair or Dean Levey (x55687).

Q. Is participation in a Compensation Plan optional for full-time faculty?

A. No, participation in a Compensation Plan is a condition of employment for all full-time salaried appointments in the following series: Regular, In-Residence, Adjunct, Clinical X, and Clinical (Compensated).

Q. What income from professional services is excluded from the Plans?

A. Both the Clinical and Basic Science Plans have the same exclusions (e.g., honoraria for occasional lectures, royalties from books, etc.). The complete list is attached

Q. I accepted an invitation to consult in my area of professional expertise for a profit-making enterprise and they wish to give a check for consulting services. What do I do with this money?

A. This money is owed to the Compensation Plan. The easiest approach is to instruct the firm for which you consulted to make the check out to "Regents, University of California: and then give the check to your Department for deposit in the Plan account. Alternatively, you can simply sign over a check made out to you. Participants in the Income Limitation Plan (ILP) should report such payments in their annual ILP report.

Q. A firm asked me to consult for them monthly and in return for my consultations they will provide an "honorarium." Are these honoraria excluded from the Plan?

A. No, since consulting is a professional service under the Plans, income from consulting services is owed to the Plan. The Plans define honoraria as "payments...for occasional lecture...which are not in return for other services..." The fact that such services are to be rendered on a regular basis precludes their exclusion as "honoraria." Simply calling consulting payments "honoraria" does not exclude them from the Plan.

Q. NIH pays me a "consulting fee" for service on a Study Session. Must I deposit this money to the Plan?

A. No. Service to governmental or non-profit agencies is excluded from the Plan so long as service to these organizations does not exceed 21 days per year. The 21-day limit is an effort to acknowledge the primary responsibility to the University while accommodating the scientific community's needs for expert advice.

Q. I am a physician and my professional activities at UCLA are limited to my clinical specialty. May I keep income from "moonlighting" if my extramural activities involve clinical activities distinct from those I practice at UCLA?

A. No. These are "professionally-related" activities and the income is owed to the Plan.

Q. Are fees for expert legal testimony covered by the Compensation Plans?

A. Yes, Payments for such services must be reported exactly like other consulting services.

Q. What happens to money that I deposit into a Compensation Plan account.

A. These funds are available for use in the academic programs of the Department. It is appropriate for you to discuss the use of funds with your Department, and such funds are often used in programs that reflect the source that generated them (e.g., in support of that faculty member's research activities or as part of the components of a "delta"). However, the Department has the responsibility for determining the best use of these funds.

Q. If the money goes into the Departmental Plan account, why should I bother doing such extramural activities?

A. Such assessments need to be made by individual faculty, but are good reasons to perform such services beyond the reason of personal enrichment. For example, such activities can be used in developing relationships with industry, in securing alternative funding sources for a research program, or to assist in the funding of your "delta."

Q. A firm for which I have consulted wishes to pay me in stock or stock options rather than cash. What should I do with security received in payment of services?

A. According to current policy, the University does not wish to become the owner of stock or stock options, but this remuneration is owed to the Plan. Therefore, you may buy the stock or options from the Plan by depositing the cash value of the stock or options in the Plan. In this way you become the owner of the securities and the Plan has no further interest in them. The dividends or capital gains are yours. If it is difficult to place a valuation on the remuneration (e.g., the stock or options are not being traded publicly or the remuneration was in the form of a gift or service that cannot be easily appraised) then the Department Chair can set a value based on the value of the consulting service rendered. Alternatively, the stock or option can be made out initially to the University and the Department can sell them in any manner that it wishes. We feel that it is best if the Plan is paid what is owed ot it at the time that professional service is rendered, but there may be circumstances where the stock or options will be held for a period of time for the faculty member. In these cases, the Vice Chancellor has ruled that the Plan is owed the value of the securities at the same time that the faculty member reports these securities as income to the Internal Revenue Service. Again, it is usually better to avoid such situations and report the receipt of securities to the Plan at the time that they are received. The question of stock and stock options is now being studied at the University wide level, and there may be some modifications of the above stated policy in the future.

Q. The firm for which I consulted wishes to defer payment of consulting fees. Is this permitted under the Compensation Plan?

A. Deferral is not specifically prohibited, but the School of Medicine Policy is that compensation owed to the Plan should be paid at the same time that the services were rendered. Deferred arrangements must be discussed with and approved by the Department Chair. Deferral of payments to a time past employment with the University (e.g., post-retirement) will not be permitted.

Q. I wish to buy stock or otherwise invest in a company for which I have consulted. Does the Plan limit such investments?

A. No. The basic principle of the Compensation Plan is that you owe the University your time; your money is your own to do with as you please. You should be aware of Conflict of Interest regulations that govern the reporting of such holdings in case you receive a grant or contract from the same source, but the Compensation Plan itself is not directly affected.

Q. I wish to find a company that will pursue research in my area of expertise. How will the Compensation Plan limit such ventures?

A. This is an extremely complex question in which three fundamental issues are intertwined: The Compensation Plan is owed professionally related income; the faculty member has an unrestricted right to invest his/her own money; the University and the faculty member share ownership of "intellectual properties" such as inventions that were developed using University resources (e.g., laboratory space). Each situation needs to be individually examined.

Q. What is "professionally-related income?"

A. The simplest definition of "professionally-related income" is income derived by using the skills and training that caused UCLA School of Medicine to hire you. The presumption is that any income from clinical or scientific activities is professionally-related and the burden of proof is on the faculty member that such income is not professionally related.

Q. I am a participant in the Income Limitation Plan (ILP) version of the Compensation Plan. Are there any differences between the rules and the responses listed above?

A. The ILP is governed by the same principles as the other Compensation Plans. There is a difference in the reporting mechanism for such income, as ILP participants must report all professionally-related income, except for the exclusions listed on the attached page, on the annual IILP report form.

Income Which May be Retained By Plan Members

1. Payments for occasional service (other than patient care), not to exceed twenty-one days of such service per fiscal year, to governmental agencies, to non-profit health- or education-related organizations, to continuing medical education programs administered by the University, or to University Extension, if such service has been approved by the Provost.

2. Prizes, defined as gifts in recognition of personal achievements and not for services rendered.

3. Royalties, defined as shares of proceeds for contributions as authors or inventors, as allowed under the University's copyright and patent policies.

4. Honoraria, defined as payments by agencies outside the University for occasional lectures and similar public appearances beyond normal academic responsibilities to the University of California and which are not in return for other services, whether given directly or indirectly.

5. University honoraria, defined as payments for occasional lectures or similar services performed on a University of California campus as permitted by Academic Personnel Policy.

6. Administrative stipends, defined as payments by the University for responsibilities related to University administration beyond normal academic responsibilities.

7. Income from a profession or activity unrelated to the training and experience which is the individual's qualification for University appointment.

Updated 12/1/05

Q.	Is participation in a Compensation Plan optional for full-time faculty?
A.	No, participation in a Compensation Plan is a condition of employment for all full-time salaried appointments in the following series: Regular, In-Residence, Adjunct, Clinical X, and Clinical (Compensated).

Q.	What income from professional services is excluded from the Plans?
A.	Both the Clinical and Basic Science Plans have the same exclusions (e.g., honoraria for occasional lectures, royalties from books, etc.). The complete list is attached

Q.	I accepted an invitation to consult in my area of professional expertise for a profit-making enterprise and they wish to give a check for consulting services. What do I do with this money?
A.	This money is owed to the Compensation Plan. The easiest approach is to instruct the firm for which you consulted to make the check out to "Regents, University of California: and then give the check to your Department for deposit in the Plan account. Alternatively, you can simply sign over a check made out to you. Participants in the Income Limitation Plan (ILP) should report such payments in their annual ILP report.

Q.	A firm asked me to consult for them monthly and in return for my consultations they will provide an "honorarium." Are these honoraria excluded from the Plan?
A.	No, since consulting is a professional service under the Plans, income from consulting services is owed to the Plan. The Plans define honoraria as "payments...for occasional lecture...which are not in return for other services..." The fact that such services are to be rendered on a regular basis precludes their exclusion as "honoraria." Simply calling consulting payments "honoraria" does not exclude them from the Plan.

Q.	NIH pays me a "consulting fee" for service on a Study Session. Must I deposit this money to the Plan?
A.	No. Service to governmental or non-profit agencies is excluded from the Plan so long as service to these organizations does not exceed 21 days per year. The 21-day limit is an effort to acknowledge the primary responsibility to the University while accommodating the scientific community's needs for expert advice.

Q.	I am a physician and my professional activities at UCLA are limited to my clinical specialty. May I keep income from "moonlighting" if my extramural activities involve clinical activities distinct from those I practice at UCLA?
A.	No. These are "professionally-related" activities and the income is owed to the Plan.

Q.	Are fees for expert legal testimony covered by the Compensation Plans?
A.	Yes, Payments for such services must be reported exactly like other consulting services.

Q.	What happens to money that I deposit into a Compensation Plan account.
A.	These funds are available for use in the academic programs of the Department. It is appropriate for you to discuss the use of funds with your Department, and such funds are often used in programs that reflect the source that generated them (e.g., in support of that faculty member's research activities or as part of the components of a "delta"). However, the Department has the responsibility for determining the best use of these funds.

Q.	If the money goes into the Departmental Plan account, why should I bother doing such extramural activities?
A.	Such assessments need to be made by individual faculty, but are good reasons to perform such services beyond the reason of personal enrichment. For example, such activities can be used in developing relationships with industry, in securing alternative funding sources for a research program, or to assist in the funding of your "delta."

Q.	A firm for which I have consulted wishes to pay me in stock or stock options rather than cash. What should I do with security received in payment of services?
A.	According to current policy, the University does not wish to become the owner of stock or stock options, but this remuneration is owed to the Plan. Therefore, you may buy the stock or options from the Plan by depositing the cash value of the stock or options in the Plan. In this way you become the owner of the securities and the Plan has no further interest in them. The dividends or capital gains are yours. If it is difficult to place a valuation on the remuneration (e.g., the stock or options are not being traded publicly or the remuneration was in the form of a gift or service that cannot be easily appraised) then the Department Chair can set a value based on the value of the consulting service rendered. Alternatively, the stock or option can be made out initially to the University and the Department can sell them in any manner that it wishes. We feel that it is best if the Plan is paid what is owed ot it at the time that professional service is rendered, but there may be circumstances where the stock or options will be held for a period of time for the faculty member. In these cases, the Vice Chancellor has ruled that the Plan is owed the value of the securities at the same time that the faculty member reports these securities as income to the Internal Revenue Service. Again, it is usually better to avoid such situations and report the receipt of securities to the Plan at the time that they are received. The question of stock and stock options is now being studied at the University wide level, and there may be some modifications of the above stated policy in the future.

Q.	The firm for which I consulted wishes to defer payment of consulting fees. Is this permitted under the Compensation Plan?
A.	Deferral is not specifically prohibited, but the School of Medicine Policy is that compensation owed to the Plan should be paid at the same time that the services were rendered. Deferred arrangements must be discussed with and approved by the Department Chair. Deferral of payments to a time past employment with the University (e.g., post-retirement) will not be permitted.

Q.	I wish to buy stock or otherwise invest in a company for which I have consulted. Does the Plan limit such investments?
A.	No. The basic principle of the Compensation Plan is that you owe the University your time; your money is your own to do with as you please. You should be aware of Conflict of Interest regulations that govern the reporting of such holdings in case you receive a grant or contract from the same source, but the Compensation Plan itself is not directly affected.

Q.	I wish to find a company that will pursue research in my area of expertise. How will the Compensation Plan limit such ventures?
A.	This is an extremely complex question in which three fundamental issues are intertwined: The Compensation Plan is owed professionally related income; the faculty member has an unrestricted right to invest his/her own money; the University and the faculty member share ownership of "intellectual properties" such as inventions that were developed using University resources (e.g., laboratory space). Each situation needs to be individually examined.

Q.	What is "professionally-related income?"
A.	The simplest definition of "professionally-related income" is income derived by using the skills and training that caused UCLA School of Medicine to hire you. The presumption is that any income from clinical or scientific activities is professionally-related and the burden of proof is on the faculty member that such income is not professionally related.

Q.	I am a participant in the Income Limitation Plan (ILP) version of the Compensation Plan. Are there any differences between the rules and the responses listed above?
A.	The ILP is governed by the same principles as the other Compensation Plans. There is a difference in the reporting mechanism for such income, as ILP participants must report all professionally-related income, except for the exclusions listed on the attached page, on the annual IILP report form.

1.	Payments for occasional service (other than patient care), not to exceed twenty-one days of such service per fiscal year, to governmental agencies, to non-profit health- or education-related organizations, to continuing medical education programs administered by the University, or to University Extension, if such service has been approved by the Provost.

2.	Prizes, defined as gifts in recognition of personal achievements and not for services rendered.

3.	Royalties, defined as shares of proceeds for contributions as authors or inventors, as allowed under the University's copyright and patent policies.

4.	Honoraria, defined as payments by agencies outside the University for occasional lectures and similar public appearances beyond normal academic responsibilities to the University of California and which are not in return for other services, whether given directly or indirectly.

5.	University honoraria, defined as payments for occasional lectures or similar services performed on a University of California campus as permitted by Academic Personnel Policy.

6.	Administrative stipends, defined as payments by the University for responsibilities related to University administration beyond normal academic responsibilities.

7.	Income from a profession or activity unrelated to the training and experience which is the individual's qualification for University appointment.