Explaining the Compensation Planning Components

Objectives

After completing this lesson, you will be able to:
  • Describe employee-specific and plan-specific data​.
  • Describe Proration and its types.
  • Use the different Proration options.
  • Calculate salary benchmarks and budgets.
  • Describe the guidelines and eligibility used for determining compensation.

Introduction

Every company has a unique compensation structure. SAP SuccessFactors can be configured to manage many different scenarios.

You may want to implement SAP SuccessFactors Compensation to duplicate the system you have. Your system may change as you gain experience and understanding of how SAP SuccessFactors can streamline conformance with compensation best practices. For instance, the rules to guide compensation are defined in the Compensation Plan Template. Therefore, the more broadly a set of rules can be applied, the easier it will be to implement in the system.

This screenshot shows the Compensation Home page in Admin Center where compensation planners to manage Compensation.

Employee-Specific Data

Data integration between SAP SuccessFactors and your Human Resource Information System (HRIS) or payroll system allows single source updates for your employee data. You will decide how to map SAP SuccessFactors fields with your current database during implementation.

User Data File

The User Data File (UDF) must be configured to upload into SAP SuccessFactors. This file contains the employee data for compensation planning. However, compensation data requirements vary widely. Your SAP SuccessFactors implementation consultant will review the standard fields with you to determine which are relevant to your requirements.

Hint

For customers using Employee Central or an API, the data will be mapped to fields differently.

Plan-Specific Data

In addition to employee data, SAP SuccessFactors Compensation uses auxiliary data supporting the different calculations.

Currency Conversion

SAP SuccessFactors can display compensation information in local currencies. The exchange rate is set through currency conversion tables imported into the system.

There are three different currency views:

  • Functional currency (i.e., all forms will be displayed in the same currency for all users)
  • Local currency (i.e., a form will display salary and other information for an employee in that employee’s currency)
  • Planner currency (i.e., all employees’ salary and other information will appear in the local currency of the compensation planner)

Exchange rates must be included for all possible currency combinations. For instance, a manager in Great Britain (GBP) planning for a team in the Eurozone (EUR) must have the exchange rate for the pound sterling and the euro. Use only one rate for each pair of currencies – the system will calculate the inverse rate as needed.

Pay Matrix

The Salary Pay Matrix is a table that defines ranges of pay based on grade level and up to three optional attributes (e.g., country, city, and/or job level). Pay matrices define each grade's minimum, midpoint, and maximum pay levels and are required for compa-ratio and range penetration calculations.

Proration

SAP SuccessFactors has a set of standard functions that support the majority of implementations. Complex configuration is possible if required.

Proration

Paying proportionate employee increases correctly from their hire date or the last review date can be done. Prorating can be applied to a single component increase or the aggregate. The two prorating types are Salary Prorating and Raise Prorating.

Salary Prorating: Can be applied to a single increase component (e.g., prorate merit, but no adjustment). The percentage of proration can also be applied to the budget.

Raise Prorating: This will prorate the aggregate increase to salary, and the proration percentage will be applied to Merit, Adjustment, and Promotion.

Hint

You will work with your implementation consultant to determine the proration option that works best for your organization.

Proration Types

Option 1: Raise Proration

The planner enters the full amount. The system calculates the prorated total amount at the end. Totals rows and budget not affected.

Example: Proration = 50%

LevelWithout ProrationWith Raise Proration
Merit Guideline:4-6%4-6%
Planner enters increase Amt:2,0002,000
Total Increase:2,0001,000 (system calculates at end)

Option 2: Salary Proration

The planner enters the prorated amount. The system prorates guidelines.

Example: Proration = 50%

LevelWithout ProrationWith Salary Proration
Merit Guideline:4-6%2-3%
Planner enters increase Amt:2,0001,000
Total Increase:2,0001,000 (based on planner entry)

Proration Options

Option 1: Date Calculation

With Date-Based proration, SAP SuccessFactors Compensation calculates the proration percentage based on what was specified as the start and end dates of the compensation planning period and the start date and end date of the employee in the role.

Example: Review period as 1/1/2019 – 12/31/2019 or 365 days.

This table shows an example of Date-Based Proration.

Option 2: Enter Percent on Employee Import File

Calculate the percentage outside of the system and import.

Benchmarks for Salaries

SAP SuccessFactors offers the following benchmarks, which are both calculated using the employee data and the pay matrix data:

Compa-ratio: Defines the employee’s pay as a percentage of the midpoint in the salary range.

Range Penetration: The level of an individual’s pay compared to the total pay range, rather than compared with the midpoint.

Either or both of these can be displayed on the compensation form. A choice of one of these may optionally be used as part of the criteria for guidelines.

This screenshot compares Compa-ratio and range penetration benchmark options.

Note

Both compa-ratio and range penetration in SAP SuccessFactors are calculated from base pay salary ranges. If your salary ranges are built based on Total Compensation, notify your implementation consultant so that they can review options for incorporation.

Budgets

Companies use various factors to determine each employee's overall budget. Some organizations have formal procedures for establishing the compensation budget; others have simple, flat percentage increases.

SAP SuccessFactors Compensation can mirror the calculation so planners can see the allocated amount for their teams. The team budget is displayed in the form. The budget can also be a soft budget where overspending is allowed but would be displayed in red text so those in approval levels could see. Conversely, the budget can be enforced by forbidding entries outside budget parameters.

There are multiple ways to handle budgets. Your implementation consultant will work with you on the best approach based on your requirements.

This screenshot shows a compensation planning worksheet and Budgets link and view.

Guidelines

Guidelines provide planners with rules on how much of an increase to give to employees based on certain criteria. For example, such criteria can be based on performance ratings, job level, budget group, where they are in the range, etc.

Guidelines are available for the following compensation components:

  • Merit
  • Promo
  • Lump sum
  • Stock

Your implementation consultant will discuss the complete component list with you.

Guidelines can be configured to have a hard stop (so that planners will not go beyond the maximum allowed recommendation) or can be configured to allow planners to exceed the maximum (but they will be forced to add a comment and justify the additional increase).

This screenshot shows the options for setting up compensation guidelines.

Eligibility

To determine who is eligible for merit raises, salary increases, promotions, etc., you can define eligibility rules that work as filters. First, the starting point of eligibility should be decided. Options include: 

  • All active employees are eligible
  • No employees are eligible

Rules can be defined at three levels:

  • Compensation plan template level: At this level, rules define who should be included (or excluded) in the planning cycle.
  • Component level: At this level, rules define who should be included (or excluded) in the Salary, Bonus, and Stock tabs. If users appear on the worksheet but are ineligible for one of the components, their names will appear, but all data will be grayed out.
  • Field level: At this level, rules can be applied for promo, merit, extra, extra2, lumpSum, lumpSum2, stock, options, stockUnits, stockOther1, stockOther2, and stockOther3. If a user is ineligible for one of these fields, the field will be grayed out, so the compensation planner can't edit the field.
This screenshot shows where eligibility rules are set up.

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