Maintaining bonus plans, business goals functionality and Variable Pay Reports.

Each bonus plan is associated with many weighted business goals. For example, earnings per share, EBITDA (earnings before interest, taxes, depreciation, and amortization), district revenues, and so on.

Employees are eligible for bonus plans based on their demographic data. For example, job code, level, division, department, location, and so on.

Business goal weights are defined within the bonus plan.

• Example: The EPS goal is weighted at 50% for the Supply Chain Parts bonus plan.

• However, EPS is weighted at 25% for the Home Delivery bonus plan.

When the business goal achievement results are known, they are compared against the business goal targets to determine the actual payout percent.

Business goals have predetermined achievement targets:

• As mentioned, when the business goal achievement results are known, they are compared against the business goal targets to determine the actual payout percent.

• Each achievement target is anchored to a payout percentage.

There are three payout functions supported within a single program/plan:

• Interpolation

• Step Scale

• Direct

The Interpolation payout function type works by approximating the payout value between the two given data points.

The Step payout function type works by achieving any of the set guidelines. Anything in between takes the lower value.

• The Direct payout model is used when the goal achievement results are known and the payout percentage is defined.

• The payout percent is uploaded for each business goal (Variable Pay does not perform any calculations).

• If set to direct, then the value in direct payout percent overrides the normal performance payout for goals.

These are the standard equations in SAP SuccessFactors Variable Pay.

Each Variable Pay plan must include one formula; this formula is used to calculate the final payout for each employee.

• Formulas 1, 2, and 4 are multiplicative formulas.

• Formulas 3 and 5 are additive formulas.

• Additive formulas are used when Individual/Team performance scores contribute to the final payout as an addition to the business achievement payout.

• Section weights are defined for the Business, Individual, and Team section.

• The weight is then multiplied by the base to get the section amount.

• The final payout is the sum of goal achievement payouts for all sections.

• Formulas:

  • Formula 3: Base X (Business + Individual)

  • Formula 5: Base X (Business + Individual + Team)

• Used when Individual/Team performance scores contribute to the final payout as a multiplier to the business achievement payout.

• Used to motivate employees to perform better to receive higher pay.

• The business section has its own payout percent.

• The Individual/Team payout is calculated as a multiplier. The multiplier value comes from configured guideline matrix.

• The final payout is determined by multiplying the business achievement payout with the Individual/Team score.

• Formulas:

  • Formula 1: Base X Business

  • Formula 2: Base X Business X Individual

  • Formula 4: Base X Business X Individual X Team

Some employees are eligible for more than one bonus plan or have a change in basis throughout the course of the evaluation period. It is a heavy administrative burden for Compensation professionals.

SAP SuccessFactors Variable Pay eases this burden by:

• Considering the employee’s date-effective historical records

• Determining who is eligible for which bonus plans during which timeframes or which basis value to calculate from

• Prorating the payouts for each bonus plan or basis value

Variable Pay system proration works by comparing the assignment dates of employees by bonus period. There is no switch to turn off proration. Some companies calculate proration outside the SAP SuccessFactors system. To eliminate double proration, assignment dates must match the bonus period on the employee history file.

There are various companies that would like the base pay for the bonus calculation to be based on a particular date. For example, year-end. This is the current business process for many companies, and a regulation in certain countries where the inflation is very high.

In such programs, the customers may only be interested in the salary as of a particular date (for example, year-end 12/31) to calculate the bonus target.

Variable Pay allows point in time calculation by importing the basis from the user data file.

The basis column in the employee history data file is left blank as it is pulled from the user data file using an import key.

The basis as seen in the example is based on year-end salary as opposed to being calculated per salary's effective date.

Some companies have provisions in their bonus programs that employees can make no more than a specific amount of their bonus target. Typically this cap is defined either by bonus plan or employee.

By bonus plan: wherein the total of the business goal payout amounts cannot exceed a preconfigured percentage of the prorated target amount for that assignment. The cap is applied at each incentive plan.

By employee: wherein the total payout amount for the employee cannot exceed a preconfigured percentage of the sum of the prorated target amounts for the employee. The system applies the cap at the end, using the aggregate amounts.

The validation reports available are:

• Employee History: Displays the employee history data file field and corresponding background element field IDs.

• Employee History & Proration: Includes proration percentage of each assignment.

• Employee History Gaps: Employees that do not have a bonus plan assigned at some point within the plan period.

• Employee History Overlap: Employees with more than one plan assigned within the same date range.

• Business Goal Weights: Weights and mappings data file fields.

• Business Goal Performance: Business goals data file fields.

The Export Report is used to import data into the HRIS.

The Export Reports available are:

• Bonus Payout: Entry-Level report (one row per employee)

• Bonus Payout Details Report: Goal details (multiple rows per employees)

• Override: Employees that contain a value in the override field

Validation and Export Reports are generated directly in the SAP SuccessFactors UI, within the Reports tab of each Variable Pay program.

Reports can be generated in the currency of choice when multiple currencies are used in a program.

Most Variable Pay customers must conduct periodic calculations of projected/forecasted bonus payout costs for the company. Quarterly calculations are the most common.

• Variable Pay admins receive a forecasted business goals results from the finance teams.

• Admins then perform bonus calculations to determine what the expected bonus payout costs are for the company and send a report back to finance teams.

• This is a manual process for admins with complex bonus calculations conducted on error-prone spreadsheets.

• The Bonus Forecasting and Accrual Report automates this forecasting/calculation process without the need to launch forms.

Administrators can forecast total spending on bonus plans by importing estimated business goal results.

The administrator can import and reimport forecasted data iteratively for "what-if" scenarios at different times.

In the beginning of the cycle, set up the Variable Pay program with all data:

• Bonus Calculation Formula

• Budgets

• Bonus Plans

• Guidelines

• Eligibility

• Business Goals

• Business Goal Weights

During the planning cycle, do the following:

• Enable the Bonus Forecasting RBP setting for applicable admins.

• Navigate to Plan Setup→Forecast Bonus→. Choose from two options: Forecast Bonus or Forecast Bonus Results.

For Forecast Bonus Setup:

Upload the annual forecasted financial data (forecast or forecast 2) into the system as part of the business goals file.

• The leading practice is to use only the forecast and forecast 2 (modeling) columns for this calculation.

• The results columns must be reserved for actual bonus payout calculations.

• Enter a name for the Forecast Report.

• Enter bonus start and end dates.

• Consider individual and/or team results at 100% target, or use previous years individual/team ratings from previous year’s Performance Management forms.

  • Select a rating source for individual goals.

  • Select a rating source for team goals.

• Without launching the forms, choose Create to generate the forecast report.

The system calculates a bonus payout based on the setup data.

Bonus Forecast Results:

The admin can view the forecast information in the following ways:

• In report form, using export

• In graphical format, by navigating to Forecast Bonus→Forecast Bonus Results

In the graphical format, an overall view displays with Forecast 1, Forecast 2, and Actual Results data. Choose the Details icon to show or hide a payout breakdown by desired group: department, division, location, or job code.