Compensation Elements

Compensation Plan Elements, or simply Compensation Elements, are reusable objects that contain an expression or value. They make it easier to create and maintain compensation plans.

Compensation Elements merely store data. Until a Compensation Element is associated with a Rule, Variable, or Plan, it is not used in calculating compensation.

Access to Compensation Elements is available from the Plans menu. Each type of Compensation Element has its own workspace.

As we go through the next few lessons, we will be creating many types of objects: fixed values, territories, variables, plans, and rules. While the system does not have strict naming requirements, we will be using a widely accepted set of naming conventions.

• While spaces are allowed, we will substitute an underscore ( _ ) for spaces.
• Each object is preceded by an acronym to identify the type of object. For example, territories are preceded by T_ , and territory variables are preceded by TV_.
• Objects that can be periodic, such as a fixed value that contains a quarterly quota, will contain the period somewhere in the name, such as FV_Quarterly_Quota or FV_Quota_Quarter.
• Compensation plan rules are preceded with the type of rule. For example, a direct credit rule will be preceded by DCR_, and a deposit rule will be preceded by DR_.

Compensation Elements store data that can be used in rules. They have three advantages that simplify the management of rules:

• They allow the encapsulation of data in distinct objects rather than storing everything in a large, complex compensation plan.
• They have special abilities that allow certain tasks to be accomplished easily.
• They are Effective Dated, which makes it easier to manage changes in plans.

The types of compensation elements are:

A Territory is a named object defined by groups of categories and classifiers that is used to filter input to credit and primary measurement rules.

Territories filter transactions based on how they are classified. They can be used for a number of scenarios, but a common one is to allocate credit for a Transaction to a payee based on a criterion, such as the location, product or customer type.

Consider the scenario we saw earlier. Stacey Palowski, the Sales Rep for the western region, should get credit for any transaction in the US states of California, Nevada, or Arizona. Let’s add one more requirement: the transactions must also be for sales of bike products or accessories, but not repair services.

Stacey’s territory would be defined using the data in the category hierarchy we saw in the previous topic, and would look like (Bike Products OR Accessories) AND Western Region.

Are defined using Categories and Classifiers.

Can be simple or complex.

Can be referenced in Credit or Primary Measurement Rules.

• Use Parenthesis and Logical order of operations to make sure the statement is logically processed.
  • For an AND condition, both parts must be true for the territory to succeed.
  • For an OR condition, the match succeeds if either clause is true.
• Never leave a Territory object Blank, this will cause errors in the pipeline.
• Have a "dummy" Territory that evaluates as FALSE. You can then use this territory as the default for variables, which will prevent an error if a variable is not assigned.

Let’s look at two examples in which Fixed Values can be used in a plan.

Scenario 1: Quarterly Bonus

Bikes In Motion pays a quarterly bonus of $1000 to all Sales Reps that meet their quarterly quota. The bonus does not change over time, but it may be adjusted in the future. Storing the bonus in a Fixed Value allows you to create a new version of the bonus if the amount changes without having to change the compensation plan.

Scenario 2: Quarterly Sales Quota

While the bonus amount is the same for all quarters, sales of bikes are very seasonal, so the sales quota changes with the seasons. The quota is low in the first quarter of the year, when temperatures are cold in the US and Canada. In Q2, the weather is warmer, and bike shops are ordering stock for the Summer months. As a result, the quota will be much higher in Q2 and Q3. In Q4, the holiday gift-giving season may mean a high quota as well.

As a result, our quarterly sales quotas might look like this:

• Q1: $125,000
• Q2: $400,000
• Q3: $600,000
• Q4: $350,000

To make a fixed value periodic, set the period type to quarter. This will allow you to enter a separate entry field for each quarter.

• Only use a period specific fixed value if you are certain the Client does not allow that value to change mid-period. If they do, it is better to use a non-period specific Fixed Value, and version it when it changes.
• In period specific fixed values, be sure to populate every period of the current fiscal year with a value (do not leave null) or it will create errors in the pipeline.
• Have a process documented to ensure that fixed values are populated each year.
• Use a variable when referencing a fixed value in a rule. Avoid hard coding a fixed value into a rule or plan object.

To understand rate tables, it’s helpful to understand what Attainment means in this context. Attainment is, put simply, achievement as a percent of quota or target. For example, if a sales quota is US$100,000 and a payee achieves total sales of $104,000, attainment is 104%.

The rate table then holds a list of rates for ranges of attainment.

Rate tables are generally used in Incentive Rules. The rule can calculate attainment and look up the rate, based on that attainment, in a rate table.

Commission rates can be evaluated two ways: Step and Straight.

When Step Commission is used, the commission rate steps up as the payee reaches each attainment threshold. In contrast, when straight commission is used, only a single commission rate is applied at the final attainment threshold.

Figure 27: Step vs. Straight Commission in Rate Tables

Let’s look at the above example of a rate table that pays a 3% commission for sales below 100% attainment and 5% for sales above 100%. Using step commission, all sales up to 100% of quota are compensated at 3%, and only the remaining 4% of sales are paid out at the higher rate. In contrast, if straight commission is used, the full amount is paid out at the higher rate.

Step Commission is more complex than straight commission but is more common. A single rate table can be used to calculate both step and straight commission, depending on the settings in the rule.

• Don’t leave the rates in a rate table blank.
• Use a variable when referencing a rate table in a rule. Avoid hard coding a rate table into a rule or plan object.

Some similarities exist between Lookup Tables and Rate Tables. The matrix below shows the differences and similarities between the two and may help you decide when to use each one.

• Map out your lookup table before creating them.
• If you leave values null, check the box to make all null values zero or use conditioning to ensure a rule does not attempt to calculate using a null value.
• Avoid many nested Lookup Table references. Keep them as simple as possible.
• Use Lookup Tables when the list of indices is relatively static.

• Keep formulas readable and straight forward.
• Use the Description field to describe what the formula does.
• Don’t leave a formula expression blank. Instead, populate with a value that returns nothing in the result, depending on the result type. For example if the formula has a Boolean result, populate the formula with false.