- SAP Managed Tags
Over the years I have been involved in several variable pay implementations for customers in the financial services and insurance industries. One of the recurring themes I hear in the requirements gathering workshops is the need to defer employee incentive payments in either cash or shares/stock to a later point in time. This requirement can be due to legal obligations, or some organisations use deferred incentive payments as a long term cash based incentive option.
To achieve this requirement, we often need a combination of custom fields, custom calculations, and lookup tables. Let’s look at a couple of examples of how we can configure deferral calculations using SAP SuccessFactors Variable Pay.
Prerequisites:
- The template is configured with a final incentive payment field. This can be the standard ‘Final Payout’ field or a custom field.
- Data points that determine employee deferral eligibility are available in Employee Central and can be pulled into the template.
- Template integration to Employee Central is assumed but the below can be achieved without integration as well
Example 1 – Defer a portion of the incentive payment paid in cash
In this example, the requirement from the customer is to take a portion of the final payment and defer this value to a later point in time. The first thing to determine is which employees are eligible for the deferral payment. This will differ for all customers but can be based on paygrade, job level, position, incentive plan type or even a custom identifier in the employees Job Information record. If your requirement for deferral payments is based on the employee’s job responsibilities, the recommendation is to store this against the position not just the employee so future incumbents of the position will also inherit this identifier.
Once the population is identified, the system needs to know what percentage or amount of the final incentive payment should be deferred. Again, this may be the same for all employees or it may differ depending on an identifier against the employee.
In the screenshot below, we use a Yes/No flag configured in Employee Central to determine deferral eligibility (‘Deferral Applicable’) and a lookup table based on Paygrade to determine the deferral percentage applicable (‘Deferral %’).
Example 2 – Defer a portion of the incentive payment paid in shares
In example 2, the same logic applies as in example 1 except this time we are calculating the deferred component to be allocated in share/stock rights which vest in 3 years. The share price used at the time of allocation (‘VWAP’ in the screenshot below) is input using a lookup table as the value might need to be loaded once the worksheets are already live. The ‘Number of Shares’ column is a calculated field that takes the ‘Deferred Amount’ / ‘VWAP’ to get the total share allocation. In the screenshot below partial shares are allocated, but the round formula can be added to the calculation to round the number of shares up or down if partial shares are not required. The vesting period can be hard coded, input via a lookup table or custom formula if there is different logic applicable to different employee groups.
Additional Notes:
- The above logic could be applied to an incentive plan configured using the compensation module
- It is possible to publish future non-recurring one time payments so a deferred cash payment can be scheduled (assuming no criteria other than termination would deem an employee ineligible to receive the deferred payment). For more information on setting custom publish dates for non-recurring pay components refer to this KBA.
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