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Business case
In most clients’ requirements for bonus calculation, we would find that the target bonus of employees is split between the Business part and the Individual part fairly consistently across the population. For instance, lower level employees would get 20% of their bonus from Business Goals and the other 80% from their Individual Goals, while higher level employees would get 70% of their bonus from their Business Goals and the other 30% from their Individual Goals.
However, in our business case, the client has multiple bonus plans, which represent the target percentage of the Variable Pay bonus, but this target can be split between Business and Individual parts differently according to the job code, department or location of the employee, or a combination of those fields. In order to minimise the number of Bonus plans we needed to define, we came up with a solution involving custom fields that calculate, based on the target % for the employee and the weight of their business goals, the remaining target to be assigned to individual goals.
I am sure there were other, and maybe better, solutions for this, but this blog might help others to think differently about the Variable Pay configuration for “flexible” bonus plans.
Illustration
To illustrate this, let’s take 2 employees who have a 15% target bonus and work in the same company but in 2 different departments.
Employee A works in Department X, and Employee B works in department Y. The bonus plans should look like the following:
| Employee A | 15% | Employee B | 15% | |
| Business Goals | 10% | Business Goals | 12% | |
| Company Goal | 5% | Company Goal | 5% | |
| Department X Goal 1 | 2.5% | Department Y Goal 1 | 3% | |
| Department X Goal 2 | 2.5% | Department Y Goal 2 | 2% | |
| Department Y Goal 3 | 2% | |||
| Individual Goals | 5% | Individual Goals | 3% | |
| Individual Goal 1 | 2% | Individual Goal 1 | 1.5% | |
| Individual Goal 2 | 3% | Individual Goal 2 | 1.5% |
Note that here the weights of the goals represent the portion of the salary assigned to the goal, not the portion of the bonus target as they usually would.
So, in the Worksheet, the entry for Employee B would look like the screenshot below:
Apart from its flexibility, the solution offers higher legibility of the details of the bonus calculation for the employees. It is easier to understand what each goal represents in terms of value and understand how the total value of the payout is calculated.
In the next section, details are given for the steps taken during the configuration of the solution. Apologies in advance for the length and the boredom you might feel by the end of it, but i guess there is no way to make this kind of thing fun. Nonetheless, I hope this helps or inspire someone when faced with unusual requirements from their customer. And Variable Pay implementations are a good place to find such unusual requirements!
Configuration
To achieve what is shown in the screenshot above, we have in our set up for Variable pay, the following key elements:
- The basis for the bonus is the salary, not the bonus target
- Business Goals are assigned to bonus plan with the percentage representing the portion of the salary that Is their target
- A number of custom fields are used to calculate the correct weight for Individual Goals
1. Bonus Calculation Set Up
The basis for the bonus is defined as the salary, not as the target bonus as would happen in most configurations
2. Bonus Plans Set Up
Business Goals
The Business Goals are defined as usual. Note that the Company business Goal is assigned to the program plan name so that all employees who have this goal in their bonus plan get the goal, no matter what data is in their Employee History
Bonus Plan
A single Bonus plan “Up to 15% Bonus” is defined, with the weights of the Individual and Business Section being 100% (so that the basis amount for the section is the 100% salary).
The business goals are then assigned with the weight percentage that correspond to the portion of the salary the employee would get if the goal was achieved at 100%
Worksheet Configuration
A number of custom columns are defined in the worksheet, at various levels, and most standard columns are hidden
Business Goal Level – Business Goal Weight
At Business Goal Level, we defined a column that gets the weight of the business goal as set in the bonus plan, in a Percent format, so that it can be used in other levels of the worksheet
Business Goal Level – Business Goal Payout Amount
At Business Goal Level, we defined a column that retrieves the goal payout amount so that it can be used in other levels of the worksheet
Business Section Level – Business Section Weight
At Business Section Level, we defined a column that sums up the business goals weights to determine the total weight of the business section
Business Section Level – Business Section Target Amount
At Business Section Level, we defined a column that calculates what the target amount is for the business section (to be used for display purposes, instead of the standard column that would show a wrong number)
Business Section Level – Business Section Payout Amount
At Business Section Level, we defined a column that sums up the goals payout amounts (to be used for display purposes, instead of the standard column that would show a wrong number)
Assignment Level – Business Section Weight
At Assignment Level, we defined a field that retrieves the weight of the Business Section (to be used in Individual Section Level to determine the weight of the individual section)
Individual Section Level – Total Bonus target Percentage
At Individual Section Level, we defined a field that reads the bonus target percentage of the employee in their Employee History File
Individual Section Level – Individual Section Weight
At Individual Section Level, we defined a field that calculates the weight to be assigned to the business section. This will then be used at Individual Goal level to determine the weight of each goal
Individual Detail Level – Individual Goal Weight
At Individual Detail Level, we defined a field that calculates the weight of each individual goal. This works by reading the weight of the goal that comes from the Individual Goal Plan of the employee, and multiplying this value by the weight if the Individual Section. Note that the Individual Goal Plan is configured to enforce the sum of all goal weights to add up to 100%, so that managers do not have to think about what percentage an employee is entitled to in their Individual bonus, they only have to assign the goals and spread the wights according to goal priority, the Variable Pay calculation will do the rest for them.
Individual Detail Level – Individual Goal Target Amount
At Individual Detail Level, we defined a field that calculates the target amount for each Individual Goal
Individual Detail Level – Individual Goal Payout Percentage
At Individual Detail Level, we defined a field that calculates the payout percentage for each Individual Goal. This is done so that unrated goals are paid out at 0%
Individual Detail Level – Individual Goal Payout Amount
At Individual Detail Level, we defined a field that calculates the payout amount for each Individual Goal.
Assignment Level – Individual Section Payout Amount
At Assignment level, we defined a field that retrieves the payout amount for the Individual Section (to be used at entry level, since the standard field does not calculate as needed)
Assignment Level – Individual Section Payout Target
At Assignment level, we defined a field that retrieves the target amount for the Individual Section (to be used at entry level, since the standard field does not calculate as needed)
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