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Product and Topic Expert
Product and Topic Expert


This post will provide insights on how the Compensation Module is designed in the SAP Model Company for Human Resources which is built according to SAP Leading Practices.


Project plan related information

    • In leading practice project plans Compensation and Variable Pay are delivered in 3 iterations with one sprint of configuration by SAP and one sprint of testing by the client in each iteration. For more information about iterations and Compensation process summary please see this document.


    • Compensation workshops can start at the same time than all other modules but Compensation/Variable Pay iteration 1 delivery should be scheduled for minimum two weeks after Employee Central iteration 1 has been delivered so that testing of the Compensation design can take place with a stabilized Employee Central configuration.


    • If EC is planned to go live before Compensation implementation starts, please see this blog.


    • It takes on average between 6 and 9 months for regular complexity projects from the first workshops to Go Live in production. Bigger ones (for example 200k users in Salary Review screens and 9 different processes) can take up to 2 years.


    • Compensation and Variable Pay have the following integrations with other modules :

        • Employee Central --> Compensation/Variable Pay (data effective as of 1 and only snapshot date for Compensation and eligible records from a whole fiscal year for VarPay)

        • Performance forms --> Compensation/Variable Pay (ratings, individual goals)

        • Compensation/Variable Pay --> Employee Central (publish back feature in one click to employees’ profiles or -for Compensation only- also to custom MDF objects once all new salaries and bonus have been finalized)


Overview of the Compensation Module configuration in the SAP Model Company for Human Resources - all compensation processes

    • There are 3 processes in the Model Company environment : “Salary Planning”, “Long Term Incentive / LTI Planning” and “Incentive Planning”.


    • Each process has its own template which shows in the compensation planner’s inbox as : name of the template + name of the planner (please see screenshot below).


    • Having a template for each process provides more flexibility in refining route maps and planning methods (standard org chart manager vs custom planner - watch recording of this blog for more information).


Salary Planning 

    • The planning method for Salary Planning is set to “Direct Manager”, which means any employee who is also a Manager in the Company org chart will get a worksheet created with their team members in it.


    • Eligibility rules are pre configured to exclude any team member with Hire Date (as found in Employment Information) greater than 12/31/19 or whose “Home/Host Designation” is “Host” (for Global Assignment cases).


    • All salaries are annualized for the purposes of planning based on the compounding rate.


    • FTE is used but not Proration. Please see this blog for more details on these features.


    • Merit Guidelines are based upon rating, country and range penetration (comparison of employee’s annual salary to the max point of the Pay Range loaded in Employee Central).


    • The 4 editable recommendation fields for planners in the worksheet are : Merit, Lump Sum, Adjustment, Promotion.


    • The following Budgets are pre configured : Merit (merit and lumpsum planning), Adjustment (adjustment planning) and Promotion (promotion planning). Budgets are built from the bottom-up by examining the budget percentage times the employees salary, adding together all employee’s contributions on a worksheet. Budgets reference a table to obtain planning percentages using “Country” and potentially one other factor.


    • Promotion is enabled and the Default Editable fields in the Promotion popup (showing Employee Central > Job Information fields) are Job Classification / Global Job Title / Local Job Title / Pay Grade / Standard Weekly Hours.


    • For more demos of Salary Planning please see the recording in this blog.



LTI Planning 

    • The LTI Planning template is designed for annual planning of long term incentives, named in the template as Stock, Options and RSUs.


    • In contrast to Salary and Incentive planning, where forms are grouped and initial planning is by the direct manager, LTI Planning uses a defined Compensation Planner Hierarchy, where administrators maintain LTI planners in the EC Job Relationship portlet.


    • Eligibility rules are pre configured to exclude any team member with a Hire Date after 12/31/19 or with a Pay Grade Level less than 4.


    • Stock, Options and RSUs Guidelines are based on Pay Grade.


    • Budgets are built from the bottom-up by examining the guideline default and adding together all employee’s contributions on a worksheet.


Incentive Planning 

    • The Incentive Planning template is designed for annual calculation and planning of employee incentive programs, using inputs from an employee’s incentive plan, individual performance and business goal performance.


    • The planning method for Incentive Planning is set to “Direct Manager”, which means any employee who is also a Manager in the Company org chart will get a worksheet created with their team member in it.


    • The program dates from which to pull employment history from Employee Central for payout calculation are set to Jan 1st - Dec 31st of year prior to planning.


    • Incentive Planning assumes that any active employee that was in an Incentive Plan during the year is eligible for payout.


    • The Incentive Planning template assumes a calculation of “Business Section” + “Individual Section” (Biz + Ind = Total) :

        • The “Business Section” is based on the goals associated to an employee’s Incentive Plan and is non-discretionary.

        • The “Individual Section” is subject to manger discretion using Performance Rating as an input.


    • The guideline for the planner’s discretionary input on the Individual Performance is based on the Performance Rating.


    • Budgets are built from the bottom up by adding together the portion of an employee’s bonus that makes up the individual discretionary portion of the payout funded at 100%.


    • For demos of Variable Pay please see the recording of this blog.


Approval workflows

For all three processes above, the approval workflow is as follows :

In the above screenshot "Manager planning" is the direct manager of the employees as per the org chart (line Manager) and "Next Level Manager Review" is the line manager's line manager (2 levels above the employee being reviewed in the worksheet).

Here it is important to note that worksheets always start and end in the inbox of an admin user called "Comp Admin". Why is this important and should always be added to a compensation route map ?

For two reasons :

    • Provide Comp Admin with the time needed to make data checks :

        • Before sending worksheets to planners (Process Setup)

        • Before launching compensation statements and publishing reviewed compensation information back to peoples' profile in Employee Central (Final Review).


    • Granting anonymity to the process : as we can see in the screenshot below, when worksheets are sent to first level planners they can see who sent it to them. It is recommended to not associate the compensation planning process with the name of a particular person.

Actions taken by someone proxying as Comp Admin will always be tracked in reporting in the following way "this change was made by [Full Name] proxying as Comp Admin".



Additional links and recommendations

    • SAP's official Training page for the Compensation module, including a section on preparing for a new implementation.


    • Are you a customer looking to understand the Compensation module better ? We would strongly recommend signing up for SAP's Embedded Launch Activities program so you can get access to your own Demo environment with leading practice configuration.


    • Are you a partner consultant getting ready for a new implementation ? make sure to check out the HXM partner forum with lots of FAQ and useful links in the pinned post.



All the best

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