One of the more frequent configuration requests I receive is the shift from an incentive plan that focuses on the overall performance of an employee throughout the year to a more targeted plan where an individual employee is measured against specific goals or KPIs documented in their performance form. These goals are often individually weighted based on business priorities and paid out individually based on a standard rating scale. The approach creates more complexity in the calculation but can result in closer alignment and transparency between an individual employee’s contribution to the organisation and their incentive outcome.
One of the concerns with this type of incentive plan is that the ‘how’ in the performance review is excluded. In other words, an employee could potentially complete all their goals but fail to demonstrate the expected organisational behaviours or live the organisational values in the process. To ensure the ‘how’ component of the performance plan is considered in the incentive payout, we can use the overall performance rating as a minimum gate or threshold for payment.
Let’s look at an example of how the SAP SuccessFactors Variable Pay module can achieve this requirement:
Base Formula = Business Outcome + Sum of Individual Goal Outcomes
An overall performance outcome of 1 (Unsatisfactory) will result in no incentive payment for the employee
To achieve this requirement, we will configure the Business, Individual and Team components of the variable pay form template even though there is no Team component in the incentive plan requirement. The Team section will be repurposed to pull through the overall performance rating from the performance form but will be given a 0% weight. This will allow us to use the overall performance rating in a custom formula as a gate or threshold value for the incentive payment.
The performance form must be configured with a goal section and goals must be populated
Individual goals must be weighted on the performance form
It is recommended the number of characters in the goal name is limited to a minimum as the text will not wrap on the variable pay form
The start date and end date of the performance form needs to overlap or align to the start date or end date of the employee history record
Performance forms must be launched prior to variable pay forms
The performance form includes a competency/behaviour/values section that forms part of the overall performance rating
Set Bonus Calculation:
In this example for an additive incentive plan, the Bonus Calculation Equation should be set to include business, individual and team components.
The Team component should be mapped to the overall performance rating for the annual performance form. We will set this component to a 0% rating in the Bonus Plan configuration.
The Individual component should be mapped to the individual goals configured within a defined goal section in the performance form.In order to use standard individual goal guidelines, ratings, percentages, and amounts, assignment based rating must be enabled in this section of the configuration even if true assignment based rating is not being used.
Bonus Plan Weights
In order to pull through the overall performance rating from the performance form but use it for a threshold level of performance only, the bonus plan configuration must be set to have this section allocated a 0% weight. In our example we are using the Team section for this purpose and so have set the Business Component at 50%, the Individual Component at 50% and the Team Component at 0%.
When configuring the remainder of the form, ensure you display both the Business Detail and Individual Detail sections but the Team section can be hidden. In the Individual section, the standard fields Goals, Weight, Rating, Individual Guideline, Individual Percent and Individual Amount should be displayed to achieve a layout in the screenshot below. All fields can be relabelled as required.
In the Entry view, the field Team Rating (totalTeamRating) can now be displayed to show the employee’s overall performance rating. This standard field can be used in flow on calculations to zero out an employee’s incentive payment where the overall performance rating is below a specific threshold, in this case a 1 or Unsatisfactory performance on the rating scale.
By using this approach we are able to calculate incentives off of an employee's individual goals while still factoring in the behavioural or 'how' component of an employee's performance.
Note: All screenshots include sample data from an SAP SuccessFactors demo instance