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Author's profile photo Christian J Smith

Incentive Calculation Using Individual Goals and the Overall Performance Rating

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.

Prerequisites:

  • 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

Configuration Specifics

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%.

Worksheet Design

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

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      Author's profile photo Xavier Le Garrec
      Xavier Le Garrec

      Hi Christian, I thought I would add here a design I made back in 2018 which is very similar to your business case.

      The customer's requirements were the following :

      • Let managers enter the Attainment % of each individual goal on the VP form
      • Have the individual goals coming from the Performance form weighted evenly and automatically (their goal plan had no weight field editable by managers and employees when I started designing this).
      • Cap the individual goals attainment editable by managers on VP screen at 200%
      • Have everything roll up to the entry level to calculate final payout.

      Below is a visual explanation of how it was all built using ALCF and a rollup of everything from indGoal to indSection, then from indSection to Assignment Level then to Summary.

      The trick was to add the field "weight" in the goal plan but keep it hidden and default its value at 100 so that every new goal gets a weight at 100% that will flow to VP. To do that we need to add the following tag right above </field-definition> for the weight in the goal plan xml  : <default-value>100.00</default-value> (if goals have already been created then the weight value of 100 can also be imported).

      To make the capping work I added a Guideline with hard stop on VarPayInd to say Max 200 and default at 100 for any unrated rating coming from PM (one line in the guideline table). 

      All the best,

      Xavier