Using actual earnings instead of contractual salary in Variable Pay
Some companies use the sum of payments made on an employee’s bank account (we will call it “actual earnings” below) instead of the leading practice contractual salary stored in Employee Central to calculate bonus payouts. This is done in some industries as a gesture in favor of employees working a lot of overtime hours so they can also receive a larger payment at the end of the year.
Key considerations : actual earnings vs Variable Pay leading practices
In SAP SuccessFactors Variable Pay an employee being promoted and getting a raise on salary and on Target Bonus % on April 1st will get the following Target Bonus Amount (in bold at bottom) for the fiscal year :
- Target bonus amount for period January 1st to March 31st = $100,000 * 10% * 24.66% (time spent in position as a % : number of days divided by 365 or 366)
- Target bonus amount for period April 1st to December 31st = $110,000 * 15% * 75.34% (time spent in position as a % : number of days divided by 365 or 366).
= 2,466 + 12,431.1 = $14,897.1
Using the example above we now have to change the following in order to be able to use actual earnings in a Variable Pay template (numbers in bold in bullet points below are the sum of all payments for each period).
- Target bonus amount for period January 1st to March 31st = $100K $85,543 * 10% * time spent in position as a % (number of days divided by 365 or 366)
- Target bonus amount for period April 1st to December 31st = $110K $91,992 * 15% * time spent in position as a % (number of days divided by 365 or 366).
= 8,554.3 + 13,798.8 = $22,353.1
Conclusions from the example
Because there isn’t any standard integration between ECP and Variable Pay yet in order to switch to actual earnings customers have to either use the Earnings table feature or do the following in Variable Pay :
- Remove built-in proration from the Variable Pay template by following steps and recording from this blog : https://blogs.sap.com/2022/01/25/removing-assignment-proration-in-variable-pay/
- Export the employee history from the Variable Pay template and fill it with the right value for each employee assignment thanks to a payroll report tracking all payments for employees. Please note : as mentioned above the earnings table feature of Variable Pay can also be used instead of exporting and reimporting the employee history but I personally like the employee history option better as it consolidates all data (earnings and target %) into the same screen instead of 2 with the earnings table.
Hints for automation
Companies that calculate the Target Amount for the whole year based on the last Target Bonus % of the employee during the fiscal year (more generous) can remove step 2 from the above conclusion and simply create a field in Employee Central Compensation information portlet where they can load for each employee the sum of all payments obtained from Payroll.
An integration expert estimated the time needed to build an integration in ECP directly that would prefill the Variable Pay employee history import file with all the right data (to then be deposited on FTP or sent by email to Comp Admin) to 40 days of work. I personally don’t think it is worth it when this would take probably half a day or less to prepare for a Compensation Administrator (also it is only done once a year and the complexity in Excel is mostly for people who got promoted which is probably around 20% or less for most companies every cycle). Please see here an excel document showing how to quickly convert data from payroll to the variable pay employee history import file by using the SUMIFS function (credit Phil MacGovern).
This topic comes back very regularly in discussions with Product Management but the standard integration of Variable pay employee history with custom MDF objects is in my view a prerequisite for potential automation options.
All the best