You use compensation management to control delivery of base pay and awards. Adjustments of the base pay are managed though fixed compensation plans and awards are managed through variable compensation plans.

Note Note

To inactivate access to the compensation data, you can set up user group permissions in the form to restrict the menus, forms, and reports that group members can access.

Set up a fixed compensation plan

  1. Click > > > .

  2. Press CTRL+N to create a new plan.

  3. In the field, define if the plan should be of the , , or type.

  4. Select the check box, if information from a survey company is to be used to determine fair market pricing for a specific job that is associated with this compensation plan.

    Tip Tip

    The plan, then, uses the information entered in the fields on the form. For type plans only.

  5. Select an option in the field to define how to handle restrictions on manual pay rate changes and to calculate guideline amounts when a process event is run.

  6. Select the check box to include pay rates that are outside the calculated guideline increase.

  7. Select or in the field to specify if prorated pay for employees that are hired at some point during the compensation cycle should be used.

  8. On the tab, set up graded pay increases by entering a utilization percentage and a corresponding increase modifier percentage.

  9. Complete the remaining fields. For more information about the fields, see Fixed compensation plans (form).

Set up a compensation structure for a fixed plan

  1. Click > > > .

  2. Click to select a reference point setup.

  3. Click , select a reference point setup in the field, and click OK.

    Note Note

    If you select , you copy not only the compensation matrix, but you copy the whole structure, including the wage levels in the structure.

    If you select , any changes that you make to the wage levels entered in the compensation structure are reflected in any other compensation plan setup where this matrix is applied.

  4. Click OK, and in the form, verify the existing compensation setup or press CTRL+N to create new lines.

  5. Create or adjust the appropriate wage ranges.

  6. Click the tab in the form, and select a control point in the field.

Tip Tip

The control point is derived from the reference point setup.

Fixed plans using the Compensation grid form

Using the form ( > > ), you can set up basic compensation plans, including compensation structures for the plans. This method can be applied by companies that use external compensation systems.

Note Note

Compensation plans and the corresponding compensation structures created in the form are automatically copied to the form. However, this does not apply the other way around, so a compensation plan and structure created in the form is not copied to the form.

Compensation setup, utilization range, and a control point

When you set up compensation, you create a compensation matrix that is composed of a set of ranges and a set of levels, and then you add pay rates to create a compensation structure. The range headings are derived from the reference point setup.

After you have set up a compensation structure, you can select a control point for the compensation plan. The control point indicates the ideal pay rate for all employees at a compensation level. For grade plan structures, control points are typically the range mid-point. Broad band structures seldom use control points.

You can use the range utilization matrix to move the employee toward the desired pay rate for the job (the control point).

You also can use range utilization to control pay rate equity within the company without regard to an individual employee's performance or the overall performance of the company. Employees paid lower in their range get higher percentage increases than those paid higher in the range. This could be relevant in a merger situation where there is a need to systematically set off equity issues.

The range utilization is calculated as follows: Fixed Pay Rate - Range Minimum / Range Maximum - Range Minimum.

Note Note

Range utilization is used for the plan if you have created a range utilization matrix on the tab in the form.

Set up a variable compensation plan

  1. Click > > > .

  2. Press CTRL+N to create a new plan.

  3. In the field, define if the plan should be of the , , or type.

  4. In the , the , and the and fields, enter information for a cash award or a stock award.

  5. Select or in the field to specify if you want to use prorated pay for employees that are hired at some point during the compensation cycle.

  6. Select the check box to ensure that variable awards are calculated against an employee's annualized fixed pay rate.

    Note Note

    If this check box is not selected, employees with fixed pay rates entered in monthly, weekly, or hourly frequencies will have their variable award calculated as a single month, single week, or single hour award.

  7. Select the check box to enable awards that are outside the calculated guideline award. Recommended awards can override calculated guideline amounts when the process event is run.

  8. Select an option under to indicate whether to calculate the award using the employee's fixed pay rate, or the average pay rate for his or her job.

  9. Complete the appropriate fields on the tab to base the award on the overall performance of a specific organization unit.

  10. Complete the remaining fields in the form. For details, see Variable compensation plans (form).

Set up cash awards and stock awards

Set up a cash award

  1. Click > > > .

  2. Select the field to indicate that one award unit equals one unit of the currency in which the person is paid.

  3. Complete one of the following options:

    • For plans in which all plan participants receive the same cash award, specify the amount of the award in the field.

    • For plans that pay different amounts, based on an employee's compensation level, select the check box on the tab, and then click the button.

  4. In the form, click CTRL+N to create new levels, and enter either an award percent or an award amount (but not both) for each level.

Tip Tip

Cash awards are automatically paid in the currency specified on the employee's fixed compensation plan.

Set up a stock grant or stock option

  1. Click > > > .

  2. Complete one of the following options:

    • For plans in which all plan participants receive the same quantity of stock, specify number of shares in the field.

    • For plans that award different quantities of stock, based on an employee's compensation level, select the check box on the tab, and then click the button.

  3. In the form, click CTRL+N to create new levels, and enter an award percentage or an award amount (but not both).

    Note Note

    The award percentage is equal to the value of the stock at the time of grant, not the number of shares represented by the grant.

  4. Enter the valuation (such a Black-Scholes value) of one stock in the field on the tab in the form.

  5. In the field, enter the currency in which the stock is valued.

Tip Tip

It is also a good idea to specify the vesting rule to document the portion, and timing, of when the stock becomes available to the employee (the vesting schedule).

Pay for performance

An employee's pay can be linked to performance so that the employee's performance rating affects the fixed pay increases and incentive compensation that he or she receives.

To apply pay for performance, you need to set up the following:

  • A performance plan to be associated with the employee. The performance plan indicates the timeframe during which performance is being measured.

  • A performance rating list.

  • An allocation table with a pay matrix. The pay matrix indicates a performance factor for each rating and the performance factor is multiplied with the employee's target award to calculate a merit increase or award size.

Target award and the guideline increase

The target award is calculated as follows:

  • Fixed pay rate or variable award * Budget increase

The calculation of the employee's guideline increase or guideline award when performance management is applied:

  • Fixed pay rate or variable award * Budget increase * Performance factor * Increase modifier * Hire percent

Set up a performance plan

  1. Click > > > .

  2. Press CTRL+N to create a new plan.

  3. Enter the period where the plan should be active in the and fields.

  4. Complete the remaining fields.

Set up performance ratings

  1. Click > > > .

  2. Click CTRL+N to create a new line for each of the performance rating levels that you will create.

Set up an allocation table for a performance plan and associate a pay matrix

  1. Click > > > .

  2. Press CTRL+N to create a new line.

  3. Select a performance plan in the field. The allocation matrix that you set up applies to this plan only.

  4. Click or , depending on the compensation type, to set up a pay matrix for the performance plan.

  5. Press CTRL+N to create a new line.

  6. Select a rating in the field and enter a corresponding performance factor in the field.