Compensation? Or Variable Pay? Or both? What is the difference between Compensation and Variable Pay? Do you need Employee Central to have Variable Pay and do you need Compensation to have Variable Pay? These are the questions we get a lot. Let’s dive deeper.
So, what really is Variable Pay? As the name suggests, Variable Pay is the type of compensation that varies, whereas salary is paid in equal proportions throughout the year. Variable Pay follows a formula-based approach to determine employees rewards that is based on their contribution towards a company’s growth and profitability. This allows Transparency in Pay. This is top of mind for most employees.
SuccessFactors Compensation facilitates planning and administration of salary components by managers and compensation administrators. Whereas Variable Pay facilitates planning and administration of Bonus Pay that includes complex calculation of business performance and employee performance. It is not necessary to have Employee Central to implement Variable Pay or the Compensation module. In order to get employee data in Variable Pay, there can be integrations set up outside of Employee Central. Data can be imported directly into Variable Pay and, of course, if you had Employee Central this can be seamlessly done. There can also be a hybrid approach where some of the data come from Employee Central and some are directly imported.
Benefits of Variable Pay
1. Forecasting Functionality: It provides forecasted Variable Pay results for all or part of the organization at any point in time. Forecasted results help the compensation administrator compare the annual bonus payout with the accrued bonus expense before the actual payout and address any ‘what-if’ situations. A forecast is produced in both graphical and tabular format to make it more actionable for the reader and empower the business towards strategic decision making. Forecasted results improve financial planning and administrative efficiency.
A forecast can be viewed department-wise, division-wise, location wise or Job code-wise.
2. Proration of Payouts: Variable Pay calculates incentives based on employees’ performance. It provides the ability to prorate incentive awards when an employee is engaged in different assignments during an evaluation period. This provides a better correlation between Performance and Pay.
Let’s see an example here:
|John||Inventory Manager||1/1/2017 – 9/30/2017|
|John||Logistics Coordinator||10/1/2017 – 12/31/2017|
As you see, John is involved in more than one bonus plan in a year.
There can also be a complex scenario where an employee is working on more than one assignment simultaneously and is thus involved in more than one bonus plan throughout the evaluation period.
This can be a tremendous administrative burden for the compensation professionals.
SuccessFactors Variable Pay eases this burden by:
- Considering employee’s date effective historical records.
- Determining who is eligible for which bonus plans during which timeframes.
- Prorating the payouts for each bonus plan.
|Inventory Management Plan||75%|
3. Budget for discretionary components: Variable Pay offers the ability to budget and track incentive plans, which allows managers to monitor and manage spending and costs. It results in improved budget management, increased administrative efficiency, and reduced costs.
There are various options to calculate the budget spent, it can be as a percentage of forecast results,
Or as a percentage of Actual Results. Or by any other parameter.
So, if you are looking for a corporate-wide employee compensation management solution for a transparent, well-planned and fair Bonus Pay that enables well-informed strategic decision-making, SuccessFactors Variable Pay would be the perfect solution for you.
If you are interested in learning more about Compensation and Variable, contact us here and we will connect you with an expert.