Struggling to Draft a Variable Pay Plan? Need Guidance for a Tight Deadline!

Hello,

Can anyone help me out with how to draft a variable pay plan for a particular level? I am a management trainee, and my boss has asked me to draft a variable pay plan. I have no clues on how to start and what the process is. My boss has given me just one week's time. Please help me out.

Regards,
Nisha

can any one help on out on what performance parameters of the sbu are considered for getting the giving out bonus..
The performance measure of SBU will be as under:
Sl. No. Factors Max. Score Actual Score
1 OTIF 25
2 Sales of Product 35
3 Net Cash Generation 40
its like at the senior manager level the variable pay distribution will be 30% for sbu performance and 70% for individual performance=100%and the amt fixed for variable pay would be 50000 then a person getting a rating of 105% would get 2% increase for every additional increase i.i.e
QUALIFYING CHART
%age achievement %age payable as Variable Pay
against the budget
>100% 2% additional increase for each %age rise in excess of 100%
100% 100%
95 – 99% 50% + 7.5% additional increase for each %age rise in excess of 95%
so what i want is The performance measure of SBU
&
QUALIFYING CHART of various companies, so that i can make a comparative analysis of the parameters...
i need the data urgently can you plz help me out
regards
Nisha

Hi Nisha,

The process, as you have described, was being followed in my previous organization. We used to term it as APIC and had a defined policy and guideline for the calculation of payment of APIC. It was applicable to top management people only, but I fear I cannot forward it to you as it is a confidential document of the company.

The question you have asked is related to the performance measure of SBU. I believe you have answered your question in your post itself. SBU performance can only be measured from its predecided target and its achievement (certainly in terms of revenue). I may be able to help you more if you could give me a few more insights on your requirement (if your query is not resolved from the above explanation).

Regards, Anup

Hi Anup,

I don't want any confidential documents (like numbers or such); I just want the performance criteria of the SBU (apart from revenue). Also, I am looking at senior manager and above levels. Can you please provide me with the calculations, i.e., the performance pay matrix (that's not confidential)?

Let me know.

Regards,
Nisha

Hi,

Apart from revenue, the following could be performance criteria for SBU:

1. Customer Satisfaction (C-Sat) index
2. Creation of new business opportunities
3. Achievement of quality goals and objectives

I am attaching the computation sheet for your reference. I hope it may be helpful.

Anup

Can you please help me out? How will you calculate the individual performance rating factor? Please explain. Also, what's the EVA in the chart? Can you explain it to me?

Hi,

For individual performance rating, we have defined the following rating scale:

Rating System:

1.0: Results do not meet the stated expectations & no efforts made towards its improvement.

1.5: Results do not meet the stated expectations & inconsistent efforts made towards its improvement.

2.0: Results do not meet stated expectations despite consistent efforts.

2.5: Results do meet some but not all stated expectations.

3.0: Results meet all the stated expectations.

3.5: Results meet all & exceed some of the stated expectations.

4.0: Results exceed all the stated expectations & are exceptional & unique.

If you observe this rating scale, you will find that a rating of 3.0 meets all expectations. Hence, it will be presumed as 100% performance. To calculate individual performance rating, you have to divide the employee's final rating (as per KPA sheet) by 3 to get the desired performance rating. Please refer to the document again to view the KPA structure.

Economic Value Addition (EVA) is essential to check whether the organization has actually added any value to its portfolio during the year. There is a difference between target achievement and economic value achievement. The management decides on the EVA rating by examining the balance sheet and company growth in the financial year. For example, if the company has achieved all its targets economically, EVA could be 1. It can also be calculated according to the rating scale.

Regards,

Anup

Hi Anoop,

Thanks for the information on variable pay. I am a fresher who recently joined a new company where we are establishing the HR department; previously, it was not there. I would like to know about variable pay. Is variable pay given monthly or during employee appraisals? How do we calculate it for marketing executives? Also, could you please explain what SBU, EVA mean? I am unable to understand; please help me with this. Can you forward the details to my email address aneela.vennela@gmail.com?

Thank you,
Anila

Please let me know what components/parameters consist of variable pay.