There are changes to compensation an employee receives round the year. They should be managed with the same rigor and process that goes with year end processes.
The objective of this chapter is to go further away from the traditional approach to compensation into the new approaches to compensation. The traditional approach to compensation includes the year end processes only but we will also include the year round basic pay increases. This will provide the framework of maintaining different components of an increase much more organized and rather than losing the individual line items of an increase.
11 Managing Year-Round Basic Pay increase
The year round basic pay increases include promotion, transfers, equity adjustments etc… These processes are traditionally managed by the HR specialist unlike the comp processes that are managed by Compensation Specialist. As systems become more integrated, they provide an opportunity for compensation specialist to become an integral part of all compensation processes. As compensation processes get integrated, it will also impact the budgeting process. The year-end processes budget and year-round processes budget might become integrated too. During a tough economy it might be required to cut down on bonus and year end merit increase but we might need to continue with other employee movements like promotion, etc. as a part of talent management processes. On the other hand, in a good economy, it might be required to have higher bonuses and merit increase just to retain the existing staff and also be aggressive in promoting people along with talent management processes.
I am taking a more holistic approach to compensation that focused on administration of that pot of gold. Whether it’s spent during the year or at the end of year, compensation will be accountable for it. The role of HR generalist is going to transform into more strategic role and compensation will have to pick the slack on year around compensation impacting processes.
We will setup one budget for pay changes dues to movements. There is always the opposing side as to why should we do this. The thing is why we shouldn’t do this. We have excellent compensation functionality to really capture the details that would otherwise not be possible to capture with standard SAP infotypes. We can capture the line items of the increase on the compensation side and provide the overall increase in IT 0008. We can only update 0008 once a day or basically override anything that has the same begin date. Hence we really can’t have 2 pay increases in the same day. The pay increase could be promotional increase and equity adjustment. These 2 can now be captured in compensation and one time increase can be captured in IT 0008.
<< Configuration Setup for year around pay increase> > This should be the new heading 2 and the rest of the heading 2 below should become heading 3
11.1 Setup the budget
We will setup a specific budget for year-round pay increases. This will help in keeping a tab on all the year-round pay increases.
Figure 11.1 Setup year-round budget type
We don’t need to specifically create new budget periods if we can use the existing ones.
Figure 11.2 Use the existing budget period
This is the basic configuration that is required for budgeting. We will come back to more transaction budgeting requirement later.
11.2 Setup the Compensation program
We will create a new compensation plan for Pay increase that is of ‘Salary adjustment’ category. Also note that we will create a similar compensation plan for any other year round award that we want to capture separately. We will create one for Equity Increase.
Figure 11.3 Setup compensation plan
The pay increase can happen anytime. Hence we will create an anytime pay increase review.
Figure 11.4 Setup an anytime compensation review
We will create a compensation review item ‘Pay increase’ using the compensation plan ‘Pay increase’ and the anytime compensation review ‘PAYI’. We will similarly create compensation review item for Equity adjustment as shown in Figure 11.5
The compensation review item attributes for Pay increase are defined in the screen Figure 11.6.
We will also setup the compensation review item for equity adjustment. The important thing to note is that we will use the same budget. What it would mean is that whether we give an employee a pay increase or equity adjustment, they will added to the same budget.
11.3 Setup the eligibility
We will now setup the eligibility rules using the variant for pay increase along with the eligibility grouping that has already been setup for this compensation area.
Figure 11.8 Setup eligibility rules
The executives have to wait for 1 year before they become eligible for pay increase whereas the salaried employees have to wait for 2 years before they become eligible for a pay increase. The executive eligibility is shown in Figure 11.9.
The eligibility for other groups of employees including the Salaried and others is set to 2 years.
Figure 11.10 Eligibility rule for salaried employees for pay increase
This lays out simple eligibility rules. We can make them as complex as we want using all the available options.
11.4 Setup the guidelines
The guidelines can be setup for each of the compensation plans separately.
Figure 11.11 Setup guideline variant for pay increase
We already have the guideline groupings that have been defined for the compensation area. We have to use them.
Figure 11.12 Using existing guideline groupings
We would continue to use the guideline groupings based on the decision tree.
Figure 11.13 Using the existing guideline grouping feature
11.5 Setup the award for Basic Pay (IT 0008)
We will define the compensation plan attributes with align the eligibility variant and guideline variant that we have already created.
We will do the same for equity increase. In this case, we would choose to use the same eligibility variant and guideline variant as we have used for pay increase.
Figure 11.15 Compensation plan attributes for equity increase
We will also setup the compensation plan payroll data to calculate on the basis of ASAL (calculated wage type for annual salary)
Figure 11.16 Compensation payroll data
It is also important to include this plan as a part of compensation program. It will make all the employees defined in the compensation program eligible.
Figure 11.17 Compensation program includes Pay increase and Equity increase
<< Executing the Year around pay increase> > this should become heading 2 and the rest of heading 2 below should become heading 3
The first step will be to create the common budget for pay increase and equity increase plan. The budget will be created for just one level meaning that there is only one budget unit. All the awards will be assigned to just pot of money. This is unlike what we have created for year-end plans where each manager was managing towards a budget.
Figure 11.18 Create budget for pay increase
With just one budget unit, it will be easy to allocate the money.
Figure 11.19 Budget units for pay increase
We will assign a common budget amount of $1,000,000 for the complete organizational hierarchy under Executive Board US. We can also change the name of the budget unit to ‘Pay increase budget for the US
Figure 11.20 Budget set for the organization
Awarding the employees
The manager comes in to do the pay increase and can pick a view to see only the directly subordinate employees.
Figure 11.21 Selection for employees
The manager gives an equity adjustment of 4% ($21,120) and then moves to the pay increase. The screen Figure 11.22 shows the budget utilized and the new salary.
Now the manager gives a pay increase of 5% ($26,400) bringing up the new salary to 575,520 and reducing the common budget accordingly.
Figure 11.23 Pay increase
Once both the adjustments have been made, the award is reviewed. The percentage increase in both the cases is applied to the base amount of 528,000 and is not on the cumulative new salary. The total amount is deducted from the same budget as planned.
Figure 11.24 Reviewing the award
This award will follow the approval cycle as setup in the system. Once approvers approve the award, the compensation specialist will need to change the status from ‘approved’ to ‘active’.
Figure 11.25 Activating the award
When the program is run, the message in screen Figure 11.26 comes up with successful changes.
The employee’s basic pay before the award is shown in Figure 11.27
After the award is activated, the basic pay of the employee reflects the change as shown in Figure 11.28
11.6 Enhancement to update Actions (IT 0000)
If there is a requirement to update any other infotype, then it needs to be done in the activation routine using the BAdI HRECM00_ACTIVATIO.
11.7 Summary
Many of the practitioners of SAP HR are very aware and familiar with the limitation of basic pay infotype not being able to record multiple changes that happen on the same day. The first change will be overwritten by the second change and there is no automatically add on to the existing change on the same day. In some cases, the solution is not to create 2 increase in the same day but to make them a day apart to save some history. This kind of problems can be totally taken care of if we use the ECM approach. We can have as many changes as we need and capture them on the compensation side and only the final change goes to basic pay infotype. If someone wants more information and details they can review the infotype 0759.
In this chapter we have presented a different way of handling year around pay increases. We have also seen how multiple plans can use a common budget. We have also provided with the solution to capture multiple basic pay changes on the same day.
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