Funding Variable Compensation Plans and Groups

This chapter discusses how to:

Budget awards.
Fund variable compensation plans.
Allocate funds to groups.

Understanding Variable Compensation Funding

Plan funding sets a cap on payouts under the plan. If funding falls short of the calculated payout, the Calculate Awards process calculates and applies an adjustment factor to awards that are above the minimum. The system tracks and updates your funding balances as you grant awards on the Award Allocations page

To fund a variable compensation plan:

Select Funded Plan on the VC Plan - Plan Business Rules page when you set up the plan.
Run the Budget Report to determine the expected total cash outlay under the plan (optional).
Fund the VC Plan using the Plan Funding page.

Fund the plan at any time during the life of the plan.
Distribute funds to groups in the plan using the Group Funding Allocation page (for plans that use groups).

Allocate funds to groups at the end of the payout period, when goal attainments and proration are known.

Understanding the Adjustment Factor

The Calculate Awards process calculates and applies an adjustment factor when the calculated awards exceed the funding for the plan. The purpose of the adjustment factor is to adjust each individual award in the same ratio to the calculated award as the ratio of group/plan funding to the total value of calculated awards for the group/plan. For example, if the funding for the group or plan is 10 percent less than the total calculated awards for the group or plan, the adjustment factor would reduce the individual’s calculated award by 10 percent.

The process applies the adjustment factor to the adjustable portion of each individual’s award. The adjustable portion of an award is the calculated award amount minus the minimum payout amount that you (optionally) established for the group or plan. The system subtracts the minimum award value when calculating and applying the adjustment factor because the minimum is not considered adjustable.

The system calculates the adjustment factor using these formulas:

Adjustment factor formulas

That is, the actual funded amount for each group/plan less the sum of the minimum awards for that group/plan divided by the sum of the adjustable portions of all individual awards.

The Calculate Awards process applies the adjustment factor to the Calculated Award and enters the result in the Adjusted Award field on the Award Allocations page.

Budgeting Awards

To run a budget report, use the Budget (RC_VC_BUDGET) component.

When determining how much funding to allocate to a plan, use the Budget Report to help you calculate the potential cash outlay for the plan. This report calculates the target payout under the plan assuming 100 percent proration.

Page Used to Run the Budget Report

Page Name	Object Name	Navigation	Usage
Budget Report	RUNCTL_VC_REP	Compensation, Variable Compensation, Variable Comp Reports, Budget, Budget Report	Run the Budget Report (VC002). This report helps you calculate how much funding to allocate to a plan.

Running the Budget Report

Access the Budget Report page.

If you use weighted goals in the plan, specify hypothetical attainment percentages on this page. If you use a goals matrix, specify a hypothetical matrix score. If you don’t specify hypothetical goal attainments or a score, the system assumes 100 percent goal attainment.

Org Percent Attained (organization percent attained)	(Weighted goals) Enter the organization goal attainment percent that you want the system to use in calculating the budget amount.
Group Percent Attained	(Weighted goals) Enter the group goal attainment percent that you want the system to use in calculating the budget amount.
Ind Goal Weight (individual percent attained)	(Weighted goals) Enter the individual goal attainment percent that you want the system to use in calculating the budget amount.
Score	(Matrix goals) Enter the goal matrix score that you want the system to use in calculating the budget amount.
Report Type	Select a detailed report or a summary report: The detailed report lists all workers in a plan by group, the worker’s projected target award value, carryover balance, minimum award, and maximum award, as well as the sum of these values for each group and the grand total for the plan. The summary report lists the total values for each group and the grand total for the plan.

Funding Variable Compensation Plans

Plan funding is optional for all plan types except the five stock types.

You can allocate funds to the plan at any time in the life of the plan. After the initial allocation, you can use the Plan Funding setup page to increase or decrease funding to the plan. If the plan uses groups, you must first allocate funds to the plan before you allocate funding to the groups.

Funding Ad Hoc Plans

Ad Hoc plans do not use the Calculate Awards process, so there is no adjustment factor for these plans. The available balance of funding appears on the Award Allocations page, and the system updates the balance as you allocate awards. The system warns you if you try to exceed the available balance. You can then allocate more funds to the plan or adjust the award to fall within the balance.

Funding Stock Plans

Plan funding is mandatory for stock-type plans. If your organization uses Stock Administration, the stock administrator allocates shares to variable compensation by stock plan and stock ID. From that allocation, the variable compensation administrator can fund multiple stock plans that have the same stock plan and stock ID.

Allocating Funds to Groups

To allocate funds to groups, use the Group Funding Allocation (VC_GRP_ALLOC) component.

This section provides an overview of allocating funds to groups and describes:

How to determine managers and approvers.
A summary of group funding procedures.
An example of group funding allocations.
How to distribute funds among groups.
How to allocate funds to the plan for the payout period.
The Funding Allocation Report.

Understanding Allocating Funds to Groups

Funding groups is a top-down process. You first fund the highest group on the tree, which includes all groups in the plan. You then gradually divide the initial plan funding as you fund groups at intermediate levels. The system uses the tree hierarchy to check that funding at lower levels does not exceed the allocations at the upper levels of the hierarchy.

If you allocate funding to plans with groups, the manager and approver of a group must first calculate and then approve the awards for the manager’s direct reports before allocating funding to the child groups.

Wait until the end of the payout period before you allocate funds to groups. Before you begin, enter all goal attainments and calculate eligibility for the entire payout period.

Pages Used to Allocate Funds to Groups

Page Name	Object Name	Navigation	Usage
Group Funding Allocation	VC_GRP_ALLOC	Compensation, Variable Compensation, Calculate Awards, Allocate Group Funding, Group Funding Allocation	Distribute the plan funding among the groups on the tree.
Funding Allocation - Fund Plan	VC_GRP_ALLOC_SEC	Click the Fund Plan button on the Group Funding Allocation page.	Allocate funds out of the plan’s general funding to the plan for one specific payout period. This page is used by the person who is the authorized approver of the highest group in the plan.
Funding Allocations Report	RUNCTL_VC_REP	Compensation, Variable Compensation, Variable Comp Reports, Funds Allocations, Funding Allocation Report	Run the Funding Allocations report (VC006). After you allocate funds to groups, use the optional Funding Allocations report to review and evaluate the distribution of funds to all of the groups in the plan. The report lists all data as summary information at the group level.

Determining Managers and Approvers

As a general rule, the approver of a group is the manager of the parent group. Because the approvers are the higher level managers, they are not members of the groups they approve.

Managers generally are members of the groups they manage. The security mechanism in the Group Funding Allocation pages and Award Allocation With Groups page prevents managers who are members of the group from seeing their own awards.

You must set up a user ID for each worker who is a manager or approver in PeopleSoft Security. Designate the approver and manager of each group on the Group Profile page when you set up groups in Group Build.

On the Group Tree Security page, set up security so that all approvers/managers are given access to the groups that they manage.

Plans Without Approval

You must set up an approver for the root group if you fund the plan, even if the plan does not specify Approve Awards as a plan business rule. That approver allocates funds to the root group and allocates the award of the root group’s manager.

Summary of the Group Funding Allocations Process

The procedures for allocating funds to groups on the tree vary slightly according to the group structure, how you set up manager and approver IDs, and whether the manager is a member of the group. These steps outline the generic procedures for allocating funds and calculating awards for managers and their groups down the tree.

These generic procedures assume the following:

Approval is required under the plan business rules.
The manager is always a member of the group.
The approver is always the manager of the immediate parent group on the tree.

To allocate funds and awards to groups on the tree:

Funding the Highest Group

These two steps are done just one time for each payout period.

The approver of the highest group runs the Determine Allocations process.
The approver of the highest group funds the highest group on the Group Funding Allocation page.

Awarding the Group Manager and Funding Child Groups

These steps are repeated for each level of groups on the tree in succession.

The approver runs the Calculate Awards process for the group.

This process populates the Award Allocations page.
The approver of the group approves the award of the group’s manager on the Award Allocations page.
1. Modify the award if desired.
2. Change the Award Status to Approved.
The manager of the group receives workflow notice that he can allocate awards to his direct reports and subgroups.
The manager of the group allocates and recommends awards for direct reports on the Award Allocations page.
The approver receives workflow notice that he can approve the awards for the group manager’s direct reports.
The approver approves awards of the group manager’s direct reports.
The manager allocates funds to child groups on the Group Funding Allocation page.
The approvers or managers of the child groups receive a workflow notice.
- For each subgroup that includes the managers as group members (as indicated in this example), the approver gets a workflow message saying that he should run the Calc Awards process for that group and subsequently approve the manager’s award. Because we assumed in this example that the manager of a group is the approver of the subgroups, the person who allocated funds to the subgroups is the same as the one who gets this workflow message.
- For each subgroup that does not include the manager as group member, the manager gets a workflow message that he should run the Calc Awards process, recommend the awards of the direct reports, and fund the subgroups.
Repeat steps 3 through 8 for each group moving down the tree.

Awards are automatically submitted for payout or distribution by group when all awards in the group have a status of Approved (or Cancelled).

Example of Group Funding Allocations

The preceding section outlined the generic procedures for allocating funds and calculating awards for groups and their managers down the tree. This section provides a sample group tree and outlines the procedures for distributing funding and allocating awards for groups in the tree.

Sample Group Tree

This example illustrates a tree named VC Tree.

Deleting Duplicate Membership

Because of the way hierarchical groups are set up, most workers are members of multiple groups. For example, a member of the Sales Canada group, KCSALES, is also a member of the Sales group, KSALES, and therefore, is a member of the overall group, KVCALL. During the Calculate Eligibility/Proration process, the Delete Duplicates step removes workers from all intermediate levels and leaves them only as members of the lowest level group to which they belong. It is in this lowest level group that their awards are determined.

This table displays all group members in the sample tree hierarchy according to the initial group definition in group build. At each level, the members listed in italics remain as members of the group; members not in italics are deleted as duplicates. The table also names the approver and manager of each group.

Top Group Level 0	Group Members and Subgroups on Level 1	Group Members and Subgroups on Level 2	Group Members
KVCALL Approver KU0002 Manager KU0003
	KU0003
	KU0007
	KC0002
	KC0005
	KC0013
	KC0008
	KC0022
	KC0027
	KU0051
	KU0064
	KU0082
	KEXECUTIVES Approver KU0003 Manager KC0002
		KC0002
		KC0005
	KSALES Approver KU0003 Manager KC0013
		KC0013
		KU0082
		KC0008
		KC0022
		KC0027
		KU0051
		KU0064
		KCSALES Approver KC0013 Manager KC0008
			KC0008
			KC0022
			KC0027
		KUSALES Approver KC0013 Manager KC0008 (not a group member)
			KU0051
			KU0064

Identifying Managers and Approvers

Because the approvers in this example are the higher level managers, they are not members of the groups they approve.

Managers generally are members of the groups they manage. In this example, the group KUSALES is an exception because it is managed by KC0008, who manages KCSALES. KC0008 is a member of KCSALES but not of KUSALES.

In this example, the user ID is identical to the employee ID.

Steps for Allocating Funds

The VC administrator first allocates funds to the overall plan using the Plan Funding page. After that, the process proceeds as follows:

Fund and award KVCALL group members:
1. User KU0002 runs the Determine Allocations process using the Determine Allocation Process page.
2. User KU0002 (approver of KVCALL) allocates funds to the top group KVCALL on the Group Funding Allocation - Fund Plan page.
3. User KU0002 runs the Calculate Awards process for KVCALL using the Calculate Awards by Group Process page.
4. User KU0002 modifies and approves the award for KU0003, manager of KVCALL using the Award Allocation With Groups page.
  
  Approval for the manager must always be manual in the Award Allocation With Groups page.
5. User KU0003 (manager of KVCALL) modifies the awards for his direct reports (KU0007) and sets them to Recommended status using the Award Allocation With Groups page.
6. User KU0002 (approver for KVCALL) approves the award for KU0007.
  
  Manually approve the award using the Award Allocation With Groups page or automate the approval using the Approve Awards by Group process.
  
  When the awards for KVCALL are approved, the system submits them for payout or distribution.
Fund and award KEXECUTIVES and KSALES group members:

(KSALES steps f. and g. can be done in parallel to KEXECUTIVES steps d. and e.)
1. User KU0003 (manager of KVCALL) allocates funds to KEXECUTIVES and KSALES using the Group Funding Allocation page.
2. User KU0003 runs the Calculate Awards process for KEXECUTIVES and KSALES using the Calculate Awards by Group Process page.
3. User KU0003 modifies and approves the awards for KC0002 (manager of KEXECUTIVES) and KC0013 (manager of KSALES) using the Award Allocation With Groups page.
4. User KC0002 (manager of KEXECUTIVES) modifies the awards for his direct reports (KU0005) and sets them to Recommended status using the Award Allocation With Groups page.
5. User KU0003 (approver for KEXECUTIVES) approves the awards for KU0005.
  
  Manually approve the awards using the Award Allocation With Groups page or automate the approval using the Approve Awards by Group process.
  
  When the awards for KEXECUTIVES are approved, the system submits them for payout or distribution.
6. User KC0013 (manager of KSALES) modifies the awards for his direct reports (KU0082) and sets them to Recommended status using the Award Allocation With Groups page.
7. User KU0003 (approver for KSALES) approves the award for KU0082.
  
  Manually approve the award using the Award Allocation With Groups page or automate the approval using the Approve Awards by Group process.
  
  When the awards for KSALES are approved, the system submits them for payout or distribution.
Fund and award KCSALES and KUSALES group members:

(KUSALES steps f and g can be done in parallel to KCSALES steps d. and e.)
1. User KC0013 (manager of KSALES and approver for both KCSALES and KUSALES) allocates funds to KCSALES and KUSALES using the Group Funding Allocation page.
2. User KC0013 runs the Calculate Awards process for KCSALES and KUSALES using the Calculate Awards by Group Process page.
3. User KC0013 modifies and approves the awards for KC0008 (manager of both KCSALES and KUSALES) using the Award Allocation With Groups page.
4. User KC0008 (manager of KCSALES) modifies the awards for her direct reports (KC0022 and KC0027) and sets them to Recommended status using the Award Allocation With Groups page.
5. User KC0013 (approver for KCSALES) approves the awards for KC0022 and KC0027.
  
  Manually approve the awards using the Award Allocation With Groups page or automate the approval using the Approve Awards by Group process.
  
  When the awards for KCSALES are approved, the system submits them for payout or distribution.
6. User KC0008 (manager of KUSALES) modifies the awards for her direct reports (KU0051 and KU0064) and sets them to Recommended status using the Award Allocation With Groups page.
7. User KC0013 (approver for KUSALES) approves the awards for KU0051 and KU0064.
  
  Manually approve the awards using the Award Allocation With Groups page or automate the approval using the Approve Awards by Group process.
  
  When the awards for KUSALES are approved, the system submits them for payout or distribution.

Understanding Distributing Plan Funding Among Groups

The approver of the highest group on the tree must enter the Group Funding Allocation page first, click the Fund Plan button, and fund the plan from the Fund Plan page. Until the approver has funded the plan in this way, no one else can access the Group Funding Allocation page.

At each level of groups on the tree, the group manager’s access to his or her group on this page is restricted as follows. Workflow notifies managers when they can access the page for their groups.

If the plan requires award approval, the manager’s Award Status on the Award Allocations page must be set to Approved or the award must have been submitted already.
If the plan does not require award approval and the manager is a member of the group, the manager’s Award Status on the Award Allocations page must be set to Ready to Submit or the award must have been submitted already.
If the plan does not require award approval and the manager is not a member of the group, there is no restriction to a manager’s access to his or her group.

Distributing the Plan Funding Among Groups

Access the Group Funding Allocation page.

Using the Tree View

When you access the page, the tree display is collapsed; only the root node is visible. Expand or collapse nodes on the tree by clicking the node symbol. To load a node into the right pane of the page, click the name of the node. The system loads that node into the top portion of the page (parent group) and its child groups into the bottom portion. Within the tree display, the group names to which you have security access appear as links. The other groups appear as passive labels.

Group ID	The system displays the ID that you entered to access the page.
Fund Plan	This button is available when the authorized approver of the highest group enters the page using the highest Group ID. The approver clicks this button to access the Fund Plan page in order to enter the funding amount for the plan payout period.
Orig Allocation (original allocation)	The total amount of funding for the parent group (the group ID that you entered when you accessed the page), less the approved award for the manager.
Balance	The unallocated balance of the original allocation. The system decreases the amount in this field when the manager enters a positive funding amount for child groups in the Amount field. The amount is also decreased during the group funding allocations procedure when awards are allocated and approved for group members who are the direct reports to the manager.
Reserves	The balance of funding from previous periods that is still available for allocation to the group.
Number of Employees	The sum of all workers in child groups and subgroups of the (parent) group ID that you entered to access the page. If the manager is a member of the group, one is subtracted.
Group ID	Select the record of the child group for which you want to allocate funds. The description of the group appears.

Group

The Target Amt and Calc Award fields apply to the child group with the exclusion of the group’s manager if he or she is a member of the group.

Target Amt (group target amount)

The Target Value for the child group less the manager’s target value. The Determine Allocations process calculates the target value.

For plans using matrix goals, the target amount contains the payout computed for all workers of the group assuming goal attainments equal to the performance value associated with the target performance level on the matrix.

Calc Award (group calculated award)

The child group’s target value (less the manager’s target value) multiplied by the net performance factor.

For plans using matrix goals, this field contains the sum of the payouts computed for the actual goal attainments.

Manager

The Target Amt and Calc Award fields apply to the manager of the child group if he or she is a member of the group. When the manager enters the page, this information is not visible.

Target Amt (manager’s target amount)	The Target Value for the manager, as calculated by the Determine Allocations process.
Calc Award (manager’s calculated award)	The manager’s target value multiplied by the net performance factor.

Performance Factor

If the plan uses weighted goals, this page shows performance factor calculations at the organization, group, and individual levels. It calculates the group and organization performance factors based on the goal attainments that you entered at those levels. It assumes 100 percent attainment of individual goals.

The performance factor fields in this section apply to the child group whose ID you selected.

These fields are hidden if the plan uses no goals or matrix goals.

PF (performance factor)	This column represents the goal attainment percents multiplied by the weighting percents of the goals at each level.
Weight	This column represents the plan goal weights that you assigned to each level of goals on the Plan Definition page.
Net PF (net performance factor)	This column is the performance factor calculated by multiplying the other two columns. The end result is that the net performance factor for each goal level is the sum of the (goal attainment percents x the weighting percents of each goal) x the plan goal weight for the level.
Org PF (organization performance factor)	The child group’s organization performance factor calculation.
Grp PF (group performance factor)	The child group’s group performance factor calculation.
Ind PF (individual performance factor)	The child group’s individual performance factor. It assumes the attainment is 100 percent.
Net PF (net performance factor)	The sum of the Net PF at all three levels.
Nbr Empl: (number of employees)	The number of workers in the child group.
Orig Allocation (original allocation)	The total amount that you enter in the Amount field to fund the child group ID for the period ID. The system displays 0 until the Amount field is populated.
Balance	The unallocated balance of the original allocation. The system decreases the amount in this field after you allocate and approve the award for the manager or any other member (direct report) of the group. The system also changes the amount in this field when you adjust the allocation by entering a positive or negative funding amount for the child group in the Amount field.
Reserves	The balance of funding from previous periods that is still available for allocation to the child group.
Amount	Enter a positive or negative amount of funding for the child group, including the manager. In determining this amount, consider the following: How much you want to award to your direct report (the manager of the child group). How much you want to provide to your direct report to be distributed among his or her group and child groups. The amount that you enter should be the sum of these two considerations. Enter an amount that is equal to, greater than, or less than the amount in the Calc Award field. If you enter a positive amount, the system updates these fields: Increases the child group’s Original Allocation and Balance. Decreases the parent group’s Balance. The system does not enable you to enter an amount that is greater than the sum of the parent group’s Balance. and Reserve. Use the Amount field to adjust an amount that you have allocated. For example, if you allocated $5,000 to a group but now want to reduce the funding by $500, you can enter −500 in the Amount field. If you enter a negative Amount, the system updates these fields: Decreases the child group’s Original Allocation and Balance. Increases the parent group’s Balance. If you enter a negative amount that exceeds the amount in the child group’s Balance, the system updates these fields: Decreases the amount in the child group’s Balance until the balance is 0. Decreases the child group’s Orig Allocation amount equally to the amount of decrease in the Balance. Decreases the remaining amount from the child group’s Reserves. Increases the parent group’s Balance. The parent Reserve is not affected by entering a negative value in the Amount field. Once you reduce the funds from your child group’s Reserve, you cannot put them back. For example, assume that the parent balance is 0, the child’s original allocation, balance, and reserve are 400, 400, and 300, respectively, before you enter an amount. Once you enter -600 in the Amount field, both the child original allocation and the balance are 0, the child reserve is 100, and the parent balance is 600. If you enter 600 in the Amount field after that, the child original allocation and balance is 600, but the child reserve is still 100.

Allocating Funds for the Payout Period

Access the Fund Plan page.

Target Value

The total of the target awards for all members, including managers, of the highest group and all of its subordinate groups.

For monetary plans, this value is in the currency of the plan. For non-monetary and stock plans, the value is in units.

Calc Award (calculated award)

The total of the calculated awards for all members of the highest group. On this page, Calculated Award refers to the target value multiplied by the total (net) performance factor.

Funds Available

The funds remaining for distribution that have not been allocated to awards. This is identical to the amount in the Funds Available field on the Plan Funding page.

The funds available amount is the maximum that the approver can enter in the Amount field.

Orig Allocation (original allocation)

The amount that you enter in the Amount field to fund the plan for this period ID. Until you enter an amount, the original allocation is 0.

The system increases the amount displayed here if you add additional funds in the Amount field.

Balance

The unallocated balance of the original funding.

The system increases and decreases the amount in this field as you distribute awards to individuals or funds to child groups, or as you add funding in the Amount field.

Reserves

The balance of funding from previous periods that is still available for allocation to the plan.

Performance Factor

Org PF (organization performance factor)	The highest group’s organization performance factor.
Grp PF (group performance factor)	The highest group’s group performance factor.
Ind PF (individual performance factor)	The highest group’s individual performance factor.
Amount	Enter the amount that you want to fund to the plan for this payout period. If you want to change the funding amount, enter a positive amount in this field to increase the funding to the plan or a negative amount to decrease the funding.

Target Value	The total of the target awards for all members, including managers, of the highest group and all of its subordinate groups. For monetary plans, this value is in the currency of the plan. For non-monetary and stock plans, the value is in units.
Calc Award (calculated award)	The total of the calculated awards for all members of the highest group. On this page, Calculated Award refers to the target value multiplied by the total (net) performance factor.
Funds Available	The funds remaining for distribution that have not been allocated to awards. This is identical to the amount in the Funds Available field on the Plan Funding page. The funds available amount is the maximum that the approver can enter in the Amount field.
Orig Allocation (original allocation)	The amount that you enter in the Amount field to fund the plan for this period ID. Until you enter an amount, the original allocation is 0. The system increases the amount displayed here if you add additional funds in the Amount field.
Balance	The unallocated balance of the original funding. The system increases and decreases the amount in this field as you distribute awards to individuals or funds to child groups, or as you add funding in the Amount field.
Reserves	The balance of funding from previous periods that is still available for allocation to the plan.