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7- Guidelines Setup

Guidelines help in achieving fair distribution of available resources, providing managers with boundary conditions and ensuring that the whole organization is in alignment

In this chapter we will understand what are guidelines, how are they setup, how they can help in controlling the budget. ECM provides a very robust framework to setup guidelines and manage them on an on-going basis.

 Like all the different components in ECM, Guidelines are independently setup and subsequently assigned wherever required. They are setup irrespective of eligibility setup, compensation program setup etc… The same guideline can be used by multiple plans. It’s normally a good practice to align the guidelines to eligibility and compensation plans. This will allow us to keep all of them in sync if something where to change for a plan.

SAP has been very diligent to make things as aligned as possible. If you review the guidelines configuration, it is very similar to eligibility configuration.

Guidelines are optional. If you don’t want a compensation plan to have guidelines, then it’s not necessary to design and define them at all.

 

Figure 7.1   Compare Eligibility configuration with Guidelines configuration

There are different logical pieces of building a guideline.

  1. Grouping employees
  2. Defining guideline
  3. Special setup- Proration
  4. Defining Guideline Variants

The configuration of the above pieces doesn’t necessarily happen in the same order.

7.1      Defining guideline groupings

Guideline grouping is a way of grouping different employees together that may have same award guidelines e.g. all executives bonus should have similar bonus guidelines, all salaried employees should have similar bonus guidelines…

  Hourly Salaried Executives Others
Annual Merit Guideline   Yes Yes  
Annual Bonus Guideline   Yes Yes  
Annual Stock Guideline     Yes  
Above & Beyond Guideline Yes Yes   Yes

It is always a good idea to keep the eligibility and guideline grouping similar even if it mean repeating configuration or creating some redundant groups in either one of them. This will be helpful in the long run when you will need to create more plans, modify plans, troubleshoot issues etc.

Do we need different groupings even if the guidelines are same?

If the annual merit guidelines for Executives are the same as Salaried, we could have one grouping. But it is a good practice to keep them separate and provide the same guideline to each one. This will help in managing the plans effectively. When there is a change for executive and salaried employee guidelines, it is not required to maintain the features again and have to transport it then.

There are 2 methods to manage guideline groupings

  1. Standard requirements via Feature CGDGP
  2. Custom requirement via BAdI HRECM00_GPEGP

Guideline Grouping —> Feature CGDGP OR BAdI HRECM00_GDEGP

7.1.1       Feature CGDGP

The following steps describe the creation of the Feature CELGP.

Step 1. Create the name for the Guideline Grouping. Please note that each Guideline Grouping is unique to each Compensation Area.

 

Figure 7.2   Naming the Guideline Groupings

Step 2. Eligibility Groupings are assigned to specific employee groups/ subgroups using the Feature CGDGP

 

Figure 7.3   Feature CGDGP assignments

 

Figure 7.4   Process Feature CGDGP decision parameters

This is a very versatile feature that would be required for global compensation planning. This decision tree contains compensation areas, First compensation program grouping, second compensation program grouping, pay structure, job, enterprise and personnel structure. This will assist in creating employee groupings in their smallest details to effectively manage eligibility for programs.

Versatile Feature CGDGP

The Feature CGDGP is very versatile. It has numerous parameters to create a very flexible and exhaustive Eligibility grouping assignments. Our example uses Employee Groups and Subgroups. It can also use the Organizational structure or other elements in the feature:

 

Figure 7.5   Feature CGDGP using Pay Scales.

7.1.2       BAdI HRECM00_GDEGP

The Business Add-in HRECM00_GDEGP can be used instead of the Feature CGDGP where the feature is not sufficient to provide the required Guideline Groupings. The BAdI will help in defining unique population of ‘Expatriates’ and their guidelines being different from other employees with the same group. The way the BAdI is implemented, it can still allow you to use the feature for everything else and the additional code can be written for exceptional cases.  

 

Figure 7.6   Business Add-in for Guideline Groupings

There can be multiple implementations for the BAdI but the one that matters is the one that has been activated.

7.2      Defining Guidelines

There are multiple options to provide guidelines to the manager on how to distribute their awards. These guidelines are setup by the compensation/ HR departments to ensure that manager’s discretion to award is bound by certain constraints that an organization faces.

Guidelines can be:

  1. Fixed percentage ranges
  2. Fixed amount ranges
  3. Matrix ranges
  4. For stocks, fixed number ranges

The matrix ranges provides the most flexibility for the defining guidelines. It allows different parameters to do determination of guidelines. E.g. If an employee receives more than 5 point performance rating and has compa-ratio below 1 then the guideline is different then someone who received 8 points performance rating and has a compa-ratio that is higher than 1.

 

Figure 7.7   Configuration of the guideline

The Guideline matrix is separately defined since it provides many more parameters and is attached here once it’s been setup.

Proration rule is defined to help in prorating the guideline. If an employee has been with the company for 6 months then the guideline should be appropriately prorated to suggest 50% of the award in comparison to an employee who has been with the company for the full year. Proration also has many parameters and hence it’s configured separated and then attached here.

7.2.1       Defining Matrix guidelines

Matrix guideline is very important component since it allows the companies to manage the awards process and keeping unusual awards contained.

SAP delivers the following methods that can be used out of the box:

Method Description
AGE Age
APPR Appraisal
CRAT Compa-ratio
MBOA MBO appraisal
PIR Percent in Range
SERV Length of service

Though, method AGE might not be something that can be used inUSA, in other countries inAsiaandEurope, it is legitimate.

The methods are implemented using function modules. We can create new methods or copy the existing function modules and modify to create more methods.

 

Figure 7.8  Delivered Matrix methods

These methods are used to define the dimensions of the guideline matrix. If the guideline is

    Compa-Ratio
    Below or equal to 1 Above 1
Ratings 4-6

15% – 20%

10% -20%

7-8

20% – 25%

18% – 25%

Compa-ratio and ratings will form the dimension segments when building the Guideline Matrix.

7.2.2       Define dimension

The details of the dimensions can be added to ensure that we get the right level of clarity. With compa-ratio we don’t need to define anything further. With MBO, we need to clarify which appraisal element we are using. With Length of service we would like to clarify that we want the length of service in months (unit of measurement). The screen Figure 7.9 allows you to select the dimension that you would like to use. The list of dimensions will increase as you implement your own functions apart from the standard delivered ones. The dimension date shift can allow for more comparison. E.g. you could have one dimension that calculates the compa-ratio for the employee in the current period and another dimension that calculates the compa-ratio of the employee a year before. This can also be used for appraisals where if a person receives excellent ratings for 2 consecutive years might have a different guideline as compared to the one who receives excellent rating in one of the years. This kind of dimensions can be achieved by using the date shift parameter.

 

Figure 7.9   Defining the compa-ratio dimension

The method parameter in Figure 7.10 allows us to enter the appraisal element number.

 

Figure 7.10   Defining the Performance dimension

7.2.3       Defining Matrix Segment

Defining each matrix segment can be a lot of work. There is a lot of upfront work that needs to be done by compensation specialist to ensure that the segments are correctly defined to allow the guideline definition to the granularity required. Each dimension values have to be reviewed and segmented as shown in Figure 7.11. The compa-ratio is grouped GT01 if the compa-ratio is greater than 1. The compa-ratio is grouped LE01 if the compa-ratio is less than or equal to 1. It’s important to note that the ranges are inclusive. Hence we have the GT01 defined the minimum result as 1.001 and not as 1.000. The values can have up to 3 decimals.

 

Figure 7.11   Matrix Dimension Segment- Compa-ratio

There can be more elaborate segments like in case of performance ratings.

Segment Description Minimum result Maximum result
1 Unsatisfactory                     2.999
2 Below average 3.000 4.999
3 Satisfactory (Target) 5.000 6.999
4 Above average 7.000 8.999
5 Excellent 9.000 9.999

It is important to note that we could also use the satisfactory segment as the Target (or the default). We will review this later.

7.2.4       Defining the Matrix

Finally it’s time to define the matrix. For Annual bonus, we would like to have guidelines based on the compa-ratio and performance. A person who is already higher in the pay range and higher performance would be eligible for a higher bonus range since their merit increase could be capped.

We can have a maximum of 3 dimensions in the matrix. If you consider that each dimension has 5 segments, then the matrix will have a total of 125 defaults that need to be setup. If you include that you want to specify a range then the entry values will become 375. Hence it’s a balance between allow manager discretion and management control.

There are 3 default types, amount, percentage and number and each can have minimum, maximum and default. You can define whether you just want a default without a range or a combination of them. Depending on that you would be provided entry fields. You can only select amount or percentage or numbers.

 

Figure 7.12   Setting up the Matrix

If you select amount, you can also specify the Unit of Time, if you are referring to amount as yearly, monthly…

7.2.5       Setting Up the Matrix Values

This can be one of the most tedious tasks if there are a lot of values to be entered and if the matrix is big. It might have hundreds of values.

Note

This view (V_T71ADM23) is available for maintenance in the production environment. If there are change to the values in subsequent years, they don’t have to be transported but are to be changed in the production environment. Based on the current date, only the relevant values will be displayed. If you want to see all the values for different date ranges, the [Expand/ Collapse] button on the screen need to be used.

 

Figure 7.13   Completing the Matrix as per the business requirement

7.2.6       Defining Proration

The default value in the compensation guidelines can be automatically prorated using the SAP standard proration program. It has some limitations but is overall a good way to approach the complex topic of proration.

If the employee remains in the same plan but has a change in guidelines during the plan period, then the proration rule can make the necessary calculations automatically.

Scenario:

There is an employee whose compa-ratio was less than 1 during the first 165 days but during the plan period, the employee’s position changed making their compa-ratio greater than 1. The limitation is that the employee’s base salary will be calculated only once for the plan period and doesn’t get adjusted. 17.5% but then it becomes 15%

Calculated percentage

(165/365) * 17.5% + (200/365) * 15.00% = 16.13%

If we consider a salary of  $100,000, the prorated guideline default will be $16,130.

 

Figure 7.14   Proration Rule

7.2.7      Defining the guideline variant

The guideline variant is a combination of the guideline grouping, guideline and proration rules. The guideline variant is the end state of the guideline process. Only one Guideline variant can be assigned to one compensation plan.

7.3      Configuration Steps

7.3.1       Goto IMG

Personnel Management •EnterpriseCompensation Management • Compensation Administration • Guidelines

 

Figure 7.15   All the Guideline configuration

The guidelines have more configuration due to the definition requirement for the matrix and also the proration rules.

7.3.2       Create Guideline Variant

The guideline variant should be aligned to the compensation plans. It is a good idea to copy and create a new guideline variant for each plan even if the plans use the same guidelines functionally. This would avoid any guideline changes made to one plan inadvertently changes the guideline for another plan.

 

Figure 7.16   Compensation Guideline Variant

It’s important to note that guidelines are specific to compensation area. If you have created guidelines in other compensation area, you can’t copy them to a different compensation area but need to recreate them.

7.3.3       Create Guideline Groupings

The grouping can be similar to the eligibility grouping, there might get more specific. Some companies might want to have a little bit different guideline for Executives who have been with the company for more than 10 years and the ones who have just joined and the ones who are expatriates. Hence even though they were all eligible as ‘Executives’ they would still have different targets when it comes to guidelines.

 

Figure 7.17   Compensation Guideline Grouping

Within the same compensation area, we can only have one setup of guideline groupings. Hence it’s important to reiterate that a lot of consideration has to be given by the compensation specialist on all the different groups that will require different guidelines across all the plans associated with this compensation area.

7.3.4       Create the Feature CGDGP

The feature will define each of the guideline groupings. The enterprise structure, personnel structure, pay structure and organizational structure fields are available to define the feature.

 

Figure 7.18   Guideline Feature

These groupings are expected to be stable. Any change will necessitate quite a bit of analysis on the impacts to the existing plans using these groupings.

7.3.5       Define Guideline Proration Rule

This is a newer functionality in ECM and it was not a part of the old compensation management. The proration can be on a daily basis or monthly basis and the result thereof can be rounded as required. The proration applies to the guidelines (and not to the actual salaries).

If an employee has been in the plan for the whole year:

Jan to April- guideline default – 10%

May to Dec – guideline default- 15 %

Prorated guideline- (4 months with 10%) + (8 months with 15%) = 13.33%. If we use days instead of months, the calculation will be more specific. But sometime it’s preferred to use the months to avoid any dependency on the exact date of the transaction.

If the rounding type is set to round up, then the 13.33% will be rounded up to 14%

 

Figure 7.19   Proration Rule

7.3.6       Matrix Guideline

There are multiple configuration items for defining the matrix guidelines

Define methods for matrix dimensions and BAdI

There are standard SAP delivered methods that we can use. In case we want to define new dimensions to capture the business unit a person is working in, then we can define the method as Z001- Business Unit. The next step is to write that method in the BAdI. In the screen Error! Reference source not found., you would need to click create and start with the creation of the new method.

 

Figure 7.20   Creating custom method for getting the business unit of an employee

The custom method creation will need a good ABAP programmer. The BAdI builder screen Figure 7.21 gives a glimpse of the coding that is relevant to the programmer.

 

Figure 7.21   BAdI builder for creating new method for matrix dimension

Matrix dimensions

The matrix dimension specifies the return values along with any parameter that might be required. If we are using the method Length in Service, we will need this step to specify that we need the length of service return in years (rather than day or months). In other cases we will just specify the method without any other detail e.g. compa-ratio.

Matrix segments

The matrix segment creates segment of the dimension. The compa-ratio can have values from 0 to 2. We could divided it into 2 segments, one segment is greater than 1 and other segment that is less than or equal to one.

If we want to create different segment for the same method, we should create a different dimension using the same method and create new segments.

Define guideline matrix

The guideline matrix defines the dimensions that will be used for the guideline matrix. There can be a maximum of 3 dimensions. The guideline can be in amounts, percentages or numbers. You can select any one for the given matrix. Also you can select whether you plan to define the minimum, maximum and/or default.

Assign matrix values

The last step is to assign the values for each cell of the matrix. This will be used when the manager applies guidelines for the employee.

7.3.7       Define Compensation Guideline

Finally we define the guideline for a guideline variant for each of the guideline grouping.

 

Figure 7.22   Create compensation guideline

The guidelines have validity dates. Hence if there is a change in guideline, all that needs to be done is that new validity period needs to be selected and new guideline need to be configured.

In cases where we don’t want to define the guideline matrix, we can directly enter the amount, percentage or numbers when we create the guideline itself. All the people in the guideline grouping will get the same value.

 

Figure 7.23   Compensation Guideline for the Executives

If within the same guideline variant, we would like to give all the salaried employees a flat guideline of 10% default, then we don’t need to define the guideline matrix, but just provide the 10% in the guideline percentages.

 

Figure 7.24   Compensation guideline for the salaried employee

If there are still further requirements to create custom guidelines, then ECM provides a BAdI. Like all the other BAdI, you can define the custom logic for the guideline that can’t be defined using the standard settings, but use the standard guideline wherever possible. You need to set the  PROCESS_STANDARD = ‘X’ within the BAdI to use the standard routine.

 

Figure 7.25   More flexibility available using Business add-in

7.4      Summary

We have reviewed all the aspects of guidelines in detail here. We have seen how guideline variant, guideline groupings, guidelines, proration, guideline matrix work. We have also seen the different BAdI that are available and how they can call the standard configuration wherever needed. This will provide all the background that you would need to setup the guidelines.

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