Understanding Interpolate and Step business goals calculations in Variable Pay

[xavierlegarrec]

 

Introduction

When adding Business Goals to the configuration of a Variable Pay template we can choose between 3 different type of Metrics for each goal :

• Direct


• Interpolate


• Step

 

 

Problem

As much as Direct type is easy to understand as it is a straight achievement percentage (that Comp Administrators usually get from Finance each year before the Variable Pay cycle), the mathematics behind the value for standard field "Incentive Payout %" on the worksheet when Interpolate and Step metrics are used can be complicated to understand for both Implementation Consultants and Customers.

 

 

Interpolate Business Goals

Interpolate metric is probably the most mysterious one since nothing in SuccessFactors highlights the mathematical formula leading to the value we see in Incentive Payout % when we open the worksheet.

Let's take an example below.

In the Variable Pay worksheet below the payout for EBITDA business goal for Lucy Geall's 2nd assignment of the fiscal year is 75.16%.

However, nothing on screen allows us to recapture where that 75.16% comes from. If we divide the Actual Results by the Target Performance we get 65.74% and not 75.16%.

 

 

To understand that 75.16% we first need to navigate to the Business Goal section of our Variable Pay template and find the 3 or 5 metric payout points for this particular Business Goal.

 

 

Then we can use one of the many websites about interpolate formulas in mathematics such as this one in my case :

 

 

In case of 4+ payout points the calculation will still use the rows directly above and below the actual result (in this example below 1313 as well), which is this case leads to the same exact result than in the 3 payout points structure above :

620	0.5
1997	1
2400	1.5
3324	2
4000	3

 

((1313-620) * (1-0.5)) / (1997-620) + 0.5 = 75.16%

 

 

 

Step Business Goals

 

Step metric is a little bit more straightforward. To return a value in "Incentive Payout %" (see screenshot below) the system always takes the floor between the two points of the metric between which X (in our case the column "Actual Results" below) lies.

 

Let's take a look at it from the Business Goal design screen :

 

 

 

Flexible Payout Curves

For both Interpolate and Step metrics, an unlimited number of points can be added to a configuration by setting "Enable Flexible Payout Curve" to Yes in Plan Setup > Settings and following instructions in the help text.

 

 

Please note :

• After marking "Enable Flexible Payout Curves" as Yes the overview of the payout points in Plan Setup > Manage Plan Details > Business Goals is not possible anymore. So if we enter payout points manually on the Create new business goal popup screen and they don't show in Plan Setup > Manage Plan Details > Business Goals after save it probably means we have Flexible Payout Curves turned on hence we need to use the import file to load them or turn off the feature all together and use the standard maximum of 5 payout points.


• For all Variable Pay metrics (direct, interpolate or step) there is a product limit of 5 decimals. This cannot be changed and a file containing payout points or steps with 6 or more decimals will return the error message "unique constraint violated (input position 2)" in Error Details in Provisioning. Please see a screenshot of the error log here.

 

Conclusion

If Interpolate or Step types Metrics don't meet customers requirements in terms of formulas then the only workaround is to switch to a Direct type where calculations are made outside the system and only the final achievement percentage is loaded for each business goal.

 

 

Useful Links

More information about Flexible Payout Curves can be found here : https://launchpad.support.sap.com/#/notes/2717016

Also please find here an Excel file I've had for many years that contains all the Variable Pay standard fields calculation details which helped me tremendously to prepare this post.

 

 

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All the best,

Xavier

 

 

 

(If you found this blog useful please consider giving it a Like)

[MridulSharmaSF]

This was much awaited blog thanks for always helping compensation consultant

[i354253]

I was waiting for this blog. Thanks for taking out time and sharing it Xavier!!