4. BUILDING AN ENTERPRISE
COMPENSATION
EXECUTIVE SUMMARY MANAGEMENT STRATEGY
An enterprise compensation management strategy is crucial In an expanding economy, human resources are scarce, and
for dealing with a rapidly changing business climate and it’s important to attract and retain the best people. In a
making the most of human resources in the best – and worst – recessionary economy, human capital is a major expense that
of economic times. mySAP™ ERP Human Capital Management needs to be controlled effectively. But no matter what the
(mySAP ERP HCM) provides a complete solution for enterprise global economic situation may be, you need maximum insight
compensation management, budget handling, compensation and flexibility to manage enterprise compensation. You also
administration, long-term incentives, job pricing, and need the ability to adapt dynamically to ever-changing
reporting. circumstances.
With a comprehensive compensation management solution,
you can define a strategic compensation policy that applies
throughout your enterprise – one that motivates employees to
support business goals, allows you to respond to change, and
improves your company’s bottom line. And one that enables
you to track, monitor, plan, simulate, and execute that strategy
precisely. A comprehensive compensation management
solution achieves this by integrating all relevant human
resources (HR) processes, including the administration of fixed
and variable pay, long-term incentives (LTIs), performance
management, compensation budgeting, personnel cost
planning, salary benchmarking, and payroll.
4
5. COMPLETE ENTERPRISE COMPENSATION
WITH mySAP™ ERP
With mySAP ERP Human Capital Management (mySAP ERP compensation techniques and achieve their strategic goals.
HCM), you can maximize the value of your employees and align The solution can help you build effective employee compen-
employee skills, activities, and incentives with business objectives sation programs and support your company’s compensation
and strategies. mySAP ERP HCM also provides the tools to man- management processes. With numerous integration points,
age, measure, and reward individual and team contributions. mySAP ERP HCM is a true end-to-end solution that powers a
fully integrated enterprise compensation management process.
By leveraging integrated HCM tools, you’ll gain insight into – mySAP ERP HCM supports the major areas in enterprise
and control over – increasingly virtual workforces. Adapt your compensation management: budgeting, compensation admin-
workforce and IT investments quickly and easily. And signifi- istration and planning, long-term incentive administration,
cantly improve productivity as employees focus more time on and job pricing.
value-added activities.
To implement all SAP enterprise compensation management
mySAP ERP HCM supports processes for recruiting, deploying, functionality of mySAP ERP HCM, you must implement
developing, motivating, and retaining valuable employees, some of its personnel administration and organizational
improving these processes from end to end. management functionality. mySAP ERP HCM provides basic
reporting capabilities, but for complete HCM analytics, you
mySAP ERP HCM offers a complete, integrated compensation must install the SAP® Business Intelligence component of the
management software solution that helps enterprises of all SAP NetWeaver™ platform, as well.
industries, sizes, and complexities to implement strategic
BALANCED SCORECARD
SAP STRATEGIC ENTERPRISE
• Define enterprise goals MANAGEMENT
mySAP™ ERP HCM
PERSONNEL COST PLANNING & SIMULATION
• Plan costs & generate compensation budgets
SALARY BENCHMARKING COMPENSATION BUDGETING OBJECTIVE SETTING &
• Participate in salary surveys APPRAISALS
• Create & distribute compensation budgets
• Perform job pricing • Define team & individual goals
• Maintain salary structures • Monitor and evaluate goals
achievement
COMPENSATION ADMINISTRATION/PLANNING/REVIEW PROCESS
LTI ADMINISTRATION • Perform compensation reviews and LTI granting
INCENTIVE & COMMISSION
• Grant & administer LTIs MANAGEMENT (ICM)
• Calculate sales commissions
PAYROLL and incentives
• Update payroll & master data
mySAP ERP CORPORATE SERVICES
SAP® BUSINESS INTELLIGENCE
• Analysis and reporting SAP NetWeaver
Figure 1: Overview of the Fully Integrated SAP Enterprise Compensation Management Solution
5
6. BUDGETING
To take advantage of mySAP ERP’s extended enterprise With mySAP ERP HCM, your compensation specialists can
compensation management functionality and to implement create budget structures for merit increases, performance
the most robust enterprise compensation management solution bonuses, and long-term incentives (LTIs). You can then allocate
that SAP has to offer, you should implement the following the budget pool of money (or the number of awards in the case
functions and applications available with mySAP ERP: of LTIs) among the different budget units in your company.
• The objective setting and appraisals functionality of
mySAP ERP HCM Compensation specialists can automatically generate budget
• The personnel cost planning and simulation functionality of structures that are representative of your organizational
mySAP ERP HCM structure. When required, they can manually edit the structure.
• The payroll functionality of mySAP ERP HCM When line managers plan and execute their employees’ per-
• SAP Employee Self-Service and SAP Manager Self-Service formance awards, they can view these compensation budgets.
• SAP Incentive and Commission Management As they make changes, mySAP ERP HCM increments the spent
• SAP Strategic Enterprise Management (SAP SEM) value of the budget against the original distributed budget.
This ensures managers follow budget policy and allows you to
Compensation management is closely linked with the solution’s monitor compliance. You can configure mySAP ERP HCM to
objective setting and appraisals functionality, so you can auto- allow or to prevent line managers from exceeding their budgets.
matically determine the appropriate rewards when employees
achieve particular goals. The controlling unit of an organization usually manages
compensation budgets. You can obtain planned HR expenses
Personnel cost planning and simulation functions help you by using the personnel cost planning and simulation tool in
initially structure and compose compensation budgets. mySAP ERP HCM. Because compensation budgeting and
personnel cost planning and simulation are integrated,
You can directly transfer the results of sales commissions from mySAP ERP HCM can automatically generate compensation
the SAP Incentive and Commission Management application of budgets with data that comes directly from the respective cost
mySAP ERP to your payroll system for distribution to your em- items defined in forecasts of HR expenses. Implementing this
ployees. The results can also be displayed in the compensation functionality saves valuable time and effort when you create
planning tool in the SAP Manager Self-Service application so compensation budgets. It also allows for detailed, bottom-up
managers have a complete picture of the remuneration their budgeting in addition to traditional top-down budgeting.
employees receive.
For detailed compensation-related analysis and decision
support, the SAP Business Intelligence component of the
SAP NetWeaver platform provides specific compensation
datasets. The reports and analyses you need are based on these
datasets.
6
7. COMPENSATION
Compensation Administration
With mySAP ERP HCM, you can define and configure compen-
sation plans that adhere to your corporate policies. You can also
flexibly handle exceptions, when applicable.
Line managers access compensation plan information via the
compensation planning front-end tool in the SAP Manager
Self-Service application. Within this Web-based tool, managers
can simulate, plan, and adjust compensation for their
employees. Line managers and approving managers can
collaborate on proposed rewards and adjustments using
built-in approval functions.
The Compensation Plan Structure
Figure 2: Compensation Budget Maintenance with mySAP ERP The central entity of compensation administration is the
compensation plan, which is part of a compensation program.
You can manage the status of compensation budget structures, Employees are assigned to compensation programs via the Com-
ensuring that the pool of money assigned can be used by line pensation Program Infotype 0758. A compensation plan describes
managers only after final approval and release. the rules and structure of conditions of your employees’ com-
pensation and how it is treated in the compensation administra-
You can also reassign budget amounts during organizational tion process. Rules include eligibility, guidelines, and proration.
changes from the time the budget is released to its total
depletion. This function allows you to reassign the total dis- For payroll integration, each compensation plan is assigned to a
tributed and spent budgeted amount to another organizational compensation category, and the payment (or number of LTI
unit. awards) is stored in the corresponding payroll and compen-
sation infotypes. The compensation categories are:
You can keep track of budget distribution and usage across all • Salary adjustment: Basic Pay (Infotype 0008)
levels of your organizational structure using the budget • Regular bonus: Additional Payments (Infotype 0015)
auditing report. • Off-cycle bonus: One-Time Payments Off-Cycle (Infotype 0267)
• LTI grant: LTI Grant (Infotype 0761)
In addition, you can apply company-specific infotypes by using
a business add-in.
With mySAP ERP HCM, you can review compensation informa-
tion, including the attributes stored, the review period, and the
selection period. You can also define intervals during which a
manager is allowed to process a compensation plan, which is
referred to as compensation review.
7
8. The combination of compensation review and compensation • Guidelines
plan forms a new compensation review item. An example of a Guidelines determine default values that should be given to
compensation review item is an award that has to be presented an employee according to your compensation policy and
within a certain time frame and takes into account employees regulations. You can use amounts, percentages, or numbers
who have been with the company for a specified time period. A of LTI awards. Guideline values can be based on different
manager can only select a given review during that valid period criteria, such as an appraisal rating, specific target achieve-
of time. The selection period dates define the time period on ments, or for example, the compa-ratio of an employee. You
which the selection of employees is based. can combine up to three criteria when you define a guideline,
which allows you to build a multidimensional matrix for the
If a review is flagged as an “any-time” review, then you can guidelines. You can configure guidelines to allow managers to
process a compensation plan several times throughout the year overwrite the default values. The solution can also suggest
and more than once within a certain time frame. This approach default ranges, and managers can choose final values within
is typically used to implement spot bonus programs. those ranges. You can also define whether managers should
be allowed to go beyond those ranges or not.
You can also define compensation plans globally. Depending on • Proration
the country, you can assign specific employee attributes. The If an employee has fulfilled the eligibility requirements for
main attributes of a compensation plan are the following: a particular compensation plan during only a part of the
• Eligibility evaluation period, you can reduce the suggested guideline
Eligibility rules determine whether an employee can receive a value based on the fraction of time during which the require-
reward against a certain compensation plan. If an employee ment was fulfilled. This reduction is called proration and is
fulfills the detailed criteria defined for eligibility, such as enabled by applying a proration rule to an existing guideline
service requirements, job, pay scale and grade, appraisals, rule. The evaluation period is a time interval upon which
and target achievements, that employee is considered to be eligibility and proration evaluations are based. Its beginning
eligible. You can override the evaluation of this criterion and ending dates are attributes of the compensation review
using a special infotype – Eligibility Override (Infotype 0760) item.
– which manages exceptions handling. The evaluation of • Rounding
eligibility can be both time period and date specific. You can configure the rounding type and amount for each
compensation plan, after which rounding takes place
automatically.
• Cost item
You can assign cost items from the personnel cost planning
and simulation tool of mySAP ERP HCM to a compensation
plan. This integrates values from the compensation guidelines
for the data collection in cost planning and forecasting.
8
9. The Back-End Flow of the Compensation Process Compensation Planning for Front-End
The Compensation Process Infotype (0759) serves as a common User Processes
source to store and administer the compensation process flow The solution includes two different user interfaces to support
for all adjustments. The solution automatically creates this compensation processes for line managers and HR adminis-
infotype when a manager saves a proposed reward using the trators. Managers can access a new version of the SAP Manager
compensation planning sheet in the SAP Manager Self-Service Self-Service application. By using the HR master data mainte-
(MSS) application. You can create or change a secondary info- nance transaction, compensation specialists can maintain
type record only after it is activated, which is carried out compensation transactions directly on the Compensation
centrally by the HR department. The infotype that is updated Process Infotype (0759). Mass processing of rewards is also
depends on the category for payment defined in the compen- available.
sation plan. The infotype can be Salary Adjustment (0008),
Regular Bonus (0015), Off-Cycle Bonus (0267), and LTI Grant The line manager’s user interface captures information on
(0761), which is sent to the bank for further processing. The employee performance, jobs, salary guidelines, budgets, and
LTI Exercising Infotype (0762) is needed to store exercising data much more. It provides expert knowledge and situation-specific
coming back from the bank. More details of the LTI design are guidance in an intuitive, user-friendly format and enables
described in the following discussion of long-term incentives. more efficient salary planning across the enterprise. It includes
Figure 3 gives an overview of this compensation process. everything managers need for visibility and control over
compensation budgets. Line managers can access expert
information and resources to make strategic, equitable, policy-
MSS User Interface based compensation decisions.
Salary/Bonus/LTI
SAVING
For employees eligible for a specific compensation plan,
Business Logic managers can change the compensation data, such as the
Compensation Process
amount or percentage for monetary plans, or the number of
grants for LTI plans and the effective date provided that you
IT 0759
Compensation Process allow this. In addition, they can perform any of the following
ACTIVATION functions:
• Enter compensation data
IT 0008 IT 0015 IT 0267 IT 0761
• Apply percentage
Basic Pay Add’l Payments Off-Cycle Payments LTI Grant • Clear entries
• Apply guideline
IT 0762 • Raise employees to minimum of salary range
LTI Exercising
• Select a new currency
• Create and store notes for each employee
Figure 3: Architecture of the Compensation Process and Infotypes • Save compensation data
• Submit compensation data
• Exit
9
10. SAP Manager Self-Service fully supports the approval process.
The following functions are available:
• Approve
• Reject
• Check planned compensation
• Store notes for each employee
• Exit
There are two ways to determine which columns of informa-
tion appear on the SAP Manager Self-Service screen. You can
configure the columns in the back-end through configuration,
and managers can easily personalize the columns provided after
implementation. The main standard SAP-delivered columns
Figure 4: Sample Column Setup for a Salary Adjustment Plan Within
contain the following data: SAP Manager Self-Service
• Appraisal data
• Commissions (Infotype 0579) You can display any kind of compensation-related information
• Compa-ratio (current) on each employee just by clicking on their name. You can also
• Percent in range (current) graphically display comparisons of planned, actual, and survey
• Guideline salary data, the distribution of planned compensation changes,
• Hire date and compensation histories.
• Job
• Name
• Position
• New salary
• New compa-ratio
• New percent in range
• Notes
Special function modules fill the columns dynamically. Cus-
tomers can easily define and fill columns with customer-specific
data if required.
10
11. LONG-TERM INCENTIVES
With mySAP ERP HCM, you can create and manage long-term a manager in SAP Manager Self-Service. The LTI Exercising
incentives. Infotype (0762) contains the data about the exercising of LTIs,
which comes from the bank via a standard banking interface.
LTI administration is integrated with compensation adminis-
tration functions, which delivers several advantages: The Participant Data Infotype (0763) contains LTI plan partici-
• You can grant and approve LTI awards from SAP Manager pant information that is to be sent to the bank. You can store
Self-Service. the following information:
• You can budget for LTIs as you can for salary increases and • Insider
bonuses. • Director
• You can use the guidelines and eligibility requirements used • Owner percentage
for compensation administration to grant LTIs.
Life events can influence the expiration date and the vesting
The LTI plan is one possible type of compensation plan. LTI schedule of an LTI plan for an employee. The HR administrator
plans have the following primary attributes: can maintain the life event and its effects by running the appro-
• Vesting schedule priate report provided for life event processing, for example, the
Determines when awards are vested so employees can exercise vesting schedule changes on the LTI Grant Infotype (0761).
them. This vesting schedule is valid for an entire LTI plan and
can also be overwritten at the individual level in the LTI DATA FLOW DIAGRAM OF THE LTI FUNCTIONS
Grant Infotype (0761). The vesting schedule is sent to
Line
accounting and to your company’s bank or broker. Manager LTI Participant
• Exercise windows Data (0763)
Describe periods of time during which employees can exercise Granting
Compensation
Process
their awards. The exercise window rule is assigned to an LTI in MSS
(IT 0759)
plan. The exercising window rules from customization can
Activation of
be overwritten on the LTI Grant Infotype (0761) to handle Cancel HR
Infotype 0759
LTI Plan Administrator
exceptions at the employee level. The exercise window rule
information is sent to the bank via a standard banking Interface of
Compensation Convert LTI Grant
granting data
interface. Specialist Stock Unit (IT 0761)
to bank/broker
• Exercise price
The exercise price flag determines whether the exercise price Accounting Accounting
Department Interface
is determined at the date of exercise or is to be maintained in
the LTI Grant Infotype (0761) at the time of granting. Interface of
Payroll LTI Exercising exercising data
Payroll
Results (IT 0762) from bank/broker
LTI Infotypes 0761 and 0762 are for granting and exercising,
respectively. As mentioned above, the LTI Grant Infotype is HR
Reporting
Administrator
filled when you activate the Compensation Process Infotype Bank/
(0759), which is created automatically when LTIs are granted by Broker
HR SAP® BI
Executive Extractor
Figure 5: Integration Points and Infotypes Affected by the LTI Process
11
12. JOB PRICING
LTI Interfaces mySAP ERP HCM delivers extensive salary benchmarking
mySAP ERP HCM has LTI interfaces to the following areas: functions so your compensation professionals can analyze your
• Accounting company’s pay policy and pay structure for market competitive-
The solution provides a function module to the accounting ness. They can also determine the best possible compensation
capabilities of mySAP ERP. The accrual engine needs LTI data strategy revisions, quickly and accurately.
to compute provisions for awards.
• The bank SAP has developed a new job pricing tool for compensation
The solution provides an outbound interface for LTI granting specialists. With this tool they can:
and participation data and an inbound interface for exercising • Create and maintain an unlimited number of salary survey
data for data exchange with banks and brokers. These inter- providers
faces are XML interfaces and are compliant to the standards of • Import and store salary survey data from any number of
the HR-XML Consortium. providers, update data as needed, and maintain a history of
• Budgeting previous market data
Allocated and spent budgets can be converted as a conse- • Age salary survey market data
quence of a stock split. Therefore, budgeting needs to use an • Match internal benchmark jobs to survey jobs from multiple
LTI function module to convert budgets from one stock unit salary survey providers
into another. • Apply a weighting factor against various matched jobs from
• SAP Business Intelligence (SAP BI) different providers
SAP BI handles granting, exercising, and vesting data. You call • Establish market composite results for jobs and compare
the appropriate extractors from SAP BI and adjust them to internal salaries against blended market data supported by
the new data model. graphical tools
• Compensation administration • Adjust internal salary structures based on market findings,
LTI functions are closely connected to compensation admin- including performing regression analyses supported by
istration. An important program interface between the two graphical tools
functions is the activation process of the Compensation • Extract company compensation data to participate in salary
Process Infotype (IT 0759). The LTI function provides a surveys
function module as part of the activation. Compensation • Link to SAP Business Intelligence to run sophisticated
administration uses LTI function modules to convert the analytics and reports
number of awards from one stock unit to another.
• Payroll Figure 6 shows the job pricing business process, including all the
Payroll evaluates the LTI Exercising Infotype (IT 0762). You steps involved and supported by mySAP ERP HCM.
define the wage types for the respective amounts and the
payroll engine can calculate the appropriate tax. The tax
calculation is delivered in the international payroll engine,
along with specifics for German and U. S. regulations.
• Total compensation statement
The total compensation statement shows the number of
granted awards and the granting date. This data is read from
the LTI Grant Infotype (IT 0761).
12
13. BUSINESS PROCESS OF MARKET PRICING OVERVIEW (GENERAL)
JOB ANALYSIS SELECT SURVEY RECEIVE SURVEY
PROVIDER DATA SUBMISSION
• Create internal jobs • Organization decides FORM (ONLINE, DISK,
and job descriptions which salary surveys EXCEL, ETC) FROM
to participate in SURVEY PROVIDERS
IMPORT DATA JOB MATCHING AGE DATA
• Upload job catalog, • Match internal jobs • Age market data to
descriptions, and to survey jobs evaluation date
market data to the
system
WEIGHT DATA COMPILE MARKET DATA ANALYSIS
DATA
• Weight market data • Create market • Evaluate and compare
from different composite result for to current internal
providers internal jobs from compensation
matched survey jobs
DETERMINE MARKET PHILOSOPHY IDENTIFY TARGETS
GAP
• Identify which jobs or • Determine or create • Create market targets
job families require compensation for certain jobs or job
adjustments philosophy families
ADJUST SALARY ACTIVATE
STRUCTURE ADJUSTMENT Figure 7: Comparison of Market Composite Result to Employees’ Payment
• Create proposal for • Adjust the current
salary structure salary structure with
adjustments to “lead” the new structure
or “lag” the market
Figure 6: Overview of the Salary Benchmarking Business Process
Once you have imported market data from the survey
providers, you create market composite results. This infor-
mation is stored in the new composite Survey Result Infotype
(IT 1271) for each internal benchmark job. You can then
compare market pay and your company pay for employees,
positions, or jobs. You can create multiple composite results,
so you can compare different market movement assumptions,
provider weightings, and market data aging factors.
13
14. AT-A-GLANCE ENTERPRISE COMPENSATION MANAGEMENT
INFOTYPES AND ARCHITECTURE OVERVIEW
You can access and maintain all Infotypes using the mySAP ERP
HCM master data maintenance function. The solution includes
the following infotypes for enterprise compensation
management:
• Compensation Programs (IT 0758)
• Compensation Process (IT 0759)
• Compensation Eligibility Override (IT 0760)
• LTI Grant (IT 0761)
• LTI Exercising (IT 0762)
• LTI Participant Data (IT 0763)
• Composite Survey Result (IT 1271)
HR COMPENSATION
EMPLOYEE MANAGER HR EXECUTIVE USERS
ADMINISTRATOR SPECIALIST
MASTER DATA BUDGETING JOB PRICING
ESS USER MSS USER USER FRONT END
INTERFACE INTERFACE INTERFACE
LTI COMPENSATION BUDGETING JOB PRICING
TOTAL ADMINISTRATION ADMINISTRATION
COMPEN- EXERCISING
SATION BACK END
(IT0762) COMPENSA- SURVEY
STATEMENT GRANTING TION PROCESS RESULTS
(IT0761) (IT0759) BUDGETS (IT1271)
PAY DATA SALARY DATABASE
(IT0008 ETC.) STRUCTURES
PERSONNEL
MBO/ BW OTHER SAP
PAYROLL ACCRUAL TREASURY COST
APPRAISALS REPORTING COMPONENTS
PLANNING
BANK/ SURVEY EXTERNAL
BROKER PROVIDERS COMPONENTS
Figure 8: Overview of the Enterprise Compensation Management Architecture Including User Roles and User Interfaces
14
15. SAP EMPLOYEE SELF-
SERVICE AND THE TOTAL COMPLETE REPORTING
COMPENSATION STATEMENT CAPABILITIES
Using SAP Employee Self-Service, employees can always see a mySAP ERP HCM provides basic reporting capabilities. You can
total compensation statement – the compensation they view and format tabular report results in the SAP list viewer
received from their employer during certain time periods. tool. Using this tool you can:
This statement, which can be customized, can be in multiple • Filter data
formats, including Smart Forms and Adobe Acrobat Reader. • Total and subtotal data
The statement can be printed individually or in bulk. • Sort data
• Display data in Microsoft Excel and Crystal Reports
The total compensation statement can include sales commis- • Define your own report layouts
sion from SAP Commission and Incentive Management. It lists • Export data to Microsoft Word and Microsoft Excel
data from four different areas within mySAP ERP HCM:
• Payroll, including salary and bonus By implementing SAP Business Intelligence, you can execute
• Benefits, including health plans, insurance plans, savings more sophisticated reports that go far beyond these functions.
plans, flexible spending accounts, miscellaneous plans, stock SAP Business Intelligence contains a special enterprise compen-
purchase plans, and credit plans sation management InfoCube (a type of SAP dataset) and
• Other compensation, including LTIs queries that you can use to analyze all of your compensation
• Personnel development, including additional education and data in detail. SAP Business Intelligence delivers more than
training and individual development plans 30 standard queries with enterprise compensation management
content.
15
16. THE ADVANTAGES OF
INTEGRATED ENTERPRISE
COMPENSATION
MANAGEMENT
mySAP ERP offers an integrated solution for enterprise com-
pensation management that delivers the following advantages:
• Broad, real-time, and reliable information availability and
exchange for decision making
• Strategic personnel management and support for your overall
enterprise strategy
• Integration with all vital SAP components inside and outside
mySAP ERP, as well as with third-party interfaces, ensuring
communication with all parties involved and full support of
the entire enterprise compensation management process
• Improved productivity through user-centric applications that
ensure HR professionals and managers have the right tools
and an easy-to-use interface
• Unlimited reporting capabilities through standard reports,
extensive SAP Business Intelligence reports, and ad hoc query
capabilities so you can take immediate action when required
• Flexible customizing to ensure that you can set up all possible
compensation plans according to your specific needs
And the advantages just keep coming. To help you cope with
change, SAP continuously improves mySAP ERP. Enhancements
to the solution’s enterprise compensation management features
and functions will ensure an even greater ability for your com-
pany to implement a flexible strategic compensation policy,
supported by a comprehensive compensation management
solution that helps you achieve your goals.
To learn more about mySAP ERP, visit the SAP Web site at
www.sap.com/solutions/erp
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