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CONTENTS
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Building an Enterprise Compensation Management Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Complete Enterprise Compensation with SAP ERP HCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Compensation Plan Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Back-End Flow of the Compensation Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Planning for Front-End User Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7 7 9 9
Long-Term Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 LTI Interfaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Job Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 At-A-Glance Enterprise Compensation Management Infotypes and Architecture Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SAP Employee Self-Service and the Total Compensation Statement . . . . . . . . . . . . . . . . . . . . . 15 Complete Reporting Functionalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 The Advantages of Integrated Enterprise Compensation Management . . . . . . . . . . . . . . . . . . 16
EXECUTIVE SUMMARY
An enterprise compensation management strategy is crucial for dealing with a rapidly changing business climate and making the most of human resources in the best and worst of economic times. The SAP ERP Human Capital Management (SAP ERP HCM) solution provides a complete solution for enterprise compensation management, budget handling, compensation administration, long-term incentives, job pricing, and reporting.
techniques and achieve their strategic goals. The solution can help you build effective employee compensation programs and support your companys compensation management processes. With numerous integration points, SAP ERP HCM is a true end-to-end solution that powers a fully integrated enterprise compensation management process. SAP ERP HCM supports the major areas in enterprise compensation management: budgeting, compensation administration and planning, longterm incentive administration, and job pricing. To implement all SAP enterprise compensation management functionality of SAP ERP HCM, you must implement some of its personnel administration and organizational management functionality. SAP ERP HCM provides basic reporting functionalities, but for complete HCM analytics, you must install the SAP NetWeaver Business Intelligence component as well.
Salary Benchmarking Participate in salary surveys Perform job pricing Maintain salary structures
Personnel Cost Planning and Simulation Plan costs and generate compensation budgets
Objective Setting and Appraisals Dene team and individual goals Monitor and evaluate goals achievement
Incentive and Commission Management (ICM) Calculate sales commissions and incentives
SAP ERP Operations
SAP NetWeaver
Figure 1: Overview of the Fully Integrated SAP Enterprise Compensation Management Solution
BUDGETING
To take advantage of SAP ERP HCMs extended enterprise compensation management functionality and implement the most robust enterprise compensation management solution that SAP has to offer, you should implement the following functions and applications available with SAP ERP HCM: The objective setting and appraisals functionality of SAP ERP HCM The personnel cost planning and simulation functionality of SAP ERP HCM The payroll functionality of SAP ERP HCM The SAP Employee Self-Service and SAP Manager Self-Service applications The SAP Incentive and Commission Management application The SAP Strategic Enterprise Management (SAP SEM) application Compensation management is closely linked with the solutions objective setting and appraisals functionality, so you can automatically determine the appropriate rewards when employees achieve particular goals. Personnel cost planning and simulation functions help you initially structure and compose compensation budgets. You can directly transfer the results of sales commissions from SAP Incentive and Commission Management to your payroll system for distribution to your employees. The results can also be displayed in the compensation planning tool in SAP Manager Self-Service, so managers have a complete picture of the remuneration their employees receive. For detailed compensation-related analysis and decision support, SAP NetWeaver Business Intelligence provides specific compensation data sets. The reports and analyses you need are based on these data sets. With SAP ERP HCM, your compensation specialists can create budget structures for merit increases, performance bonuses, and long-term incentives (LTIs). You can then allocate the budget pool of money (or the number of awards in the case of LTIs) among the different budget units in your company. Compensation specialists can automatically generate budget structures that are representative of your organizational structure. When required, they can manually edit the structure. When line managers plan and execute their employees performance awards, they can view these compensation budgets. As they make changes, SAP ERP HCM increments the spent value of the budget against the original distributed budget. This ensures managers follow budget policy and allows you to monitor compliance. You can configure SAP ERP HCM to allow or to prevent line managers from exceeding their budgets. The controlling unit of an organization usually manages compensation budgets. You can obtain planned HR expenses by using the personnel cost planning and simulation tool in SAP ERP HCM. Because compensation budgeting and personnel cost planning and simulation are integrated, SAP ERP HCM can automatically generate compensation budgets with data that comes directly from the respective cost items defined in forecasts of HR expenses. Implementing this functionality saves valuable time and effort when you create compensation budgets. It also allows for detailed, bottom-up budgeting in addition to traditional topdown budgeting.
COMPENSATION
Compensation Administration
With SAP ERP HCM, you can define and configure compensation 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 SAP Manager SelfService. 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
You can manage the status of compensation budget structures, ensuring that the pool of money assigned can be used by line managers only after final approval and release. You can also reassign budget amounts during organizational changes from the time the budget is released to its total depletion. This function allows you to reassign the total distributed and spent budgeted amount to another organizational unit. You can keep track of budget distribution and usage across all levels of your organizational structure using the budget auditing report.
The central entity of compensation administration is the compensation plan, which is part of a compensation program. Employees are assigned to compensation programs via the Compensation Program Infotype (0758). A compensation plan describes the rules and structure of conditions of your employees compensation and how it is treated in the compensation administration process. Rules include eligibility, guidelines, and proration. For payroll integration, each compensation plan is assigned to a compensation category, and the payment (or number of LTI awards) is stored in the corresponding payroll and compensation infotypes. The compensation categories are: Salary adjustment: Basic Pay Infotype (0008) Regular bonus: Additional Payments Infotype (0015) 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 SAP ERP HCM, you can review compensation information, 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.
The combination of compensation review and compensation plan forms a new compensation review item. An example of a compensation review item is an award that has to be presented within a certain time frame and takes into account employees who have been with the company for a specified time period. A manager can only select a given review during that valid period of time. The selection period dates define the time period on which the selection of employees is based. If a review is flagged as an anytime review, then you can process a compensation plan several times throughout the year and more than once within a certain time frame. This approach is typically used to implement spot bonus programs. You can also define compensation plans globally. Depending on the country, you can assign specific employee attributes. The main attributes of a compensation plan are the following: Eligibility Eligibility rules determine whether an employee can receive a reward against a certain compensation plan. If an employee fulfills the detailed criteria defined for eligibility, such as service requirements, job, pay scale and grade, appraisals, and target achievements, that employee is considered to be eligible. You can override the evaluation of this criterion using a special infotype, Eligibility Override Infotype (0760), which manages exceptions handling. The evaluation of eligibility can be both time period and date specific.
Guidelines Guidelines determine default values that should be given to an employee according to your compensation policy and regulations. You can use amounts, percentages, or numbers of LTI awards. Guideline values can be based on different criteria, such as an appraisal rating, specific target achievements, or, for example, the compa-ratio of an employee. You can combine up to three criteria when you define a guideline, which allows you to build a multidimensional matrix for the guidelines. You can configure guidelines to allow managers to overwrite the default values. The solution can also suggest default ranges, and managers can choose final values within those ranges. You can also define whether managers should be allowed to go beyond those ranges or not. Proration If an employee has fulfilled the eligibility requirements for a particular compensation plan during only a part of the evaluation period, you can reduce the suggested guideline value based on the fraction of time during which the requirement was fulfilled. This reduction is called proration and is enabled by applying a proration rule to an existing guideline rule. The evaluation period is a time interval upon which eligibility and proration evaluations are based. Its beginning and ending dates are attributes of the compensation review item. Rounding 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 SAP ERP HCM to a compensation plan. This integrates values from the compensation guidelines for the data collection in cost planning and forecasting.
The Compensation Process Infotype (0759) serves as a common source to store and administer the compensation process flow for all adjustments. The solution automatically creates this infotype when a manager saves a proposed reward using the compensation planning sheet in SAP Manager Self-Service. You can create or change a secondary infotype record only after it is activated, which is carried out centrally by the HR department. The infotype that is updated depends on the category for payment defined in the compensation plan. The infotype can be Salary Adjustment (0008), Regular Bonus (0015), Off-Cycle Bonus (0267), or LTI Grant (0761), which is to be sent to the bank for further processing. The LTI Exercising Infotype (0762) is needed to store exercising data coming back from the bank. More details of the LTI design are described in the following discussion of long-term incentives. Figure 3 gives an overview of this compensation process.
MSS User Interface Salary/Bonus/LTI Saving Business Logic Compensation Process
The solution includes two different user interfaces to support compensation processes for line managers and HR administrators. Managers can access a new version of SAP Manager SelfService. By using the HR master data maintenance transaction, compensation specialists can maintain compensation transactions directly on the Compensation Process Infotype (0759). Mass processing of rewards is also available. The line managers user interface captures information on employee performance, jobs, salary guidelines, budgets, and much more. It provides expert knowledge and situation-specific guidance in an intuitive, user-friendly format and enables more efficient salary planning across the enterprise. It includes everything managers need for visibility and control over compensation budgets. Line managers can access expert information and resources to make strategic, equitable, policy-based compensation decisions. For employees eligible for a specific compensation plan, managers can change the compensation data, such as the amount or percentage for monetary plans, or the number of grants for LTI plans and the effective date provided that you allow this. In addition, they can perform any of the following functions: Enter compensation data Apply percentage Clear entries Apply guideline Raise employees to minimum of salary range Select a new currency Create and store notes for each employee Save compensation data Submit compensation data Exit
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 information 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 contain the following data: Appraisal data Commissions Infotype (0579) Compa-ratio (current) Percent in range (current) Guideline Hire date Job Name Position New salary New compa-ratio New percent in range Notes Special function modules fill the columns dynamically. Customers can easily define and fill columns with customer-specific data if required.
Figure 4: Sample Column Setup for a Salary Adjustment Plan Within SAP Manager Self-Service
You can display any kind of compensation-related information on an employee just by clicking on the employees name. You can also graphically display comparisons of planned, actual, and survey salary data, the distribution of planned compensation changes, and compensation histories.
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LONG-TERM INCENTIVES
With SAP ERP HCM, you can create and manage long-term incentives. LTI administration is integrated with compensation administration functions, which delivers several advantages: You can grant and approve LTI awards from SAP Manager Self-Service. You can budget for LTIs as you can for salary increases and bonuses. You can use the guidelines and eligibility requirements used for compensation administration to grant LTIs. The LTI plan is one possible type of compensation plan. LTI plans have the following primary attributes: Vesting schedule Determines when awards are vested so employees can exercise them. This vesting schedule is valid for an entire LTI plan and can also be overwritten at the individual level in the LTI Grant Infotype (0761). The vesting schedule is sent to accounting. Exercise windows Describe periods of time during which employees can exercise their awards. The exercise window rule is assigned to an LTI plan. The exercising window rules from customization can be overwritten on the LTI Grant Infotype (0761) to handle exceptions at the employee level. Exercise price The exercise price flag determines whether the exercise price is determined at the date of exercise or is to be maintained in the LTI Grant Infotype (0761) at the time of granting. LTI Infotypes 0761 and 0762 are for granting and exercising, respectively. As mentioned above, the LTI Grant Infotype is filled when you activate the Compensation Process Infotype (0759), which is created automatically when LTIs are granted by a manager in SAP Manager Self-Service. The LTI Exercising Infotype (0762) contains the data about the exercising of LTIs. The Participant Data Infotype (0763) contains LTI plan participant information. You can store the following information: Insider Director Owner percentage Life events can influence the expiration date and the vesting schedule of an LTI plan for an employee. The HR administrator can maintain the life event and its effects by running the appropriate report provided for life event processing, for example, the vesting schedule changes on the LTI Grant Infotype (0761).
Data Flow Diagram of the LTI Functions
Line Manager
Granting in MSS
Compensation Specialist
Accounting Department
Accounting Interface
Payroll Results
Payroll
HR Administrator
HR Executive
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LTI INTERFACES
SAP ERP HCM has LTI interfaces to the following areas: Accounting The solution provides a function module to the accounting features of the SAP ERP application. The accrual engine needs LTI data to compute provisions for awards. Budgeting Allocated and spent budgets can be converted as a consequence of a stock split. Therefore, budgeting needs to use an LTI function module to convert budgets from one stock unit into another. SAP NetWeaver Business Intelligence (SAP NetWeaver BI) SAP NetWeaver BI handles granting, exercising, and vesting data. You call the appropriate extractors from SAP NetWeaver BI and adjust them to the new data model. Compensation administration LTI functions are closely connected to compensation administration. An important program interface between the two functions is the activation process of the Compensation Process Infotype (0759). The LTI function provides a function module as part of the activation. Compensation administration uses LTI function modules to convert the number of awards from one stock unit to another. Payroll Payroll evaluates the LTI Exercising Infotype (0762). You 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 (0761).
JOB PRICING
SAP ERP HCM delivers extensive salary benchmarking functions so your compensation professionals can analyze your companys pay policy and pay structure for market competitiveness. They can also determine the best possible compensation strategy revisions, quickly and accurately. SAP has developed a new job pricing tool for compensation specialists. With this tool they can: Create and maintain an unlimited number of salary survey providers Import and store salary survey data from any number of providers, update data as needed, and maintain a history of previous market data Age salary survey market data Match internal benchmark jobs to survey jobs from multiple salary survey providers Apply a weighting factor against various matched jobs from different providers Establish market composite results for jobs and compare internal salaries against blended market data supported by graphical tools Adjust internal salary structures based on market findings, including performing regression analyses supported by graphical tools Extract company compensation data to participate in salary surveys Link to SAP NetWeaver Business Intelligence to run sophisticated analytics and reports Figure 6 shows the job pricing business process, including all the steps involved and supported by SAP ERP HCM.
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Receive Survey Data Submission Form (Online, Disk, Excel, Etc.) from Survey Providers
Import Data Upload job catalog, descriptions, and market data to the system
Compile Market Data Create market composite result for internal jobs from matched survey jobs
Determine Market Gap Identify which jobs or job families require adjustments
Identify Targets Create market targets for certain jobs or job families
Adjust Salary Structure Create proposal for salary structure adjustments to lead or lag the market
Activate Adjustments Adjust the current salary structure with the new structure
Once you have imported market data from the survey providers, you create market composite results. This information is stored in the composite Survey Result Infotype (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.
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Employee
HR Administrator
Manager
Compensation Specialist
HR Executive
Users
ESS
MSS
Front End
Budgeting
Budgets
Salary Structures
Database
Payroll
Accrual
Treasury
MBO Appraisals
BW Reporting
Survey Providers
External Components
Figure 8: Overview of the Enterprise Compensation Management Architecture Including User Roles and User Interfaces
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