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Understanding Weighted Goals

This section discusses:

Weighted Goal Terminology

This section discusses terminology related to weighted goals.

Weighted Goal Levels

You can manage a variable compensation plan by using weighted goals at up to three levels. The three levels are organization, group, and individual. When you define the plan, assign a plan goal weight to each level. The plan goal weight indicates the relative value of each level in the final performance factor calculation. If you don't use a level, assign a plan goal weight of 0 percent.

To calculate the performance of an individual, the system multiplies the goal attainment at each level by the goal weight percentage to produce a weighted attainment. It then calculates the total weighted attainments of all three levels.

Organization Goals

Organization goals are performance goals that you set for the entire organization. Assign a weighted goal percentage to each organization goal to determine its importance relative to other goals at the same level. The attainment percentage of the organization goals affects the variable compensation calculation of all plan members equally. An organization goal might be financial (for example, revenues), or it could be operational (for example, head count).

Group Goals

You can use group goals if you administer the plan by using groups. Group goals are performance goals that you set for all members of a group. Child groups inherit the performance factor of parent groups unless you establish different goals at the child group level. When you specify goals for a group, the group performance factor is calculated based on the attainments for the group's own goals. If no goals are specified, the group performance factor is taken from the parent group.

Assign a weighted goal percentage to each group goal to determine its importance relative to other goals at the same level. The attainment percentage of group goals affects the variable compensation calculation of all members of the group equally.

Individual Goals

Individual goals are performance goals that you set for individual plan members. You assign a weighted goal percentage to an individual goal to determine its importance relative to other goals at the same level. The attainment percentage of individual goals affects only the variable compensation calculation of the individual plan member.

Steps for Using Weighted Goals

Here are the high-level steps for using weighted goals to manage a plan:

  1. Define goal IDs on the Goals page.

  2. Define weighted goals as a plan option on the Plan Definition page.

    1. Select Weighted Goals as the plan goals type.

    2. Specify the plan goal weights for each of the three goal levels (the total must be 100 percent).

  3. Set up weighted goals in the Plan Goals component (VC_PLAN_GOAL) or the Plan Goals with Groups (plan goals with groups) component (VC_PLAN_GOAL_WG).

  4. Enter goal attainments for each level of weighted goals on the goal attainments pages.

  5. Calculate a performance factor for organization and group goals by running the Determine Allocation Application Engine process (VC_DET_ALLOC).

  6. Calculate a performance factor for individual goals by running the Calculate Awards Application Engine process (VC_CALWRD or VC_CALWRD_WG).

  7. Apply the performance factor to the target payout by running the Calculate Awards process.

  8. Run the optional Organization and Group Goals report before or after the measurement period.

Calculation of the Performance Factor

The Determine Allocations process calculates the performance factor for organization and group goals. The Calculate Awards process calculates the performance factor for individual goals. The Calculate Awards process also calculates the total performance factor and applies it to the prorated target payout.

The system multiplies these three percentages to calculate the performance factor for each goal:

  • The weighting percentage that you assign to the goal level when you define the plan.

  • The weighting percentage that you assign to the performance goal.

  • The percentage of accomplishment of the performance goal.

The formula for calculating the performance factor for each goal is:

Plan Goal Weighted Percentage × Weighted Goal Percentage × Attainment Percentage = Performance Factor

The Calculate Awards process sums the performance factor of all goals to derive the plan member's total performance factor. It rounds the calculation up to five decimal places.

Example of a Performance Factor Calculation and Award Calculation

Image: Performance factor calculation with plan goal weight percentages, weighted goal percentages, attainment percentages, and performance factors

This diagram illustrates a performance factor calculation for goals established at three levels, using the formula.

Performance factor calculation with plan goal weight percentages, weighted goal percentages, attainment percentages, and performance factors

Plan Goal Weighted Percentage × Weighted Goal Percentage × Attainment Percentage = Performance Factor

The Calculate Awards process multiplies the prorated target payout by the performance factor to calculate the award.

The following data is used to calculate the quarterly award in this example:

Data Description

Data Value

Worker salary

50,000 USD (annual rate)

Plan payout formula

15% of base pay (quarterly)

Proration factor

0.75

Performance factor

0.95 (calculated in the preceding example)

Here is the calculation of the award:

{((50,000 × 15%) ÷ 4) × 0.75} × 0.95 = 1,335.94 USD