Understanding Matrix Goals
This section discusses the following topics and provides an example of goals matrix and performance score calculation:
Types of matrix goals.
Matrix goal terminology.
Steps for using matrix goals.
When you use a goals matrix, you set up goals, performance levels, and a payout schedule. The system calculates a performance score that determines the payout formula that the Award Allocation process uses to calculate awards.
Because a goals matrix determines the payout formula at the organization or group level, consider your options carefully before using a goals matrix for plans administered with one of these plan member rules:
Employee VC Record
Employee VC Record with Groups
With these plan member rules, you can set the target payout at the individual plan member level. You override this feature when you use a goals matrix.
You can manage a variable compensation plan with a goals matrix at the organization level or the group level. The level depends on the plan member rule that you established for the plan, as shown here:
Use an organization goal matrix if the plan member rule is Empl VC Record (without groups).
Set up the matrix at the group level for group goals if the plan member rule is Empl VC Record with Groups or Define Tree/Group.
The system does not support matrix goals at the individual level.
Organization Goals Matrix
With this type of matrix, you set performance goals for the entire organization. The performance score for organization goals determines the payout formula for all plan members.
Group Goals Matrix
With this type of matrix, you set performance goals for all members of a group. Child groups inherit the group goals and attainments of parent groups, unless you establish a different goals matrix at the child group level. The performance score for group goals determines the payout formula for all members of the group.
This section discusses terminology related to matrix goals.
Field or Control |
Definition |
---|---|
Weight |
The weighting percentages assigned to the performance goals that you set up in the matrix. |
Threshold |
Minimal performance conditions that must be met before a payout occurs. Thresholds cancel payouts when a minimally acceptable performance level is not achieved for the goals that you set. |
Target |
Performance conditions that must be met before an optimal payout occurs. A target involves the average level of performance in achieving the goals in the matrix. A group or organization typically meets the target level of performance 80 percent of the time. |
Stretch |
Performance conditions that must be met before the highest payout occurs. Stretch involves the maximum level of performance in achieving the goals in the matrix. A group or organization typically reaches the stretch level of performance 50 percent of the time. |
Performance level |
The percentages that you assign to the threshold, target, and stretch levels in the matrix. The system uses these percentages to calculate the performance score. The number of performance levels corresponds to the number of columns that you specify for the matrix. Common practice is to set up five levels that range from 80 percent to 120 percent. In such a scheme, 80 percent and 90 percent represent performance that is below expected, 100 percent represents the expected level of performance, and 110 percent and 120 percent represent higher-than-expected performance. Three-level and seven-level matrices are also common. |
Attainment |
Numeric representation of the attainment of a matrix goal. The system interpolates the goal attainment value to a performance value. That performance value determines the performance level percentage used in the performance score calculation. |
Score |
The system calculates the score for each goal by multiplying the goal weight by the percentage of the performance level at which the attainment value falls. The total performance score is the sum of the scores for all goals in the matrix. The system determines the payout formula based on where the total performance score falls on the payout schedule. |
Total score |
Sum of the performance scores for all goals within the matrix. The system determines the payout formula based on where the total performance score falls on the payout schedule. |
Payout schedule |
Schedule of performance score ranges and associated payout formulas. |
Payout formula |
Formula that the system uses to calculate the plan member's variable compensation award. Typically, the formula is a percentage of base pay. |
Here are the high-level steps for using a goals matrix to manage a variable compensation plan:
Define goal IDs on the Goals page.
Define the goals matrix option on the Plan Definition page.
To define the goals matrix:
Select Goals Matrix as the plan goals type.
Define the number of columns that you want to set up in the matrix.
Set up the goals matrix on the Plan Goals - Matrix Goals page or the Plan Goals with Groups - Matrix Goals page.
Enter the goal IDs that you use to evaluate performance.
Establish a weighting percentage for each goal ID (the cumulative total of the weights for all goals must equal 100 percent).
Enter the threshold, target, and stretch performance level percentages for the number of matrix columns that you define for the plan.
Identify the measurable performance level values for each goal at each performance percentage level.
On the Payout Schedule page, identify a payout schedule that represents the amount of award that a plan member would receive at the various performance levels.
On the matrix goal attainment pages, enter the goal attainment value for each goal.
The system performs these calculations:
Determines the performance score for each goal.
Sums the scores of all goals.
Determines the payout formula.
Calculate the award using the payout formula by running the Calculate Awards process.
Determines the performance score for each goal
Image: Sample goal matrix showing threshold, target, and stretch amounts
This example illustrates a sample goal matrix with five rows showing threshold, target, and stretch amounts.
![Sample goal matrix showing threshold, target, and stretch amounts](img/i-cd7d26dn-7ae0.png)
The sample matrix shows these elements:
Five performance levels ranging from 80 percent to 120 percent (for the threshold, target, and stretch levels).
Three goals for measuring performance.
Weight percentages for each goal (the total goal weight is 100 percent).
The performance values to be attained for each goal at each performance level.
Note: The contribution margin is usually expressed as a percentage. The plan administrator has indicated that a contribution margin of 12 percent is the lowest value that the organization needs to reach to qualify for a reward. However, 16 percent is the ideal target.
You do not have to express performance values as percentages. Note that the customer satisfaction performance value is a flat amount because it is measured by scores on a survey.
The actual goal attainment value expressed in the same measure (percent or flat amount) as the performance value for each goal.
The score that the system has calculated for each goal and the total performance score.
Calculation of the Performance Score
The formula for calculating the performance score is:
Goal Weight × Performance Level of the Attainment Value
In the example, the attainment value for on-time service accuracy is 92 percent. The 92 percent performance value falls at the 100 percent performance level. So the performance score calculation for on-time service accuracy is:
40% × 100% = 40
The attainment value for the contribution margin is 18 percent. The 18 percent performance value falls at the 110 percent performance level. So the performance score calculation for the contribution margin is:
35% × 110% = 39
The attainment value for customer satisfaction is 85. The performance value of 85 falls at the 90 percent performance level. So the performance score calculation for customer satisfaction is:
25% × 90% = 23
The total performance score is the sum of the scores for all three goals:
40 + 39 + 23 = 102
Note: If the attainment value falls between two performance levels, the system interpolates the performance level. For example, if the attainment value for on-time service accuracy is 91 percent, the system interpolates the performance level to be 95 percent. The 95 percent value is the midpoint between the performance levels at 90 percent and 100 percent, which corresponds to the performance values of 90 percent and 92 percent, respectively.
Determination of the Payout Formula
You set up a payout schedule that associates payout formulas with ranges of total scores. The system evaluates only the scores that are equal to or higher than the threshold when it assigns payout formulas.
Here is an example of a payout schedule:
Range |
Payout Formula |
---|---|
80–90 |
3% of quarterly base pay |
90–100 |
5% of quarterly base pay |
100–110 |
7% of quarterly base pay |
110–120 |
10% of quarterly base pay |
120 |
15% of quarterly base pay |
In this example, the total performance score of 102 falls in the range of 100–109, so the payout formula is 7 percent of quarterly base pay. The Calculate Awards process uses the payout formula when it calculates the award.