8 step to variable remuneration

Posted by Driely Barbosa
at Thursday July 19th, 2012.

Instrumentation of its human resources and the composition of its strategic remuneration policy, most companies always opts for two compensation programs: a fixed and traditional and other variable based on PLR. A Variable Compensation Plan based on participation in profit sharing is always the most viable, sustainable and easily understood by employees.

The Variable Remuneration Plan based on Profit Sharing and Results aims to share the benefits from the organization’s growth measured by profit and clearly state employees the relationship between their personal and team contributions and the increasing value of the company.

Its main objective is to meet the immediate and future needs related to strategy and management of the organization in terms of remuneration commitment, effort, dedication, performance, productivity and creativity, individually and collectively, with the predominant focus corporate results, and the diagnosis and impact of the individual results, the teams and their relationship. For the development of an efficient and effective plan, we must follow some basic premises:

Growth in equipeGarantir the involvement and participation of all the organization of professionals. Identifying and enhancing business goals through the overall performance indicators of the company.
Identifying and enhancing individual performance and team, demonstrated by hiring realistic, measurable and specific goals for each professional, and identify targets within the company’s operating area.
Consider the specific weights of importance with regard to global objectives, area and individual.
Identify the minimum and maximum allocation and distribution of profit sharing or results to ensure its sustainability.
After these basic premises, we must establish the criteria for the program driving, and the first step for this is the definition and the establishment of indicators, ie the measures that will be used to plan the distribution.

Step 1 – DEFINITION OF GLOBAL INDICATORS

Basically, the overall indicator of the company is making a profit in the reporting period, and the most suitable is the EVA – Economic Value Added, represented by net income less the cost of equity. Recalling that: EVA = Operating Revenue (-) Cost / Expense (-) Depreciation = Operating Income (-) Financial expenses (=) Earnings before tax (-) IR (=) Net Income (-) Cost of Equity EVA target should include, in addition to the amount to be distributed including shareholders and owners, provisioning for investments.

Step 2 – AREAS OF INDICATORS DEFINITION

Each area of responsibility should define a window through which it will be evaluated during the year. Departmental goals should be closely linked to the company’s strategy, aiming collaborate decisively to achieve the goals set by global indicators. The indicator should be considered in order to emphasize the reduction of risks of undesirable results, taking into account the aggregate performance of the team. Once you set the indicator, the track record of achievement in previous periods can be a beacon when you define the values to be achieved, as well as market potential, competition analysis and production capacity and the company’s management.

Step 3 – DEFINITION OF INDIVIDUAL INDICATORS

Each area manager must define and negotiate targets and indicators with each employee based on the needs established by existing positions or positions in the organization and the characteristics of the services running or marketed products involving responsibilities, knowledge, skills and attitudes correlated to the performance of job quality and productivity levels that can be measured and parameterized through management information to enable the management in financial and strategic aspects. The trade or contracting goals with the professionals involved should aim to achieve goals in line with the organization’s strategy, and should be seen as a form of employee commitment as an integral part of the success in reaching the goals of the area and set overall objectives. The individual indicators should be negotiated in each area by the head of it with your direct reports based strategy set by the Board and in line with the overall objectives set. The individual indicators should be measurable and specify quantities, deadlines, project stages, quality, contents, values, etc. Should be motivating concrete possibilities of reach and overcome, considering the resources and the necessary conditions for such.

Step 4 – CONSIDERATION OF OBJECTIVES

After defining the objectives, we must establish a weighting of specific weights of importance with regard to global objectives, area and individual to ensure justice and a better equity among all the results.

Step 5 – PARAMETERS REMUNERATION

Establish and provide for the validity of the plan, ie, as percent of goal of answering indicator T plan

was valid:
a80%, 100% or 120%. It will be up to the organization to establish this percentage; the values become less than that set, there will be no distribution of profits – or distribution will be proportional. The calculation shall be made for each employee, computing individual results, the area and global, and measuring the distribution of value in multiples of prevailing wages. according

remuneration

with the law 10.101 (19/12/00), Article 2, “is prohibited from paying any anticipation or distribution amounts as profit sharing or company results in intervals of less than one calendar quarter, or more than two times in the same calendar year. “The period allowed for distribution of profits is semiannual, being completely prohibited the employer with the employee share the risks of your business activity, given what is found in Article 2 of the CLT – Consolidation of Labor Laws.

Step 6 – CRITERIA FOR ELIGIBILITY IN THE PLAN

Shall establish the criteria for eligibility in the plan, noting that the variable compensation plan is extended to all employees, as governing law 10.101 (19.12.00), but there are some eligibility criteria for participation in the plan. To become eligible for the plan, the official shall, in the year of assessment of global, departmental and individual indicators. Be active as an employee of the company at the end of the calculation date. . Have been admitted to a month before the date of calculation, with calculations made in proportion to the time worked. . Do not stay away from his duties by license or disease for more than 180 days.

Step 7 – MONITORING OF OBJECTIVES

The company should make a follow up on set overall goals and individual goals negotiated and contracted periodically to check the performance based on the projection made and make corrections in the plan as market changes or national and international scene that directly affect the business – or even variables that were not considered in the design of goals. The systematic results management is critical to the success of the PLR plan, to be identified and resolved the deviations and monitored the results and the motivation of those involved during the year. This requires communication to be transparent, responsive and effective.

Step 8 – PAYMENT CRITERIA

The organization shall establish the criteria for payment amount due for the variable compensation plan calculations, which can be:. proportional to the months worked. based on the arithmetic mean of the fixed salary of the position in the year. for the commercial area, is defined as the fixed salary is represented by the nominal wage plus the arithmetic average sales commissions In accordance with Article 3 of Law 10.101 (19/12/00), the amount of profit sharing or results not part or incorporates the remuneration of the employee, nor is the basis for the incidence of any labor and social security burden to be separated from the compensation does not apply the principle of habituation, however, taxable for income tax purposes, as legislation. These are the eight steps for planning and the development of a good and reliable Variable Compensation Program based on profit sharing. Are the main steps that should be meticulously designed and adapted to each type of organizational culture and always be linked to the mission and corporate values of the company, thus contributing strategically to the business.

Author: Staff Salary Survey Catho Online

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