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Create a Compensation Cycle: Budget

Dianmarie
  • Updated

The Budget page of a compensation cycle setup allows admins to set an overall budget for the cycle and provide raise guidance for employees who are eligible for merit or promotion increases. Admins can choose to distribute the budget via top-down allocation or eligibility rules. 

Note: The budget set on this page is separate from the budget for bonus. Budgets for bonus plan payout and one-time bonuses are managed in a later step. See Create a Compensation Cycle: Bonus for more details. 

Budget

Complete the following steps to set a budget for merit and/or promotion raises and provide raise guidance for eligible employees. The raise guidance will be shown to managers during the active cycle to support them in making their recommendations.

Set the raise budget

There are two ways to enter an overall budget for merit raise increases and promotions; both options will result in a single sum that is treated as the “top-down” budget to track total spend against.

  • Increase/employee: Input the average percent (%) increase for each employee. This is calculated based on the total current pay (base pay + variable pay if applicable) for all eligible employees in the cycle.
  • Raise budget: Input the total budget as a lump sum amount. The average percent increase per eligible employee will automatically be calculated for you. 

Choose how to allocate the budget

There are two options for how budget will be allocated.

  1. Set pay target increases for eligible employees
    • This option is for “bottoms-up” budgeting and should be used when a manager’s budget allocation is based on the employees reporting up to them.
    • Each employee has a Target Increase that informs their manager’s budget. 
    • Guidance is optional and does not inform budget, but is shown to managers.
    • Admins can distribute additional budget directly to managers; this will be added on top of the Target Increase allocated to managers. 
  2. Allocate budgets directly to managers
    • This option is for “tops-down” budgeting and should be used when budget allocation is provided directly to specific managers, and managers’ budget is not based on their individual direct reports.
    • There is no Target Increase per employee.
    • Admins must distribute budget directly to managers as a flat number.
    • Guidance is optional and does not inform budget, but is shown to managers.

Option 1: Set Target Pay increase for eligible employees

Admins can set increase targets per employee based on their current compensation.

  1. Once you have selected this option and entered the Total Raise Budget, click Continue. 
  2. Next to Merit, click Add. 
    1. Use the dropdown menu to select the type of increase to apply:
      Percentage increase of employee pay.
      Percentage increase based on performance rating.
    2. Toggle to provide the increase guidance as a:
      Single Value (managers will be guided to give a specific increase).
      Range of values (managers will be guided to give an increase within a range).
    3. (Optional) Check to include additional instructions that will be displayed to managers. 
  3. (Optional, only if including promotions in this cycle) Next to Promotion, click Add. 
    1. Use the dropdown menu to select the type of increase to apply:
      Percentage increase of employee pay.
      Increase to a target compensation band attainment. 
    2. Toggle to provide the increase guidance as a:
      Single Value (managers will be guided to give a specific increase).
      Range of values (managers will be guided to give an increase within a range).
    3. (Optional) Check to include additional instructions that will be displayed to managers. 
  4. (Optional) Next to Proration, click Add. 
    1. Select the proration method:
      Employee start date or Last compensation change date.
    2. Select a date range.
    3. Select proration cadence. 

It is also possible to upload the target increases and guidance for individual employees via CSV by clicking Upload via CSV. If you choose to upload custom guidance and target increases, the values in this CSV will override guidance and targets based on rules you set. Note that any uploaded raise guidance via CSV should be expressed as a monetary value rather than a percentage. See details on how to fill in this CSV in Adjust Raise Budget in an Active Compensation Cycle.

Option 2: Allocate the budget directly to managers

Admins can distribute the raise budget directly to participating managers.

  1. Once you have selected this option and entered the Total Raise Budget, click Continue. 
  2. Enter the budget for each participating manager manually or upload the distribution via a CSV by clicking Upload distribution.
  3. Once complete, click Continue. 

When allocating the budget directly to managers, it is also possible to provide them with guidance. 

  1. Next to Merit, click Add. 
    1. Use the dropdown menu to select the type of increase to apply:
      Percentage increase of employee pay.
      Percentage increase based on performance rating.
    2. Toggle to provide the increase guidance as a:
      Single Value (managers will be guided to give a specific increase).
      Range of values (managers will be guided to give an increase within a range).
      (Optional) Check to include additional instructions. 
  2. Next to Promotion, click Add. 
    1. Use the dropdown menu to select the type of increase to apply:
      Percentage increase of employee pay
      Increase to a target compensation band attainment.
  3. Next to Proration, click Add. 
    1. Select the proration method:
      Employee start date or Last compensation change date.
    2. Select a date range.
    3. Select proration cadence. 

Prorate guidance based on employee tenure or last compensation change date

For prorate guidance based on…, decide if you want to prorate raise guidance based on employee tenure or their last compensation change date.

  • Select Employee start date to calculate based on employee tenure.
    • Employee start date is based on the Start date in the Employee profile.
  • Select Last compensation change date to calculate based on the last time the employee received a pay change.
    • Last compensation change date is based on the pay effective date in the Employee pay table. 

Under Calculate proration, decide if you want to calculate prorated guidance by number of days, months, or quarters. 

  • Daily: Raise guidance will be prorated based on the number of days that have elapsed since the employee’s start date or last compensation change date. 
    • Prorated % = (Number of days between the employee’s start date or last compensation change date and the end of the proration date range) / (Total number of days in the proration date range)
  • Monthly (calendar): Raise guidance will be prorated based on the number of months that have elapsed since the employee’s start date or last compensation change date. This calculation will be based on the calendar month of the date. This means that an employee who joined on May 1st would be in the same cohort as employees who joined on May 15th or 31st. 
    • Prorated % = (Number of months between the employee’s start date or last compensation change date and the end of the proration date range) / (Total number of months in the proration date range)
  • Quarterly (calendar): Raise guidance will be prorated based on the number of calendar quarters that have elapsed since the employee’s start date or last compensation change date. This calculation will be based on the calendar quarter of the date. This means that an employee who joined on April 1st would be in the same cohort as an employee who joined on June 30th. Calendar quarters are January - March (Q1), April - June (Q2), July - September (Q3), and October - December (Q4). 
    • Prorated % = (Number of quarters between the employee’s start date or last compensation change date and the end of the proration date range) / (Total number of quarters in the proration date range)
  • Quarterly (fiscal): Raise guidance will be prorated based on fiscal quarters. Fiscal quarters are dependent on the company fiscal quarter setting and will only be available if fiscal quarter start month is set.

Select the range of employee start dates that should have prorated raise guidance. You can select a time range of up to 1 year (365 days). 

The Budget impact section will calculate the amount that your overall raise guidance budget will be reduced by as a result of the proration. You can click on the number of employees for detailed information about each employee’s prorated raise guidance. 

Multiple currencies

If the cycle includes an employee population that is compensated in different currencies, there will be a banner listing all of the currencies included in the cycle along with the conversion rates that were set on the Currency page. 

All budgeting for the cycle is done in the company currency, which is defaulted to the currency with the greatest number of employees. To edit the company currency, visit the Currency page in cycle setup.  

Projected distribution chart

The projected distribution chart shows the budget breakdown by the three existing categories: promotion guidance, raise guidance, and remaining budget.

If promotion and merit raise guidance exceeds the total budget, you will receive an exceeding budget error and be requested to adjust the budget or raise guidance before proceeding to the next step of cycle setup.

 

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