Proration Rules: Salary Increment and Variable Bonus

Introduction

The purpose of this article is to illustrate the mechanics for pro-rating payouts related to annual compensation review exercise. The mechanics describe here is just one way of doing it. The following is just one example. I did not expand on the section on what “continuous service” means.

Components of Example Compensation Plan

There are 5 components in the compensation plan. They are annual increment, a lump sum award, variable bonus, profit share and a fixed bonus.

Components of Example Compensation Plan

Period for Consideration in Example Compensation Plan

The period for consideration for the awarding of the annual increment and lump sum award will be from 1 July of the preceding year to the 30 June of the current year. The factor for consideration is the staff’s length of service and the staff performance during the performance review period.

The performance review period is aligned with the organization’s financial period.

The quantum for the annual salary increment and the lump sum award shall be pro-rated for staff that has less than or more than one year’s service by 30 June in the year of the annual increment review.

The period for consideration for the awarding of the variable bonus and profit share will be from 1 April of the preceding year to the 31 March of the current year. This is related to the organization’s financial period. The factors for consideration are the organization’s overall and operating performances.

Eligibility Rules

Annual increment, lump sum award and promotion increment are given to confirmed staff as at 30 June in the year of review.

Variable bonus and profit share are given to confirmed staff as at 1 April in the current year. No payment shall be made to a staff that is not confirmed by this date.

Basis for Calculation of Variable Bonus and Profit Share

 The variable bonus and profit share shall be calculated based on the last basic salary at 31 March of the current year.

Rounding Rules for Month of Hire

 For the purpose of counting in number of months of service period, if a staff joins on or before the 15th of the month (mid-month), it will be regarded that the staff has performed one month of service.

If a staff joins after the 15th of the month, it will be regarded that the staff did not work that month.

Continuous Service

The variable bonus and profit share shall be paid based on completed months of continuous service.

Promotion Increment

The matrix for promotion increment is as follows:

Promotion Increment

Probationary Appraisal for June

Submission for confirmation of probationary staff in their current appointment should be completed and submitted for processing by 15 June. This should include early confirmation for staff whose probationary period ends before 15 July.

Rounding of Actual Payouts

The actual payout are paid to the closest dollar.

 Method of Pro-ration for Annual Increment and Promotion Increase

Although the organization’s performance review period is from 1 April of the preceding year to the 31 March the current year, performance appraisal is conducted only from 1 April to 30 April, salary adjustments are made only from 1 July.

The quantum for the annual increment, lump sum award and promotion increment shall be pro-rated for staff that has less than one year’s service by 30 June in the year of the review.

The quantum for the annual increment, lump sum award and promotion increment shall also be pro-rated for staff that has more than one year’s service by 1 July in the year of the review. These are staff that had been confirmed after 1 July in the preceding year and had missed out on the annual increment and lump sum award.

Method of Pro-ration for Variable Bonus and Profit Share

The organization’s financial period is from1 April in the preceding year to the 31 March in the current year.

The payment of the variable bonus is based on the organization’s overall performance and the payment of the profit share is based on the organization’s operation performance (income less expenditure) for the financial period. These payments are at the discretion of the Management.

The quantum for the variable bonus and profit share shall be pro-rated for staff that has less than one year’s service by 1 April in the year of the review.

The proration calculation is based on the number of months a staff is employed from and including his or her hire month, that is his or her service period or employment period.

Staff that had been confirmed after 1 April in the preceding year and had missed out on the variable bonus and profit share will not receive compensation for missing out.

The following table shows the multipliers.NA means “Not Applicable”. This means the staff will receive nothing.

Proration Rules

 

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