Page 398 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

384 The Complete Guide to Executive Compensation

total of 78 (i.e., 26 3). Next, reduce the bonus target percentage of 21 by 4 (i.e., 2 2.00)
to 17 since the corporation only did 98 percent of its objective. It is then given a weight of 1,
for a total of 17 (i.e., 17 1). Total the two and divide the sum by 4 (i.e., 78 17 95, 95/4)
to equal 23.75 percent.
In a similar fashion, the guideline percentage was weighted out for every person in divi-
sion A, as shown in Table 7-35. The bonus percentage was then multiplied by the total
salaries in that grade and totaled, resulting in a sum of $249,572 available to that division for
bonus distribution.

Salary Average Guide Guide
Grade Employees Salary Percent Bonus
30 1 $600,000 23.75% $142,500

26 1 400,000 20.00 80,000

25 1 350,000 19.06 66,710
22 2 260,000 16.35 85,020
20 3 220,000 14.37 94,842

Total 8 $249,572

Table 7-35. Guideline bonus example, one division

In many instances, this type of divisional calculation is a preliminary rather than final step.
If there is a corporate formula that generates a total fund from which corporate and divi-
sional awards are to be made, then preliminary divisional calculations have to be summed and
related to the available pool on a proportionate basis, as shown in Table 7-36. In this example,
division A’s available pool has been reduced 4.8 percent, from $249,572 to $237,631, because
the total available for divisional awards is only $702,634 versus $737,938 projected (sum of the
preliminary awards). If the total available were higher than the aggregate preliminary awards,
then each divisional final bonus would be proportionately higher.

Preliminary Percent Total Final
Division
Amount Total Available Bonus
A $249,572 33.82 $702,634 $237,631
B 167,198 22.66 702,634 159,217
C 123,470 16.73 702,634 117,551

D 197,698 26.79 702,634 188,235
Total $737,938 100.00 $702,634

Table 7-36. Guideline bonus example, four divisions