I am currently working on our incentives for the first half.
In the sales department it breaks down like this. From January to June your incentive is based on your own sales. For example you get a goal and whatever percentage you go over that goal you get that percentage of your prorated salary.
So if you earn $50,000 a year and you got a goal of sales = $2,000,000 divided equally among months and you actually book $1,500,000 you booked 50% more than your goal. So your bonus would be $12,500. (50,000/2 X .50)
Remember you only get it on 1/2 year’s salary. And your 1/2 year goal is 1,000,000.
Now the second have is weighted on 50% what you booked TOTAL YEAR (not just the second half) and 50% of whatever we go over budget for the sales department.
[example if you book 2,500,000 and your goal was 2,000,000 you would get 50,000 (salary) times 50% times the weighted average of 50%]
So for the year you would have 50,000 X .50 X.50 = $12,500
THen if we went over budget [for example if we had total profit for the sales department of 120%] You would get that percentage times 50%. So in this case 20% times the 50% weight times 50,000 or $5,000.
So for the year you get 5,000 plus $12,500 for $13,000 minus what you were paid out for the first half which was $12,500 or just $5,000.
Now I just noticed in setting up the spreadsheet on our P&L the incentives paid out the first half are coming from the payroll of the sales department which was budgeted for ONLY the exact amount of the salaries. (In other words is there were 10 managers making $50,000 each the budget only has $500,000 in it.)
Now since managers get their entire salary whether or not they make their goal isn’t getting a big pay out in incentives in the first half actually hurting them in the second as it is pushing up the expense of the department and taking away from the revenues.
I asked the Sales Director about this and he said no because it was weighted. I figured out some figures I made up and it comes out them being penalized. But is it always a penatly or could they benefit from the weighted average.
Also couldn’t you easily wind up owing money if you did no work your second half.