Pay for Performance

Variable Pay

We at Dr. Reddy’s have a robust variable pay program that ties up company, business unit and individual performance to compute the annual variable pay for employees.

To confirm if this policy is applicable to you, refer to your salary structure in your appointment letter / last pay revision letter and look for components mentioned as “Variable Pay” or “Performance Bonus”.

Quick Seven

Here are 7 things you need to know about the plan:

• The payout is done annually, after declaration of the company results. This typically happens in the first quarter of the succeeding financial year.
• To be eligible for the payout, you need to be an active employee of the company on the last working day of the financial year.
• Employees who are part of sales incentive or any other permanent incentive plans are not eligible for variable pay.
• Company Performance drives the overall variable pay calculation and is applicable to all employees.
• Variable pay is computed on pro-ration (at day level) to fairly reflects employee’s contribution in case of mid-year joining, having leave without pays etc. Existing and revised target variable will be considered on proration in case of change in the salary mid-year.
• Employees within identified cohort have a steeper risk-reward equation compared to other roles.
• Normalization is done separately for identified cohort & other roles to manage budget due to skewed performance rating distribution for every MC organization.

How is my BU determined?

BU is determined based on cost center of the employee. Daily residency of each employee is captured on HRMS, and the cumulative residency is calculated at the year end. Final BU is determined based on where employee spent the most amount of time in the year.

Employees are tagged to the BU cost center in general with following conditions:

Example I: Employee A in GMO is working for Plant X and Plant Y or Plan Z, GMO to be used as the BU score.

Example II: Employee A in GG EM is working for Country X, scores of country X will be used as the BU score. However, if an employee is linked to Country X and Country Y, GG EM score is used as the BU score. 

Example III: Employee B in HR is serving Country P and Country Q within GG EM, score of GG EM will be used. 

Example IV: Employee F in GGI is also supporting GG EM, variable pay will be based on the BU mapped to their cost center. 

Example V: Employee G spends time in multiple BU and Functions in a FY as follows. Based on the following residency report generated by HRMS, Variable pay will be calculated basis IPDO scorecard.

Computation

Applicable Formula

𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑃𝑎𝑦𝑜𝑢𝑡 = 𝐶𝑜𝑚𝑝𝑎𝑛𝑦 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 × {( 𝐵𝑈 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 × 𝑊𝑒𝑖𝑔ℎ𝑡𝑎𝑔𝑒1 ) + ( 𝐼𝑛𝑑𝑖𝑣𝑖𝑑𝑢𝑎𝑙 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 × 𝑊𝑒𝑖𝑔ℎ𝑡𝑎𝑔𝑒2 )} × 𝑀𝑜𝑑𝑖𝑓𝑒r

Note: Modifier is determined by skewness in the performance rating distribution within an MC organization separately for identified cohort and other roles. Moderation factor is calculated and applied at role category and MC organization level.

Target Variable Pay

Variable pay is computed on pro-ration to fairly reflects employee’s contribution in case of mid-year joining, having leave without pays etc. Target variable pay is defined as product of variable pay at 100% target and pro-ration factor and all variables pay computations are done on this component. For USA and Canada, employees’ earnings are considered equivalent to target variable pay for the purpose of variable pay computation.

Please note that Pro-ration factor will be applicable separately on current and revised target variable pay in case of change in the salary mid-year.

Example – If an employee had a role movement which results in change to his target total compensation effective 1st September, proration would be applied as follows for the calculation of variable pay: 

Pro-ration of ~0.42 would be applicable on target variable pay of INR 50,000 and a Pro-ration of ~0.58 would be applicable on target variable pay of INR 55,000 to compute the annual variable pay for the employee

Operating Guidelines

• Overall payout is capped at 300% of target. 
• Bottom Performers (individual performance factor of 0), as evaluated in performance process, will not receive variable pay even if company/BU scores are > 80. 
• For employees receiving individual performance factor less than 1 payout would be capped @ 100%. 
• If company performance is < 100; maximum payout for anyone would be restricted to 125%. 
• In case of mid-year transfers, BU where employee has spent more than 6 months would be applicable for the entire year. 
• Variable pay for campus trainees will be made at successful completion of their training period. Post their confirmation, their variable pay will be computed at par with any other employee.

Key Terms