‘Targeted percentage rate with growth targets’ mechanism

Description

A mechanism where the earnings are a percentage of turnover, but the size of this percentage depends on the level of turnover growth achieved.

For this plug-in, growth relative to baseline can be expressed as a number of units, as an amount of money, as a percentage that is calculated using turnover units, or as a percentage that is calculated using turnover value.

Example

A deal for which the earnings are 4% of turnover if turnover growth is less than £500,000, 6% of turnover if turnover growth is greater than or equal to £500,000 but less than £750,000, or 8% of turnover if turnover growth is greater than or equal to £750,000.

Configuration approach

You will be required to:

• Select a growth target type, from a choice of Value, Units, % by value or % by units.

• Configure one or more turnover bands, with a turnover target and a percentage rate for each (where the turnover target reflects the user’s selection for growth target type and the rate is always a percentage rate), as illustrated below for a deal where the growth target type is % by value:

• Select one or more items for each dimension that has been configured for you as included items for the deal.

• Enter baseline figures for turnover value and turnover units.

Enable selects matching turnover lines for the deal, based on:

• The trading partner to which the deal belongs.

• Your dimension item selections.

• The start and end date of the deal.

• The currency of the parent scheme.

To calculate an earnings result for the deal as a whole, Enable will use whichever of the following is appropriate given your growth target type selection to determine which turnover band, and therefore which earnings amount, applies:

• The difference between the total for turnover value across the matching turnover lines and your entry for turnover value if the growth target type selection is Value.

• The difference between the total for turnover units across the matching turnover lines and your entry for turnover units if the growth target type selection is Units.

• The ratio of the total for turnover value across the matching turnover lines to your entry for turnover value if the growth target type selection is % by value.

• The ratio of the total for turnover units across the matching turnover lines your entry for turnover units if the growth target type selection is % by units.

To calculate an earnings result for each matching turnover line, Enable will multiply the percentage rate that applies to the deal as a whole by the entry for turnover value that applies to the turnover line.

Optional settings

You will be able (but not required) to use the ‘Mechanism details’ area of the deal configuration page to:

• Tick the Retrospective? tick box (which will result in an unticked Fully retrospective? tick box to appear automatically).

• Tick the Fully retrospective? tick box when Retrospective? is also ticked.

• Tick the Separate target and earning turnover? tick box.

• Enter a value in the Discount % box.

• Select one or more deals as deduction deals.

Fully Retrospective vs Retrospective vs Non-Retrospective

For a deal that uses the Targeted percentage rate with growth targets plug-in, both the Retrospective? and Fully retrospective? boxes are ticked by default. When both of these boxes are ticked, the earnings will be calculated with the achieved rate applied retrospectively, or ‘back to zero’.

If the Fully retrospective? box is unticked, Enable will instead:

• Perform a partially retrospective calculation that involves applying the achieved rate ‘back to baseline’ rather than ‘back to zero’ if the Retrospective? box is ticked.

• Perform a non-retrospective calculation that involves applying each of the achieved rates to the turnover that ‘belongs’ to the corresponding turnover band if the Retrospective? box is unticked.

Consider for example a deal that has a growth target type of ‘% by value’ with turnover bands as follows:

If for the above deal the total for included turnover is £2,350,000 and the baseline value is £2,000,000 (such that the % growth by value is 2,350,000 / 2,000,000, or 117.5%), Enable will calculate the earnings as:

• 3% x £2,350,000 = £70,500 if the Fully retrospective? box is ticked.

• 3% x (£2,350,000 - £2,000,000) = £10,500 if the Fully retrospective? box is not ticked but the Retrospective? box is ticked.

• 2% x £2,000,000 x (115% - 110%) + 3% x £2,000,000 x (117.5% - 115%) = £3,500 if the Fully retrospective? and Retrospective? boxes are both unticked.

The above example shows how the deal level result for earnings would be calculated for a partially retrospective or non-retrospective deal that uses the Targeted percentage rate with growth targets plug-in. To calculate an earnings result for each of the included turnover lines for such a deal, Enable will use:

• The entries for turnover value from the matching turnover lines to apportion the deal level result for earnings and derive an earnings result for each of the matching turnover lines if the growth target type is Value or % by value.

• The entries for turnover units from the matching turnover lines to apportion the deal level result for earnings and derive an earnings result for each of the matching turnover lines if the growth target type is Units or % by units.

Separate target and earning turnover?

For a deal that uses the Targeted percentage rate with growth targets plug-in, the Separate target and earning turnover? tick box is unticked by default.

When the Separate target and earning turnover? box is unticked:

• You will be required to configure a single set of dimension items as included items for the deal, where the set of included items contains at least one item for each dimension that has been configured for you.

• Enable will:

  • Use the set of included dimension items, in conjunction with the start and end dates of the deal and the currency of the parent scheme, to select a single set of matching turnover lines for the deal;

  • Use the set of matching turnover lines, in conjunction with the turnover bands that have been configured for the deal, to calculate the earnings.

When the Separate target and earning turnover? box is ticked:

• You will be required to configure two sets of dimension items — one for target turnover and one for earning turnover — where each set of included items contains at least one item for each dimension that has been configured for you.

• Enable will:

  • Use the two sets of included dimension items, in conjunction with the start and end dates of the deal and the currency of the parent scheme, to select two sets of matching turnover lines for the deal — one for target turnover and one for earning turnover;

  • Use the target turnover lines to determine which turnover band, and therefore which percentage rate, applies to the deal;

  • Use the earning turnover lines to calculate the earnings for the deal;

  • Assign earnings to all of the earning turnover lines and none of the target turnover lines.

Discount %

For a deal that uses the Targeted percentage rate with growth targets plug-in, the discount percentage is set to null by default to indicate that there is no (i.e. zero%) discount percentage.

You will have the option of taking no action to accept the default null value for Discount % or typing a numeric value (to a maximum of 3 decimal places) to specify a discount percentage.

Please note — you should enter the percentage value, e.g. 2.5 as opposed to 0.025 for a 2.5% discount.

The expected scenario is one where a user enters a positive percentage (e.g. 2.5) to reduce the qualifying turnover, although the user may enter a negative percentage to inflate the relevant turnover. You will not be allowed to enter a percentage that is greater than 100% or less than -100%.

When a non-zero value is entered into the Discount % box a Discount deducted from setting becomes visible.

For a deal that uses the Targeted percentage rate with growth targets plug-in, both of the following influence how the Discount deducted from setting operates (and this in turn determines how the discount percentage is applied):

• Which option has been selected for the growth target type setting.

• Whether the Separate target and earning turnover? box is ticked.

If the growth target type is Units or % by units:

• The Discount deducted from entry is set to (and fixed as) Earning turnover, regardless of whether the Separate target and earning turnover? box is ticked.

• Enable will:

  • Use a deal level total for turnover units that has not been adjusted for the discount percentage to determine which turnover band, and therefore which percentage rate, applies;

  • Use turnover that is net of the discount percentage when applying a percentage rate to calculate the earnings (for the deal as a whole or for the included turnover lines).

If the growth target type is Value or % by value and the Separate target and earning turnover? box is unticked:

• The Discount deducted from entry is set to (and fixed as) Target and earning turnover.

• Enable will use turnover that is net of the discount percentage both to determine which turnover band applies and to calculate the earnings.

If the growth target type is Value or % by value and the Separate target and earning turnover? box is ticked:

• The Discount deducted from field will allow you to select from options of:

  • Target and earning turnover (the default);

  • Target turnover;

  • Earning turnover.

• Enable will apply the discount percentage to:

  • Both target and earning turnover if your Discount deducted from selection is Target and earning turnover;

  • Target turnover only if your Discount deducted from selection is Target turnover;

  • Earning turnover only if your Discount deducted from selection is Earning turnover.

Deductions

When using the Targeted percentage rate with growth targets plug-in, no deals will be selected for the Deductions setting by default.

You will have the option of taking no action to accept this default selection or selecting from a list of the deals that have been configured for the parent scheme.

If you accept the default option, Enable will calculate both turnover and earnings for the ‘deduct from’ deal in the normal way without referring to the earnings from any other deals.

For a deal that uses the Targeted percentage rate with growth targets plug-in, both of the following influence how the Deductions setting operates:

• Which option has been selected for the growth target type setting.

• Whether the Separate target and earning turnover? box is ticked.

If the growth target type is Units or % by units and one or more deals have been selected for the Deductions setting, Enable will:

• Sum the total deal earnings across the selected deduction deals to derive a grand total for deducted earnings.

• Calculate the total for turnover value across the included turnover lines for the ‘deduct from’ deal (for earning turnover specifically if the deal has separate target and earning turnover) and subtracts the grand total for deducted earnings from this total to derive an adjusted turnover total for the deal.

• Use data on turnover units that have not been adjusted for the deducted earnings to determine which turnover band applies.

• Use data on turnover value that have been adjusted for the deducted earnings to calculate the earnings.

If the growth target type is Value or % by value and the Separate target and earning turnover? box is not ticked, Enable will use turnover that is net of the deducted earnings both to determine which turnover band applies and to calculate the earnings.

If the growth target type is Value or % by value and the Separate target and earning turnover? box is ticked, a Deduct earnings from setting will be displayed.

When the Deduct earnings from setting is available:

• You will be required to select from options of:

  • Target turnover;

  • Earning turnover;

  • Target and earning turnover.

• Enable will deduct the earnings from the deduction deal(s) from:

  • Both target and earning turnover if your Deducted earnings from selection is Target and earning turnover;

  • Target turnover only if your Deducted earnings from selection is Target turnover;

  • Earning turnover only if your Deducted earnings from selection is Earning turnover.

For a deal where one or more deals have been selected for the Deductions setting and a non-zero discount percentage has been entered, the discount percentage is applied first. That is, the relevant percentage discounts are applied before the earnings from the deductions deal(s) are subtracted.