About compensation plans [AX 2012]

Updated: October 18, 2012

Applies To: Microsoft Dynamics AX 2012 R3, Microsoft Dynamics AX 2012 R2, Microsoft Dynamics AX 2012 Feature Pack, Microsoft Dynamics AX 2012

You use compensation management to control the delivery of base pay and awards. You control an employee's fixed base pay and merit increases through fixed compensation plans. You control the payment of incentive pay, such as bonus payments, performance awards, stock options, and grants, and also one-time awards, through variable compensation plans.

Employees can be enrolled in one or more plans of both types. An employee must meet the following requirements in order to be eligible for enrollment in a compensation plan:

  • The employee must have an active position assignment.

  • The employee must meet the criteria that are defined by eligibility rules for a compensation plan.

The following table lists components of the compensation process that can be integral in setting up your company's compensation plans. For specific compensation tasks, see Key tasks: Compensation plans.


More information…

Fixed compensation actions

Fixed compensation actions have two purposes:

  • The fixed compensation action is mandatory information if you change the fixed compensation setup for an employee to increase or decrease the employee's base pay. For example, you might have to indicate that the reason or the change is for a promotion or a demotion.

  • The actions are applied to an event process when fixed compensation plans are calculated.

For more information, see Fixed compensation actions (form).


Levels are associated with jobs and any positions that are related to a job reference. You can create discrete levels for the three types of compensation plans: Grade, Band, and Step. For more information, see Levels (form).

Range utilization matrix

A range utilization matrix helps you transition employees to the control point for their jobs.

You can also use range utilization to control pay rate equity in the company without regard to an individual employee's performance or the overall performance of the company. For example, employees who are paid lower in their range get higher percentage increases than employees who are paid higher in the range. In this manner, you can systematically offset equity differences.

The range utilization is calculated as follows: (Fixed Pay Rate - Range Minimum) ÷ (Range Maximum - Range Minimum).

Reference point setups

A reference point setup includes a set of reference points that represent ranges in a matrix. Each range can be associated with a pay rate. For more information, see Reference point setups (form).

Compensation matrix

A compensation matrix is a set of reference points and levels that you use to create a compensation structure.

Compensation structure

A compensation structure is a compensation matrix that has ranges that are associated with pay rates.

Eligibility rules

Eligibility rules are used to identify employees in specific jobs, job functions, job types, departments, labor unions, or compensation regions that are covered by specific compensation plans. You can create eligibility rules for both variable and fixed compensation plans.

After eligibility rules are specified for a compensation plan, you can define the levels from the plan that should apply to the jobs that are covered by the plan.

Pay frequencies

Pay frequencies are used to define the frequency of employee payment. Pay frequencies are also used to set up conversion factors to convert compensation from monthly, weekly, biweekly and hourly pay frequencies to an annual pay frequency.

Compensation regions

Compensation regions are used to specify employee compensation based on the location of the workplace. For more information, see Compensation regions (form).

Control point

The control point is the ideal pay rate for all employees at a compensation level. For grade plan structures, control points are typically the midpoint of the ranges. Band structures rarely use control points. You can specify the control point for a fixed compensation plan in the Fixed compensation plans form. For more information, see Fixed compensation plans (form).

Job functions

Job functions can be classified and then combined with job types to filter compensation plans to specific jobs. For more information, see Job functions (form).

Job types

Job types can be classified and then combined with job functions to filter compensation plans to specific jobs. For more information, see Job types and exempt status (form).

Variable compensation types

Variable compensation types, such as stock awards or cash award bonuses, are set up in variable compensation plans. For more information, see Variable compensation types (form).

Compensation grids

Compensation grids can be set up if your company does not use Microsoft Dynamics AX to set up compensation plans. For more information, see Compensation grids (form).

Performance plans

Performance plans are used to associate performance with an allocation matrix, so that you can use the plan in a pay-for-performance strategy. For more information, see Performance plans (form).

Performance ratings

Performance ratings are used in compensation plans to determine the amount of a merit award or performance award. For more information, see Performance ratings (form).

A process event calculates compensation information for a specific period for all employees who are enrolled in one or more fixed or variable compensation plans. You can run a process event repeatedly to test or update calculated compensation results. When the calculations are correct, you can load the process event to update the compensation records for the employees who are affected by the process event.

After you run a process event, you can recommend adjustments to an employee’s merit increase or award amount, based on the calculated guidelines of the process event. To make recommendations for employees, you must enable recommendations when you set up compensation plans or when you set up the process event.

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