Two versions can only be compared when the same roles are in scope in both. When roles move between units, part of the difference you see is a change of scope, not a change in cost.
Module 0 · Start here
Every decision you take about people is a cost decision
A hire, a promotion, an exit or a pay increase changes the cost of your team for this year and for every year after it. This course shows you how that cost is built, how Finance and P&C follow it through the budget rounds, and what to check before you ask for a change.
Time needed50 min9 short modules, at your own pace
You will use7 simulatorsMove the sliders, the numbers update
At the endQuiz12 questions to check what you learned
Meet Team Encore
Our example is an R&D team in the UAE. We chose R&D so that no function sees its own team in it. The names are pop stars so nobody confuses them with a real person. All salaries are illustrative, monthly, in USD.
About the numbers. The cost lines and their groups follow the real manpower extract (the same GL columns Finance uses). Rates, bands, the merit matrix and the growth cap in this course are examples for learning. For the real values of your cycle, check the budget letter and your People Partner.
Module 1 · What a person really costs
The payslip is only the top of the iceberg
A team member sees basic salary and allowances. The company also pays the bonus provision, end-of-service gratuity, leave, medical insurance and training. Pick a team member or move the salary to see the full monthly and yearly cost.
What the team member sees · payslip
Cost / monthTotal Finance view
Cost / year
FixedVariableOther salary elementsNon-payroll
The full cost, line by line
Column names are the ones in the manpower extract, so you will recognise them in any Finance report.
Rule of thumb. In this example every $1 of basic salary costs the company about a month. When someone says "it's only $300 more on the basic", the real cost is close to double that, every month, for as long as the person stays.
Module 2 · The four cost groups
Fixed, variable, provisions and non-payroll
Finance groups every GL line in four groups. Knowing the group tells you what moves the cost and when the money actually leaves the company.
Total Fix
Basic, housing, transport, ticket and other allowances. Paid every month. Grows with every increase and every promotion.
Total Variables
Bonus (objective, AIP, LTIP), commission, incentives. Provisioned every month, paid once the result is known.
Other salary elements
Gratuity (end of service), leave, pension, school, relocation. Mostly provisions: the cost is booked today, the cash goes later.
Non-payroll
Medical and life insurance, workmen compensation, training, notice period, goodwill. Not on the payslip, still in your cost.
Two totals you will hear about
Total Manpower
Fixed + Variables + Other salary elements
Total Finance
Total Manpower + Non-payroll − Notice period − Goodwill − Non-budgeted. This is the number your team is managed against.
Why provisions matter
Michael Jackson's bonus target is 20% of his annual basic. The company books 1/12 of it every month (the provision). The cash goes out once, after the year ends. Your budget carries the provision, not the cash.
Booked each month (provision)Cash paid
The end-of-service gratuity works the same way
Every month you carry a provision for the gratuity the person will receive when they leave. If the person stays ten years, the provision builds up for ten years. When they leave, the cash payment uses what was already provisioned. If the provision is short (for example after a big promotion late in the career), the gap hits your cost in the month of exit.
Hidden effect of a promotion: gratuity is calculated on basic salary. A higher basic increases the provision for every past year of service, not only for the future. Finance books this "true-up" in one month, and it can surprise you.
Practice: put each line in its group
Click the group you think is right. Green means correct.
Glossary: all GL lines in the manpower extract
Module 3 · Annual impact
A late hire looks cheap this year and costs the full year next year
A decision costs only the months left in the year it starts. Next year it costs all twelve. The same works in reverse: an exit late in the year saves almost nothing now.
This yearNext year
Impact this year
Impact next year12 months, before any increase
Next year vs this yearhow much bigger the impact gets
Monthly view vs annual view
A monthly report shows whether this month is on budget. It does not show what you have already committed for next year. A hire in October adds three months this year and twelve next year, which is four times the impact.
We control on the year, over time
The budget is an annual envelope. An overspend from January to June cannot be recovered with a late exit, because the exit saves only the remaining months. Each decision has to fit the full-year view of this year and the run-rate it leaves for next year.
Module 4 · The budget cycle
R0, R1, R2: the same year, seen three times
Each round replaces the months that have closed with actuals and re-forecasts the rest. The year total is the number we control.
Oct–Nov, year beforeR0 · BudgetThe original plan for the year. 12 months of forecast. Built from the landing, the growth cap and the decisions you approve.
After MarchR13 months actual + 9 months re-forecast.
After SeptemberR29 months actual + 3 months re-forecast. Becomes the landing for next year's R0.
After DecemberActual12 months closed. Compared with R0 to see how well we planned.
Team Encore this year, by version
Actual monthForecast monthR0 budget line
Year total
vs R0the annual control
December costexit month of the year
Run-rate (Dec × 12)
What happened in Team Encore this year
| When | Event | In R0? | Effect |
|---|---|---|---|
| April | Annual salary increase, 3% (example) | Yes | Planned. All months from April go up. |
| July | Lady Gaga joins as Senior Researcher (planned for April) | Yes, from April | 3 months saved this year, because she joined late. Full cost next year. |
| September | Gratuity provision true-up, one-off | No | Hits the year, but is not part of the run-rate. |
| October | Justin Bieber hired (not in budget) | No | Only 3 months this year. 12 months next year. |
| October (end) | Rihanna resigns. Manager wants to backfill. | Yes, all year | 2 months saved this year. A backfill puts the cost back. |
Key words
Landing · Where the year will finish, according to the latest round (R2 for this year). In the extract, headcount is the December landing.
Run-rate · What the team costs per month at the end of the year, times 12. One-offs are taken out. It is the real starting point for next year.
Growth cap · The maximum increase allowed on the landing for next year's R0, set in the budget letter. We use +3% as an example.
Committed cost · What next year costs before any new decision: the run-rate plus salary inflation plus the bonus provision at 100%.
Like-for-like · A comparison with the same roles in scope in both versions. See Module 5.
Restated baseline · The baseline adjusted for roles that moved in or out, so only real cost changes are left.
Module 5 · Build next year's R0
You are Team Encore's manager. Fit your plan inside the cap.
This is how we build R0. We start from this year's landing, clean it to a run-rate, add what is already committed, then add the decisions. Every dollar sits in one step, and the bridge must add back to the R0 total with $0 difference. Read it from left to right: navy bars are totals, red bars add cost, green bars reduce it. The brackets on top show the % change between two bars.
Scope change
Metric
Decisions for next year
Tick the decisions you want in R0. Each shows its cost next year and its full-year cost (what it adds to the year after).
Bridge: landing to your R0
TotalAdds costReduces costCapSwipe sideways to see the full bridge.
Like-for-like: compare the same scope
How we restate the baseline
List the roles that moved. Who, from which unit to which unit, from which month.
Restate the baseline. Add the cost of those roles in the baseline version, for the same months, taken from the old unit's version. A transfer out is taken off. It is its own bar ("Additional scope"), and the as-reported figure stays visible.
Build the bridge on the restated baseline. If the roles cost something different after they move (annualisation, salary increase), that goes in its own bar ("HC transfers: change"), never inside the other drivers.
Report two % changes. One as reported and one like-for-like. The growth cap is measured like-for-like, so a role we only received does not use the cap of a role we hired.
Watch-outs. Restate with the same months in both versions: a full-year figure against a part-year cost creates a false saving. A role that was ended in the old unit and restarted in the new one is new cost for the Company, even if it appears as a transfer. Name the roles behind every transfer, and check that the bridge still adds back to $0.
1 · Landing → run-rate
Take out what will not repeat: one-offs and leavers. Put in what will be there all year: joiners and this year's increase for 12 months.
2 · Run-rate → committed
Add what is already decided by policy: the salary increase from its date, bonus provision at 100%, budgets restored to policy.
3 · Committed → R0
Add each decision as one line from its start month: new roles, replacement hires, promotions, one-offs, savings.
What to notice. Before you take any decision, the run-rate and the salary increase already use the cap. The joiners late this year (Lady Gaga, Justin Bieber) are the reason. Next year's room is decided by what you do this year.
Module 6 · Compensation refresher
Every grade has a band. Where you sit in it matters.
A pay band runs from a minimum to a maximum for the level. Position in range (RPR) shows where a salary sits: (salary − minimum) ÷ (maximum − minimum). Q1 to Q4 are 25-point steps; above 100% is Over max. This is the same language as the Compensation Cycle Hub.
Position
Position in range (RPR)(salary − min) ÷ (max − min)
Room to the maximumspace for growth in the same grade
| Position | What it usually means | How the cycle treats it |
|---|---|---|
| Q1 0–25% | New to the level. Learning the role. Limited experience at this level, or newly promoted into it. | Highest merit %, to move them toward the midpoint |
| Q2 25–50% | Experienced. Doing the job independently. Three to five years, or arrived with a track record. | Standard merit % |
| Q3 50–75% | Expert. The reference point for others at this level. Deep in the craft. | Lower merit %. The next step is a bigger role, not more pay here |
| Q4 75–100% | Master. Sets the standard. Already paid like the entry of the next level. | Small merit %. Promotion or a one-off is the fair route |
| Over max above 100% | Above the band. Paid beyond what the level is worth, usually from history or a red-circle. | No base increase. One-off payment, or re-evaluate the role |
Why position matters more than it looks. Bands overlap between levels on purpose. Someone in Q3 or Q4 is already paid like the level above, so promoting them costs little. Someone in Q1 has to travel all the way to the next band's minimum, so the same promotion can cost 20–30% or more. That is why we grow people to Q3 first.
The merit matrix
The yearly increase depends on performance and on position in range. A strong performer in Q1 gets the largest increase, so they move up the band fast. Values are the default matrix of the Compensation Cycle Hub; each cycle sets its own. Pick a rating and a position.
Team Encore on the P2 band
Taylor Swift is new to the level (Q1). Justin Bieber is Experienced (Q2). Ariana Grande and Adam Levine are Experts (Q3): they are the ones closest to a bigger role. Before anyone asks to promote Taylor to P3, she should grow inside P2.
Module 7 · Promotions
A promotion is a bigger job, not a reward
Ed Sheeran is a Junior Developer, P1, Q1, and an excellent performer. His manager wants to promote him every year. Compare that with growing him inside the band first and promoting him when a bigger role exists.
Plan four years for Ed
For each year choose Merit (increase from the matrix, same grade) or Promote (one grade up: +10% or the new band minimum, whichever is higher). Rating: Exceptional Performance every year, merit from the Compensation Cycle Hub matrix.
4-year cost, your planTotal Finance view
4-year cost, grow in rolemerit only, same grade
Extra cost of your plan
Other costs that come with it
Is it really a bigger job?
Tick what is true for the new role. A promotion needs the job to grow, not only the person.
Why "promote every year" hurts the person too. Each promotion lands Ed at the minimum of a new band, so he is always in Q1. He never becomes fully proficient in any role, and a year later the next manager asks for a "market adjustment" because he is "underpaid in the band". The cost keeps growing, and the job has not changed.
Module 8 · Organisation health
Every layer and every manager has a cost
The way a team is organised changes its cost and how fast it works. Too many layers slow decisions. Managers with two reports cost a manager's salary for little management. We follow the health of each organisation with a small set of KPIs.
Try a change in Team Encore
Each option is a request managers often make. Pick one and see the organisation, the KPIs and the yearly cost change.
Chart in the Organisation template format: one colour per layer (N to N-8), same-size boxes, grade and layer inside each box, no connector lines. Each group shows who the boxes report to. The top of Team Encore is N-3 in this example.
Yearly cost of this changeTotal Finance view, full year
Headcount
People managerspeople with at least one direct report
The KPIs and what they tell you
| KPI | How it is calculated | Example threshold | Why it matters |
|---|---|---|---|
| Layers | Number of levels from the head of the unit to the lowest level | 3 or fewer | Each layer adds a manager and slows decisions. |
| Average span of control | Direct reports ÷ people managers | 6 or more | Narrow spans mean many managers for few people. |
| Narrow spans | Managers with fewer than 3 direct reports | None | A manager of 1 or 2 is usually a senior expert with a title. |
| Leadership ratio | People managers ÷ headcount | 15% or less | Shows how much of the team is spent on managing. |
| Senior individual contributors | P3 and above with no reports ÷ all individual contributors | 30% or less | Too many senior experts can mean grade creep. |
| Level-on-level | People on the same level as their manager (P3 = M1, P4 = M2) | None | The manager role is not bigger than the role it manages. |
Thresholds here are examples for learning. Our framework sets the real thresholds by type of organisation, and also tracks band-on-band. Your People Partner has the values for your unit.
Module 9 · Practice
Three real situations, then the quiz
Quiz
Seven rules to remember
Think in years, not months. Every decision has an in-year cost and a full-year cost. Check both.
The real cost is about 1.7–2× the basic. Allowances, bonus provision, gratuity, leave, medical and training all follow the person.
Provisions are real money. If it is not on the payslip, it is still in your budget.
Your December run-rate is next year's starting point. Late hires and in-place promotions use next year's cap before it starts.
Grow people in the band first. Move strong performers from Q1 to Q3 with merit. Promote when a bigger role exists.
A promotion is a new job. More scope, more decisions, more accountability. Same job with a new title is grade creep.
Every layer and every manager has a cost. Check spans, layers and level-on-level before you create a "Lead" or a new head role.
Illustrative training material. Names are fictional examples. Cost lines and groups follow the structure of the manpower extract. Rates, bands, the merit matrix and the growth cap are examples; your People Partner and the budget letter hold the values for your cycle.