Purpose

The interpolation calculator allows compensation designers to perform interpolation operations for blended variable pay calculations based on established goals and actual results. Most organizations define a set of three performance levels—generally identified as "threshold," "target," and "stretch"—to establish the eligibility of employees to receive a short-term incentive payout or a long-term incentive grant. The payout or grant is obtained by comparing the actual organizational results to the three performance levels.

Considering actual results are continuous data—i.e., a range of potential values—most organizations give partial credit if actual results fall between threshold and target performance levels. Conversely, additional credit is given to participants if actual results fall between target and “stretch” performance levels. Organizations use a mathematical method called interpolation to accomplish this and determine an unknown value of a given function by using two known values at other points. While spreadsheet editors include interpolation formulas in their mathematical catalog, the Excel tool template provided as a downloadable can help build a performance-driven incentive scorecard.

How to use this tool