Total Compensation Strategy

Topics: Management, Salary, Executive compensation Pages: 7 (1114 words) Published: August 18, 2010
Total Compensation Strategy

Total Compensation Strategy

Managing Diversity

Nationally and internationally, companies are facing the task of reassessing the balance between their own identity and the force of integration. Centralism often makes access to new markets and regions difficult. Distinctive local autonomies, on the other hand, endanger the overall organization and identity of the company. Connected with this is the question of whether a unified and global compensation policy should exist, and how much room for maneuver local and regional entities and organizations should be given.

In heterogeneous corporate and company structures, in particular, there are no unified compensation strategies and structures. Systematic guidelines exist at most for the top management; in middle management levels, on the other hand, no corporation- or company-wide strategy is adhered to. For these management levels, a number of conflicting compensation strategies have often developed within the grown legal structures.

Human Resource Management


Total Compensation Strategy

Think Global, Act Local

The framework of the total compensation strategy: performance, results and market The development of a total compensation strategy creates and influences a collective culture, offers corporation- and company-wide shared rules and directives, advances the implementation of the business strategy and promotes performance and results orientation.

A total compensation strategy should take into account the following elements and orientation points:

» Fixing a value-based company management » Coupling with the long-term appreciation of the company’s value

» Market orientation for engaging qualified
executives and specialists

» Cost consciousness during conception and

» Taking local conditions into account

Strategy and Value Management

Commitment and Flexibility

Total Compensation Strategy

Motivation and Performance

Figure: Framework of a Total Compensation Strategy

Human Resource Management


Total Compensation Strategy

Structure Follows Strategy

The extent and structure of the compensation should be based, in terms of results, on the total compensation approach, and should take into account regional or local market conditions and the particular social and tax systems:

Compensation elements
Fringe benefits Rounding out the attractiveness of the (monetary) compensation package

Aligned to local practice and market requirements


Mid/long-term incentives Rewarding the medium-term appreciation of the company’s value

Integral element of the long-term total compensation / aligned to relevant comparison group / linking with growth

Short-term incentive Fluctuations depending on results and performance of the year (bonus depending on reaching goals)

Once the goal has been fully achieved, aligning to the mid to top range in the relevant market

Base salary Oriented to the internal quality rating, the strategic relevance and the value-added contribution of the position Figure: Total compensation approach

Harmonized with relevant markets (prevailing market practice)


In the results, the developed total compensation strategy fulfills, among other things, the following objectives from a company and managerial viewpoint:

Supporting the orientation of the business units

Positioning in the relevant market

Strengthen performance and results orientation

Variable compensation elements

Flexibility in adapting to changed business situations

Success- and results-dependent elements

Enable organizational change

Flexibility of the compensation elements

Promote motivation and loyalty

Price fairness and transparency

Engaging and retaining qualified executives and specialists
Figure: Development of a total compensation strategy

Flexibility and breadth of the salary bands...
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