The compensation policy of every business needs to strike the right balance between performance, cost effectiveness, attractiveness and fairness. PwC advises companies in the evaluation and design of compensation systems.
PwC uses the STRATA methodology, an internationally proven tool that is well established in the market, to uniformly evaluate the various functions of a company and thereby create a basis for its compensation structure. Appropriate basic pay systems and performance-based or competence-based variable compensation instruments can be established based on this structure. Employee benefits can also be linked to such a grading structure, such as in case of company cars, which should be offered according to consistent rules.
Variable compensation instruments can motivate executives and employees to work towards business goals. Thus, these instruments contribute to the achievement of a company’s operational and strategic objectives. At the same time such models allow for a portion of personnel costs to be structured variably depending on performance.
However, bonus or profit-sharing systems can only have an effect if the relevant performance parameters are consistently aligned to business objectives to ensure employees are motivated. The same applies to Long Term Incentives. PwC experts help companies to develop and introduce variable compensation systems that are tailored to the specific needs of their organisations. In addition to this, they ensure that legal and tax requirements are met and model the compensation expense for various scenarios.
“Sustainability” is no longer just a buzzword, it is increasingly also a consideration in HR policy instruments. In the wake of the financial crisis, parameters for sustainable compensation were written into laws and corporate governance guidelines both in Germany and globally. In Germany, cross-industry regulations for executive compensation have been enacted through the German Appropriateness of Management Board Remuneration Act (Gesetz zur Angemessenheit der Vorstandsvergütung, VorstAG) and through changes to the German Corporate Governance Code. Financial services organisations, in particular, are subject to a variety of regulations. PwC supports companies with the implementation of these requirements with design recommendations and expert opinions by also taking external benchmarks into account.
These regulatory requirements interpret sustainability to mean long-term compensation reflecting not just the company’s success in a given year but performance over a longer period. Companies are increasingly recognising the need to establish a broader understanding of sustainability, especially when it comes to executive compensation. Corporate identity, business needs and the battle for business critical staff have all led companies to rethink their corporate responsibility strategies and to reward their implementation through compensation.
Employee participation plans have existed in Germany and many other countries for decades. Whether in the form of profit-sharing or by giving employees a stake in the company via shares, these instruments serve primarily to promote employee retention. Without a doubt, employee participation plans have also become a successful tool for long-term wealth creation. But it is not only large corporations that can take advantage of employee shares as a tool for achieving these goals. There are also a number of ways in which small businesses can give employees a stake in the growth of the company, and in a way which is optimized from a financial and tax perspective.
PwC experts develop a solution that is tailored to the respective companies and assist with all aspects of implementation, such as clearance notices or the drafting of plan rules. For global companies that want to give their employees abroad a stake, PwC’s experts carry out the tax and legal due diligence.
Employee benefits have their rightful place within total compensation. In times of demographic change, occupational pensions are of particular importance. Many employee benefits also offer the opportunity to optimise personnel costs as in-kind benefits instead of cash payments while – as in the case of child-care costs – also meeting the needs of employees.
PwC helps companies to manage the interplay of HR policy and income tax issues. PwC’s experts work with companies to develop optimised solutions, making sure to take into account administrative considerations. The team surveys the variety of employee benefits through benefit audits – if needed, worldwide – to help the company gain an overview of the scope and competitiveness of a benefits landscape that often developed out of historical necessity. On this basis, it can be determined where adjustment is needed and what the starting points are for improved communication of the package of employee benefits.
Head of People & Organisation
Tel: +49 211 981-7680