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“In a World of Pay”

Characters of this Case

Typeware AG Ltd.
• Renate Schmidt– Head of HR Department.

• Anne Prevost – Director of Marketing, Xon Technologies.

( Person to be appointed)

• Jürgen Mehr –Typware’s European head of Marketing.

• Thomas – CEO of the firm.

• Rainer Barth – Contact at the consulting firm.

Typware is a German software giant which new strategy is to increase their international
revenues by 10%. In order to do that, they need professional to help increase their
international sales. Anne Prevost, who engineered a huge uptick in sales for a
company that has been making incursions into Typware's markets, is ready to
jump ship--provided Typware makes her a good offer. Jurgen Mehr, is irritated about
the salary demands of the American executive he wants to hire. She would be a brilliant
catch. But the salary she wants is nearly as much as Mehr's. Renate Schmidt is now in trouble
with this matter. She is in dilemma to take decision of making compensation package for
Anne Prevost.

Since 1996, Typware has ventured aggressively into international markets. The consultants
who helped negotiate compensation for overseas employees’ recommended variable
standards depending on the employee's location. Renate is concerned about their salary
system. But CEO Thomas noted that “Certain jobs are not ever going to follow the rules”. He
indicated jobs based on performance or intellectuality. He also told Renate to make a salary
and benefits recommendation which will be equitable for a German Typware employee &
Anne Prevost.

Now, after discussing with Rainer Barth her contact at the consulting firm she talked to Anne
to get answers of the questions of Rainer. Anne told about the benefits she expects and also
reminded that other good offers are also waiting for her. Once again Renate didn’t got any
easy solution to this matter. Now the question is-

“What kind of international Compensation should Typware offer?”

Facts we can depict from the following case-

• Typware’s strategy is to increase international revenues by 10%. In order to do that
they need specialist like Anne Prevost who is an employee of their rival company Xon
Technologies Ltd.

• Anne Prevost will be the first non German to work in the headquarters.

• The offer the candidate is asking is equal to the reporting officer Jürgen Mehr and
thus the dissatisfaction has cropped in from him.

• HR manager Renate Schmidt faces problem regarding the compensation plan fixation.
Dilemma of granting or approving such a high package.

• Candidate has categorically checked the figure in differences in tax rates, inflation,
benefits, floating currencies, and other options.

• Seistrand Systems ready to offer her the same package with stock options.

• Renate Schmidt – was in some pressure to work out the incentives and compensation
and recommendation to be drafted for the recruit.

• Pay was not rationalized at all, and Renate had noticed increasingly troublesome
salary and benefit disparities among the managerial ranks.

• Female and minority employees made less than their white male counterparts.

Now the question is should Typware hire Anne Prevost & even if they do what kind of
compensation they will offer?

There is no easy answer. It is actually depend on what type of strategy Typware will follow.
CEO Thomas has the perspective of “Pay what it takes to hire”. They need to develop a
compensation strategy that is aligned with its business strategy. As their current strategy is to
increase international revenues by 10% they should make this hiring happen. But they need to
be careful in making compensation policy.

Rationales behind this prospect-

• Hiring her is part of company’s present strategy
• She is the head behind the success of a rival company which lately been making
inroads into many of Typware’s worldwide markets.
• The candidate is herself interested
• It would be costly to have her go to a competitor.

Now we are going to make a recommendation of compensation policy that Typware may
follow in this cause-
├Base Pay (fixed as in for the last employee at the same position) 40 %┤
Incentive system (as per the business development that she will develop)
[20 % -on German scaling]

It will make sure that the 10 % if targets meet on average

Additional expenses for Anne 15 % if targets meet
Is justified. 20 % if target goes above
├ Rest 40 % will be a package pay for international work force ┤

Standard of living incentive (if a mismatch with base country)

Education incentive and other incentives
Special allowances for direct dependents in the home.
Additional incentives for cost- of- living and package balance.
Medical insurance from the company + gratuity and other pension plans.
Children educational loans and other fringe benefits can be included.

Renate can calculate base pay and bonuses from surveys of leading multinationals either
regionally or worldwide, rather than basing them on domestic or home country standards. As
Seistrand Systems offering her stock option, Typware needs to think about issuing stock
options or some other form of equity compensation, like restricted stock units. With this
promise, Typware may be able to offer Anne a slightly lower salary. Given the level of
dissatisfaction in the ranks, distribution of stock options would probably go a long way
toward soothing any resentment. Finally, Renate also do some issues to care about-

• Making sure that these changes are communicated to all the employees that they are
specific plans for the people coming from other countries to Germany.
• Job evaluation of executives.
• She needs to know more about Anne’s package at Xon Technologies. What is her
base salary; what is her bonus; what are the stock option conditions? Which
components are guaranteed or fixed, and which are variable and performance based?