This is how companies will sharpen their total rewards strategies in 2026

Comp & Ben management is currently confronted with high demands: transformation, restructuring and staff reductions are on the agenda in many companies. The measures should be designed to be as socially acceptable as possible, but economically sensible and future-oriented. At the same time, this year’s salary increases will be lower in many areas than in 2025, and employers will have to redistribute existing budgets and use them more specifically.

The compensation experts described these developments at the human resources round table. Another trend is also emerging: remuneration should once again be based more on individual performance – be it in the form of a fixed salary or as a bonus.

The EU Pay Transparency Directive (ETRL) in practice

At the same time, the implementation of the EU Pay Transparency Directive (ETRL) is getting closer. Experts consider June 7, 2026 as the date for the planned entry into force to be unrealistic. One would be satisfied if a draft bill was available in Germany by the summer break. Because companies are waiting for clarity: They often have established compensation structures and are unsure what specific effects the new legal requirements will have on their systems.

“Despite the economic situation, there has so far been little evidence of companies completely withdrawing existing benefits or reducing compensation components.”

Dr. Martin Hörtz, Partner, Görg partnership of lawyers

In the context of the ETRL, employers and consultants are concerned with how a performance-based compensation system can be implemented. In principle, the ETRL allows performance-related pay as long as it is based on objective and non-discriminatory criteria. Statistical models for calculating the adjusted gender pay gap take structural factors into account – such as professional experience, position or working hours – but the question remains: How can the skills, performance and workload criteria permitted in the ETRL be measured, evaluated and integrated into job architectures and gradings?

Modern IT systems can support companies in this, but clear organizational structures and, for example, a performance management system with standardized performance assessments are required. Instruments such as merit metrics can help to link employee performance with the development of base salaries or variable compensation components.

Performance-based compensation: implementation, measurement and communication

At the same time, the introduction of performance-based compensation also means a cultural change within the organization: employees are used to salary increases occurring regularly and relatively evenly. If, instead, a greater differentiation is made based on performance, this can initially be met with resistance within the company, according to the experience of compensation specialists. Therefore, a performance system not only requires clear rules and transparent communication, but also persuasion within the organization. Instruments such as spontaneous recognition, project bonuses and team bonuses are becoming increasingly important.

“We need a clear approach to dealing with outliers in cohorts of equivalent work as well as a certain amount of leeway.”

Holger Jahn, Executive Director, Compensation & Performance Management, Kienbaum Consultants International

Benefits and company pension schemes: incentives, benefits and employer attractiveness

Companies critically examine which additional services are actually used and what contribution they make to being an employer. One or two benefits can be canceled. But definitely not the company pension scheme (bAV). The compensation specialists confirm that the company pension scheme is becoming increasingly important not only in the collective bargaining sector, but also at top management level.

At the same time, it is clear that many employees do not recognize the long-term importance of the company pension scheme. Therefore, it should be defined as a non-negotiable benefit. Because employers are acting proactively in the interests of their employees by offering company pension schemes, they would be fulfilling their caring responsibility. Additional incentives for the company pension plan are also being discussed – such as bonuses for deferred compensation or the possibility of contributing overtime to the company pension plan.

Another aspect discussed: Benefits should be in line with operational requirements. Although models such as time value accounts or partial retirement create flexibility, they also cause capacity problems when those with know-how suddenly “disappear” – i.e.: retire. Given the shortage of skilled workers, this is a business risk. To counteract this, some employers offer targeted incentives, such as bonuses for returning earlier from parental leave, in order to retain knowledge in the company and at the same time reduce recruitment costs.

“Managers must be enabled to conduct a continuous development dialogue with employees in order to ultimately decide – also supported by IT tools – whether and how a bonus can be awarded.”

Dr. Björn Hinderlich, Partner, Mercer Germany

IT, data quality and AI: The basis for effective compensation systems

In order for artificial intelligence (AI) to be effective, it needs a solid foundation of clean data, clear system structures and functioning interfaces. In practice, appealing AI front ends are often common, for example in chatbots or content tools, but the actual value creation happens in the background.

This is what it takes to integrate AI into compensation systems

• a well-positioned core system
• a consistent pay system
• a reliable connection to data sources such as a data warehouse

In addition, it is often underestimated how much can be achieved without AI if the data is clearly structured, the discussion participants noted. Classic evaluations and reporting work very well with established methods and tools. AI tools become interesting when correlations between different variables or patterns in large amounts of data need to be recognized. However, there are very few applications in the remuneration area at this level. Most of the time their AI projects are just lighthouse projects.

For recurring inquiries in the HR area, such as inquiries about company pension schemes or tax issues, AI tools in the chatbot can provide added value, both in terms of efficiency and service quality. In practice it also becomes clear that personnel costs are not simply reduced, but shifted. Instead of classic development work, new requirements arise, for example in prompting, in the content control of the systems or in quality assurance. Especially in the initial phase, the effort is often even higher than before; it only reduces when processes take hold.

“A structured and systemic database is essential for AI applications in the compensation area.”

Dr. David Krol, Head of Compensation, Fringe Benefits, Working Hours, Deutsche Bahn

ESG in compensation design: Balance between investor demands and employer branding

Since the Trump administration clearly criticized ESG criteria, German companies in the US have often pivoted and reduced their ESG efforts. This suited some organizations anyway, as ESG criteria were strongly driven by investor representatives. The Management Board itself did not always rate the content as useful.

In practice, compensation specialists now see that some companies no longer want to integrate certain ESG aspects. Others, on the other hand, view ESG – sometimes across all three dimensions – as a central element of their business model, also with a view to employer branding or future viability. At the same time, companies should keep in mind that empirical studies show that a clearly defined ESG strategy can be beneficial for business. This is well documented, especially when it comes to ecological aspects. When it comes to social criteria, such as issues such as equality, a certain retreat can currently be observed.

Sustainable compensation systems: outlook and recommendations

While four to five years ago the focus of many companies was on stable job architecture, today the focus is on skills. This is not just about stable workforce planning, but also about fair and differentiated remuneration. In addition, modern salary models must be transparent, comprehensible, performance-oriented and flexible.

There is also a certain basic stability: the pay structure and its compensation components should not be fundamentally changed with each new CEO. A Comp & Ben team with a driver mentality that works closely with the management board and the strategy department can exert its influence here.

Christiane Siemann is a freelance business journalist and specializes in particular on the topics of Comp & Ben, bAV, labor law, labor market policy and personnel development/careers. She accompanies some human resources round table discussions.