How Huawei Designs Its Compensation Structure: A Detailed Explanation

Opinion | Bian Zhihan

Editor | Huang Zhaolong

Source | Zhong En “Six Steps to Bonus Design” Online Training Camp

The management of enterprise compensation is an important and vast topic. How to set and adjust salaries has been discussed in many of our previous articles with specific methods and tools. At the core, do you understand the underlying logic of salary payments? How do you perceive the basic concepts of compensation design?

Today, we will introduce the basic model and structural strategy of compensation design based on Huawei’s practices and philosophies.

1

The Basic Model of Compensation Design

What basis does a company use to pay its employees? This is the fundamental question in compensation design. A scientific compensation system mainly revolves around four aspects: reflecting job value (pay for position), reflecting personnel differences (pay for person), reflecting performance orientation (pay for performance), and reflecting market compensation levels (pay for market).

①Reflecting Job Value: Salaries are based on job value. The company has an organizational structure, which corresponds to different positions, each with varying values. Through job value assessment, different positions are classified into different salary levels.

②Reflecting Performance Orientation: Salaries are based on employee performance orientation. This part reflects variable bonuses, where the amount is linked to performance improvement.

③Reflecting Personnel Differences: Salaries are based on differences in personnel capabilities. For the same position, those with different skill levels are placed in different salary tiers.

④Reflecting Market Compensation Levels: Salaries are based on market benchmark compensation levels. To be attractive and competitive in the market is beneficial for attracting and retaining talent.

Based on job value, the company categorizes different job levels and combines factors of performance, capability, and market to design a salary payment model.

2

Huawei’s Compensation Design and Structural Management

①Compensation Structure Strategy

Total compensation includes salary, allowances, bonuses, equity incentives, and benefits. Salary is the basic part, ensuring employees’ basic income; allowances are provided based on job conditions and working environment; bonuses are awarded based on performance results and are variable. Equity incentives are a form of long-term motivation; benefits include both cash and non-cash benefits, including various allowances for living expenses.

Each compensation element has a certain degree of incentivization and varies in proportion, influencing each other. For example, some positions may have high salaries and low bonuses, while others may have low salaries and high bonuses.

②Compensation Structure Management

Employees’ total income is divided into salary income and long-term incentives. Salary generally includes wages, bonuses, and allowances, while long-term incentives include retroactive incentives and equity incentives.

Wages are further divided into fixed wages and performance wages. Fixed wages include basic wages and position wages, determined based on capability and job value; performance wages include monthly and quarterly performance, distributed based on process.

Allowances are provided based on labor attitudes. For instance, employees in challenging work environments receive corresponding allowances. Bonuses are awarded based on contributions and may include performance bonuses, special awards, productivity bonuses, and growth bonuses.

Long-term incentives are based on core values and are awarded based on the long-term results of employees’ efforts.

③Employee Income Structure and Proportions

For grassroots employees, the salary ratio is 50%, bonuses 30%, and dividends 20%; for senior employees, the salary ratio is 20%, bonuses 30%, and dividends 50%; for middle-level employees, the ratios of salary, bonuses, and dividends are approximately equal at 1:1:1.

When designing bonuses, it is essential to understand the salary structure of different job levels and consider the approximate proportions of salary, bonuses, and dividends.

The above is an introduction to the basic concepts of enterprise compensation design, hoping to provide the correct direction and clear ideas for companies in compensation design. Of course, specific methods and implementation steps should be tailored to the actual situation of the enterprise. If you have questions or needs in this regard, feel free to further consult professional instructors for in-depth discussions.

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