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I come up with FA targets and check on them every few days until another team puts in an offer. Then, I'll beat that offer and sometimes modify things (turn the last year to a team option or something). It's a bit of a reactive strategy but I don't like getting into mood trouble when I make a low ball (in the players mind) offer - even though they'll often eventually sign there.
Compensation, for me, depends on how my team is positioned for the upcoming year. If I'm contending and need one more big player I'll burn the draft pick but not otherwise. In general, it makes strategic sense to sign multiple compensation picks some years (because the 2nd and 3rd round picks are much less valuable) and other years to sign none at all.
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