Really bad proposal. As Logical said, the entire purpose of single-member constituencies is undone if the winner of a district is not elected. To combat the explosion of the number of seats, they should have introduced either an MMM system, letting go of proportionality (not sure if this would be constitutional though), or they could have simply gone for multi-member constituencies.
No, it wouldn't. The constitutional court has affirmed multiple times that the German electoral system is at heart a proportional system. If the court hadn't said this in 2011 or so, the Bundestag wouldn't have introduced compensatory seats in 2013, and we wouldn't be in this mess.