Compensating Teams

Nearly everyone can relate to working on a team.  Teams are a great way to bring a group of talented folks together to focus on and accomplish a task.  They are also a means of providing development opportunities to employees, by utilizing skills in different venues, learning new skills from other team members and by taking on a responsibility beyond the purview of the everyday job.  But what’s the best way to compensate teams?

As you may have anticipated, there is no one best answer.  Compensation philosophy, strategy and design are the same as for individual compensation, for instance determining what behavior or results you want to incent/reward, assuring that the reward is meaningful, that the allocations are equitable and that it falls within budget.  However, there are several important practices to consider with respect to teams.  First of all, it is advisable to be transparent with pay.  Every team member should know what the plan is, the potential reward, the actual reward and how the reward will be distributed amongst the group at the outset of the team’s work together. The team should understand goals and expectations, and how the reward will be determined based on performance, particularly if the reward will be cash or a non-cash item of high value.  For self directed teams, the team’s determination of award allocation may be best, along with a peer review or the use of a 180 or 270 degree feedback device, where feedback is gathered from peers and others who deal directly with the team. It is also important that the team be mutually accountable for results.

In his book, Compensation for Teams, Steven Gross identifies three types of teams:

  • The Parallel Team – this team comes together periodically while each members also has a full time job (e.g. Safety Committee);
  • The Process Team – this team is a full-time, dedicated team, generally created for improvement in quality and/or customer service, the members often being cross-trained;
  • The Project Team – this team is a full-time team brought together for the duration of a project.

Here are some concrete suggestions based on his research that the author suggests for team performance recognition:

  • The Parallel Team:
    • Non-cash rewards are more popular
    • Any differentiation amongst members must be defensible
    • Allocation should be fully accepted by the team
    • Cash for successful results, non-cash award for mixed results and a memo commending hard work for failed results
    • Recognition occurs after the fact
    • Merit increases in base pay should be based on both regular job and team performance
  • The Process Team:
    • Incentive compensation is popular, due to incremental improvement
    • Incentive compensation is less likely to create disharmony
    • Non-cash awards are seen as helping bring the team together
    • Incentive compensation should be of equal amounts
    • Recognition occurs before the fact
    • Incremental merit increases emphasize continuous improvement
    • General wage increases should reflect new skills and competencies
  • The Project Team:
    • Non-cash awards and spot cash awards are most popular
    • Sizable cash awards are appropriate
    • Non-cash award for meeting expectations; cash for exceeding expectations
    • Allocation should be equal percent of base pay and/or individual contribution
    • Recognition occurs before and/or after the fact
    • Merit increases granted upon demonstration of required skills and competencies

A whole different viewpoint as to what motivates teams and what rewards they desire are depicted in this video clip:

The clip contends that workers should be paid enough to take money motivators off the table and what truly motivates is autonomy, mastery and purpose.

These two viewpoints are both  food for thought when it comes to designing your team compensation plan. What should we favor: money or meaning, when it comes to rewarding teams?