Does team-based pay work?

Some love it, some hate it but will team-based pay deliver the results you want?

There are many types of performance based pay, but have you never considered team-based pay, remuneration based on a team reaching agreed goals?

Writing in HR Magazine, Charlotte Garvey says moving to a team-based pay system can bring increased efficiency, productivity and profitability. However, she warns that it’s not easy to make it work.

Garvey says the team-oriented corporate structure came into vogue in the US during the 1980s and 1990s, “prompted by the example of successful Japanese companies”.

Garvey says there are a variety of reasons for companies pursuing team-based pay. Sometimes it’s to reinforce a change in business strategy, corporate structure or production method. Other times it’s to motivate employees to work more cooperatively and to connect their actions to the bottom line.

Corporate culture is one factor that affects team-based pay’s acceptance and Garvey quotes a Jau Schuster, a partner in a compensation consulting firm, as saying that the notion that some of an individual's pay is at risk based on someone else's behaviour or by the team overall is "a hard sell”.

Schuster says "culture has a more powerful impact on rewards than rewards have on culture," adding that team pay works better in organisations that have an egalitarian, sharing orientation. "Entrepreneurial companies have trouble with it."

Garvey says the fear of the "slacker" or "free-rider"(“an unmotivated team member who doesn't pull his weight”) can make acceptance of team-based pay tricky.

You can get around this by adding rewards for individual team members based on their contribution, but you have to have very good performance measures to track this.

Garvey says many organisations using team-based pay have a layered compensation structure, meaning a team member gets a base salary and is then eligible for a bonus based on the team’s success in achieving goals.

Another method is to have a bonus pool available to the team with each person receiving the same amount if targets are met. The targets can be financial or goals like process improvements.

A “booklet” on the Acas web site says that at best, team-based pay can encourage team working and cooperation, encourage less effective performers and may help self-management within a team.

However, it also says it can take time for teams to work together well and individuals can “feel their personal self-worth is diminished”. Also, peer pressure can lead to “conformity rather than creativity” and bullying may even result.

These sort of negatives are looked at by an article on CNET, which says HP tried team-based pay at one of its sites following a transition to self-managed teams . A programme of team goals was launched and there were three levels teams could obtain.

“Managers reckoned that 90% of teams could reach Level One, 50% could reach Level Two, and 10-15% Level Three.”

At first everyone loved the new system, with most teams hitting levels two and three. But once management adjusted the levels upward, the troops revolted.

“The teams were frustrated that factors out of their control, such as the delivery of parts, affected their work.”

Interestingly, just like the sporty kids at school who won’t pick the uncoordinated, unfit duds for their sports teams during PE, the high-performance teams “often refused to admit people whom they thought to be below their level of expertise, leading to disparities among the teams”.

Movement between teams actually reduced, meaning there was no learning transfer. People built lifestyles around the higher level of pay and got angry when they could not consistently achieve the higher earnings.

“Managers for their part felt they were spending too much time reengineering the pay system. They concluded that it did not motivate employees to work harder or, perhaps more importantly, to learn.”

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