xxxi) How to Compensate Teams


Today's team approach represents a dramatic departure from the traditional approaches to getting work done. Part of this involves understanding how to compensate people who work on teams. In theory, the team's pay should be tied to the performance of the team and an organisation's goals. In practice, it has been found that there is a whole different order of complexity to the design of compensation metrics for teams. That is because our existing pay systems were not made for those organisms within organisations that are responsible for real work. Genuine teams are interdependent or mutually accountable, working together on a shared set of products, processes, and/or goals. The members of a team do not necessarily come from the same organisational unit. One method is to link the compensation system with knowledge-based or competency-based or skill-based criteria. This method encourages team members to continuously update and acquire skills that are critical to an organisation's ability to compete.

It is believed by some that skill-based pay may be best suited to teams as it rewards the kinds of attitudes and behaviours that make teams successful, ie job rotation and cross training, which are essential to self-managing teams.

Different kinds of pay are required for different kinds of teams. There are basically 3 kinds of teams

. Parallel teams (the most common), ie usually problem-solving or improvement-orientated teams

. Project teams, ie involves bringing together knowledge workers from across disciplines to work on projects that have a definite but relatively lengthy time frame. These teams are not permanent and are linked with new product development or information systems teams

. Work teams, ie self-contained, self-managed, interdependent units to produce a product or provide a service and are known as process teams with membership being permanent and full-time.

Compensating parallel teams

It is recommended that team members are compensated by an add-on reward system such as gain sharing. Some issues that need to be kept in mind under an add-on reward system

. Include in rewards system some compensation for non-team members whose co-operation is needed

. Do not reward for projected savings before they are realised

. Check that incentives offered are not in conflict with the organisation's goals and members' other responsibilities.

Compensating project teams

If the new product and/or service's benefits are immediate, then a similar compensation set-up to parallel teams can be introduced. On the other hand, this can be a problem as the value of the new product or service may not be apparent until several years later so it poses a problem for compensation to be linked with performance. As a result, the compensation system can become very subjective, in that project team members have to evaluate their own performance.

Compensating work teams

Specially designed team incentives are most effective for permanent, institutionalised work teams because their members are so interdependent, ie one individual's work can affect everyone else's, and individual contributions are difficult to identify. A work team's objectives should be clearly defined, and the feedback system and evaluation measures should be explicitly stated by the organisation. Merit pay, in the form of salary increases or bonuses, and gain-sharing plans can be effective ways to reward work teams.

(source: Harvard Management Updates, 1996 ‐ 1999)


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