Teams are not just a passing and empty-management fad. They are here to stay. While teams may not be the answer to every problem within the company, they have become an essential element of the corporate environment.

The paycheck is a significant communication device. In fact, employee pay is one of the loudest and clearest ways a company can send a message to its employees. Employees, like the rest of us, want to be appreciated. Even if they appear on the surface to be independent, most people never outgrow the need to feel valued.

As a common practice, employees do not seek to be mediocre. Thus, it is important to continue to search for efficient alternatives to encourage employee productivity. This search should ultimately provide an answer to the old question of providing a motivating and fulfilling work environment for employees.

Generally, people will behave according to how they are measured and paid. Furthermore, if employees are going to serve together on teams, they must also be paid as a team. If they aren’t, chances are they won’t all work together as a team. To ensure that the members of a team will work together they must all be working toward common goals. They must have some means for team assessment of performance, recognition, shared reward or incentive.

Corporate America is thinking teams and, as the movement shifts from individual incentive systems and begins focusing on people working together, it requires a change in compensation plans. The team might be a work group, a department, or a division. The concept is still the same, an established standard against which work performance is evaluated to determine incentive pay.

As a result we must now focus on team performance instead of individual performance and on how to reward teams effectively. Historically, financial measures have been most widely used as an indicator for performance level. A picture quickly emerges as to what is most important within the company. Regardless, the issue is measuring group performance against some established standard.

The question then becomes: which is better, group or individual incentive plans? In reviewing this question, things such as the type of task, the organizational commitment to teams, and the type of work environment may preclude one or the other. When forced to answer the question, experts agree that individual incentive plans have better potential in encouraging productivity. This is because group plans suffer from what is called the “free-rider” syndrome.

Recent research indicates that this problem can be reduced through the use of good performance-measurement techniques. The question still remains: Can team-based compensation systems be effective? What are additional considerations for team-based compensation, other than performance standards and measurements? What is the future of team-based compensation systems based on the past? These are questions that must be addressed.

Today, companies no longer need to prove that teams can have a positive impact on the bottom line — productivity and quality. We can look back to the advent of quality circles in the early 1980s and the mushrooming of quality teams in the late 1980s and 1990s. This was a stimulating experience for those who favored the concept of teams and worker participation. Teams were implemented to work on special projects, to find ways to cut costs, to develop new products, to review production processes and to work on all kinds of problem-identification or problem-solving activities.

Team compensation is a means of nurturing behavior that benefits the group. It encourages the individuals of the team to develop the skills necessary to express themselves within the context of cooperation, rather than of individual gain. What will make the team perform better?

It is important to remember in attempting to solve these pay issues that the types of work performed and the behaviors required in teams do not fit traditional compensation systems. Many managers continue to practice yesterday’s thinking in recognizing good performance in today’s workforce.

Compensation alone won’t guarantee high levels of performance; however, reward programs can produce the behaviors most likely to lead to success. Employees living more balanced lives tend to be more productive. It stands to reason then that by providing employees with benefits of work/life programs, employees are more focused and therefore more productive at work. Expressing recognition in monetary terms can invite complaints. Some employees assume that anything done in the workplace should be an equal or even tradeoff. “We saved our employer millions, and they gave me only a few hundred.”

As much as people may want or need money, rewards in dollars can sometimes backfire. Studies indicate that employees find personal recognition more motivating than money. Managers and consultants agree that money isn’t everything. There are various other ways of saying, “Good job.” For example, recognition plaques or trophies, small gifts (personal or for the office), family vacation trips or meals, and communications of appreciation during office meetings or through company-wide memoranda can be effective rewards. Whatever means of appreciation are implemented, they must be sincere. Furthermore, a little time spent investigating the individual tastes and backgrounds of team members can help in selecting the most meaningful form of recognition.

The timing of rewarding employees is also an important point to remember. If rewards are given months after the behavior, they can do more harm than good. Rewards must be timely. And they should be first communicated privately before giving the recognition publicly. If done in reverse, they may run the risk of being viewed as grandstanding by the recipients.

It is important to remember that employees do not want to be just employed; they prefer to be engaged. Whatever is paid in cash can also be paid by another employer. Employees prefer employers who provide an environment of respect and dignity for their employees.

Team incentives, which are aimed at increasing productivity and improving morale, provide an opportunity for each member of the team to receive a bonus. There are additional advantages for team-based compensation systems. They make it possible for employers to reward indirect labor (workers who provide essential services to line workers) who are paid only their base pay. They encourage cooperation versus competition among employees. It is easier to develop performance measures for teams than it is for individual incentive plans. Employees accept team-based compensation because it signals cooperation (both within and across groups), and because it may increase the participation of employees in the decision-making processes of the company.

Fairness in dealing with teams does not mean equal pay for all. Employers that merely give dollars to reward team performance are finding that this doesn’t always work. Furthermore, many team-compensation systems emphasize that risk-taking by teams is necessary in order to move the organization forward. Therefore, rewarding according to the results may punish team effort.

There are additional disadvantages for team-based compensation systems. Employees fear that employers will reduce the number of employees if they produce too much. The competition between teams can hurt the company as a whole, and individual employees may have difficulty seeing their individual contributions to the team as a whole. Employees have difficulty seeing how their individual performance affects their incentive pay, and it therefore increases a compensation risk.

Human resources departments can help teams with staying on track by keeping management commitments high, by promoting training opportunities and by defining appropriate measures. The first condition necessary for team-based compensation to work — “keeping your hands off” — is often the most difficult concept for managers to practice. This may mean that managers will not know who did what. But, in order to ultimately support the team process, it is necessary to first give the team autonomy. True commitment to the team process starts by allowing the team to determine how it will accomplish its objectives and to suggest how recognition will be distributed.

Teams should also be given a role in distributing recognition awards. Managers have to make sure that members of a team are working together, rather than competing against each other. The success of the team depends on two factors: communication and reward. That is, the members must want to share information, and it must be worth their while to work as a team. As a true team culture develops, power shifts from the coach or supervisor to the group. The team will be successful if the team roles and goals are fully clarified. All the team members and leaders must give full and consistent support for the team process.

Companies are finding that compensating team members individually for outstanding team performance is more effective than compensating the team as a group. The individual team member’s compensation should vary according the individual contributions to the team effort as a whole. Recognizing the team as a group provides satisfactions to the team members by having their team recognized by top management.

Implementing a change in a current compensation system is not an easy task. It takes a great deal of consideration to communicate significant changes. If it is not communicated correctly, it could lose employee motivation up front. Since compensation plans are meant to enhance motivation, it is wise to spend plenty of time talking about the upcoming changes long before the transition is made. This will provide employees time for feedback and time to get used to the idea.

The communication step is extremely important. Management must communicate all the elements of the team-based approach, such as guidelines, objectives, policies, procedures, etc. These things must be thoroughly communicated prior to implementation. Generally, employees may not welcome a specific new benefit, policy change, revised management practice, or the like. However, if the reasons for the change are carefully communicated with respect, employees will accept whatever will benefit the company and, ultimately, assure their continued employment.

Additionally, some form of performance system which appraises employee participation with the team-based philosophy is necessary. Rewarding employees individually on their demonstrated performance toward the goals of the team is necessary.

A team-based compensation system can be an effective compensation plan for some companies. In order to be truly beneficial it requires: complete support for the team-based philosophy from all levels of management, a reward system that rewards team members for team-based performance, and compensation rewards in some form other than money. TP 

Dr. Caruth, S.P.H.R., is Professor of Management at Texas A&M/Commerce. Gail D. Caruth, S.P.H.R., is principal of Human Resource Management Systems, a Texas-based HR consultancy.