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Team Pay

by James C. Fox

Figuring Out Team-Based Pay

It used to be that when business owners called for a review of their employee compensation programs, they were primarily interested in finding out how much salaries were increasing in their industries. Not anymore.

The new concern is all about teams: Are teams a good idea? How do we start them? Who should be on them? How big should they be? How should we pay them?

The short answer to all of the above is that it depends on what you want to accomplish and whether work teams are compatible with your company culture.

To team, or not to team?

Teams can work well within many different types of organizations, yet in some cases, teams are not needed nor even advisable. The fact is , no matter what kind of team structure you envision, it is the thoughtful design, implementation and management of teams, not how you pay the team members, that will determine success.

Teams should be focused on work process improvements that result in better service, faster production, or higher quality. Only those people whose skills or perspectives are integral to the accomplishment of stated objectives should be placed together on a team.

Three Types Of Teams
  1. Part-time work teams, otherwise known as committees, are the most common and perhaps the oldest form of teams.
  2. Project teams, usually focused on new product development or improvement, are gaining in popularity.
  3. Process teams, usually involving members from multiple disciplines, are what most people envision when they consider establishing work teams. Process teams are the most desired but least common type, probably because they are the most difficult to get up and running.

Once you have decided who belongs on a team, you will need to clearly articulate the outcomes you expect, both in operational terms ( a three-day improvement in process time, for example) and in financial terms ( a 20 percent reduction in materials costs or an increase in profitability).

The best advice I can give is to get the setup right. Pay comes later, if at all, to reward the team members for their efforts. Pay will not correct the problems with an ill-conceived team. But, if a team has been designed correctly, the pay model necessary to sustain it's performance will be a natural outcome of the team development process.

Assessing team readiness

Are work teams compatible with your company culture and way of doing business? Consider that there are basically three types of teams: process, project, and part-time. Each requires a specific set of tools for success.

Part-time work teams, otherwise known as committees, are the most common and perhaps the oldest form of teams.

Project teams, usually focused on new product development or improvement, are gaining in popularity.

Process teams, usually involving members from multiple disciplines, are what most people envision when they consider establishing work teams. Process teams are the most desired but least common, probably because they are the most difficult to get up and running.

What doesn't work

If the employees' work is individually performed and not connected to what others are doing, neither process nor project teams will work very well, and may even sabotage productivity. Further, no team structure will succeed unless employees saw value in working with others, either because the cooperative effort will enhance individual careers and self-esteem, or because it makes work more fun. Finally, if the company culture rewards individuals - either symbolically, with promotions and recognition, or monetarily, with pay for individual performance - or if the culture is one of autocracy rather than autonomy, forming effective teams will be an uphill battle.

This is not to say that you should quit reading now and forget about developing teams. On the contrary, simply gaining a better understanding of the way teams work and the conditions that enhance their performance will help pave the way for success.

With process work teams, allow trial and error

Process work teams are composed of employees with different but complementary responsibilities who are connected by their involvement in the same work process. they work together on a continual basis.

Process work teams can be thought of as a separate companies within a larger company umbrella. The self-directed work team is the ideal process team. Other examples: a customer service department, or an R&D function that depends on the manufacturing operations to produce a design economically.

Optimum conditions for the effective process teams include:

  • Each team member's success must depend on the work of other employees. Their work must be interconnected for the end product to be achieved.

    The fact is, no matter what kind of team structure you envision, it is the thoughtful design, implementation, and management of teams - not how you pay the team members - that will determine success.

  • Team members should receive cross-training so that their roles are inter-changeable.
  • Employees must understand that their success depends on the success of others.
  • The process should have a short cycle time with no more than 10 discrete steps to completion.
  • The company must celebrate the success of the group and downplay the achievements of any individual member.
  • management must trust employees to do the right things, and employees must trust that management will accept failures on the road to success.
  • The team should select its own leader.

Reserve a bonus pool for process teams

To motivate a process work team, set aside a bonus pool to be divided equally among the team members once their work has been proven effective. For example, if your customer service department currently gets service people out to the customer within two weeks after the initial call, set the target to five working days. If the team is able to sustain five day average response time over a test period, say one quarter, then a cash bonus is paid at the end of that quarter.

Combine the response time benchmark with a financial goal of reducing service costs by 10 percent, and you will have generated a savings for the company, a portion of which can be paid back to the team.

Set deadlines for project work teams

Project work teams come together for a project of specified duration, to achieve a limited number of objectives. The team may disband once its purpose is accomplished. A software design team is a good example of a project work team.

For project teams, the conditions necessary for success are:

  • The goal of the project must be clearly identified.
  • Employees who are well established in their positions and are not likely to leave should be assigned to projects with an extended time line, such as one year.
  • The company must support and celebrate the small successes of the group.
  • The team should have a designated leader.
  • Individual roles need to be clearly defined and well understood among all members.

Pay strategies for project teams

Project teams by nature are results-oriented. This makes it easier to structure team-based pay: You know exactly what you're paying for, and either you get it or you don't.

The simplest method for figuring project team pay is to set "milestones" and quality objectives, and to give cash bonuses to members as the team meets each milestone. Construction firms have relied on such "performance bonus plans" for years. Interim bonuses also work very well with technical/knowledge workers.

Part-time work teams thrive on recognition

Part-time work teams, or committees, are designed for solving specific problems and also may be held accountable for implementing solutions, but each member has another primary responsibility. Part-time work teams meet periodically for a limited time and then go back to their primary job responsibilities. Example: a team charged with reviewing employee input to a suggestion system.

Conditions that make part-time work teams most effective include:

  • The members must have enough time to study the issue, work out potential solutions, and prepare a report.
  • Management must clearly identify the limits of the team's authority and responsibility.
  • Management must be willing to listen and to act on the recommendation of the team.
  • Members must view team participation as an advantage.

Part-time teams may not require extra pay

Because part-time team members have other full-time responsibilities, their team pay should be less dependent on the group's success, rewarding instead each team member's contribution over and above their primary job responsibilities. Most companies do not provide any monitory rewards for this type of team effort, since the expectation is that all employees will at some time be asked to serve on such teams.

Exception: If the task that you have assigned to the part-time team is uniquely important to the company - the team is charged with successfully negotiating a merger, for example - you may want to consider a one-time bonus once the team's objective is accomplished.

A true team will measure its own performance

Even if all of the right conditions exist for the type of team you'd like to establish, other factors may scuttle the effort. For example, one client recently stated with pride that his company had implemented self-directed ( process) work teams. The teams were organized around manufacturing processes, and each team member had received training in skills development, problem solving, and conflict resolution. The teams, he said, had been given the authority to decide how certain processes would be improved.

The more questions I asked about the company's idea of self-direction, the policy for selecting new team members, the teams' work priorities ,and member assignments, the more I became convinced that my client had indeed implemented self-directed work teams - a rarity in my experience.

Then I asked who was handling performance evaluations, expecting to hear that team members were responsible for evaluating their team mates. Wrong. In this case, the team members had nothing to do with it. Instead, I learned, the vice president of manufacturing was not only conducting the performance evaluations, but also determining individual raises and bonuses, effectively negating the premise of self-directed work teams.

this all-too-common scenario illustrates why team based pay needs to be addressed very carefully. What looks like a brilliant plan on paper may actually undermine the goal of establishing teams: to alter employee performance so that greater results can be achieved.

Pay, the final frontier

When clients gets to the point of determining team-based pay, I work with them to address the following questions:

  1. How should individual performance be factored into pay decisions?
  2. How much of a bonus is the correct amount?
  3. Should team members be paid different bonuses?
  4. Will the incremental pay be enough to boost performance, or will we end up spending more without achieving more?

While the answers tend to clarify themselves as you work through the team development process, they are almost impossible to predict with any accuracy.

If there is any formula for success at team-based pay, it is this: Design the teams well first Make sure your company culture supports them. Then, and only then, worry about how you'll pay them.


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