Excerpts

Chapter Eight Team Rewards Although most reward systems are still oriented toward the individual, team-based reward systems are increasing in popularity as a result of the increased use of teams to perform work in organizations. To reinforce the importance of teamwork, or to reward employees to function in teams as well as perform their usual assignments, additional pay on the basis of team performance is often needed. Team pay is usually provided to small groups of employees performing as intact work groups (e.g., self-directed work cell in manufacturing) or as a critical task force (e.g., new product development team). The critical point here is that the team must demonstrably add value to the organization in ways not compensated for by base pay, individual rewards, or organizational rewards. Just as with individual rewards, team rewards need to be clearly linked to the business strategy of the organization. By doing so, the incremental value of the team can be clearly established. In particular, the standards of performance, the evaluators, and weighting steps must all be linked to the business and compensation strategies. Standards For team performance, the contributions of the team can be defined in terms of what they accomplish (results) and how they accomplish results (process). Results In the team context, results refers to tangible outcomes achieved by the group in such areas as sales, profit, waste, cost, and production. Results are often emphasized by organizations with cost, quality, innovation, customer service, or productivity as the major strategic goal(s). Process Organizations with a focus on human capital, innovation, and organizational learning as objectives are likely to emphasize the process used to achieve results. Process is emphasized in order to build human capital in the organization and to ensure that lessons learned about the most effective ways for groups to operate in the organization are deciphered, stored, and disseminated throughout the organization. Evaluators The team as a whole is usually evaluated under a team reward system. Thus, some evaluators different from those used for individual rewards are used to assess the team. Team Leader In many teams there is an elected or appointed team leader to coordinate the process and to hold team members accountable for the results. Team leaders are often asked to evaluate their teams in terms of both results and process. Organizations with a cost strategy usually stop here with evaluations because of the increased resources needed to use multiple raters. When self-directed teams are used, there may not be a permanent team leader. Instead, leadership responsibilities may be divided up among team members or team members may rotate into the leadership position for a limited duration. Under these circumstances, team leadership may not be used to make evaluations. Team Members Each member of the team may be asked to make an assessment of the results of the team and the processes used. Organizations with an emphasis on human capital are likely to take this approach because it helps the team members develop evaluation skills needed to be a team leader. The different perspectives are also helpful from an organizational learning perspective. Lastly, team member participation is consistent with an employee empowerment strategy likely to be found with organizations attempting to be productive, innovative, and quality- and customer service-conscious. Senior Management In order to ensure that the benefits of teamwork outweigh the costs of teamwork, a member of senior management may be asked to assess the performance of the team. The use of a senior manager is likely when cost minimization is the preferred business strategy. It is also likely to take place when human capital is the business strategy because the senior management can mentor the team. A senior manager can also be used for purposes of organizational learning because the senior manager can broadly disseminate helpful team processes to other teams. Weighting Emphasis placed on both the standards and evaluators used seems to vary as a function of business strategy. Rewards In a team environment, rewards are usually allocated to the team rather than to the individual. Once received, distribution of the funds can occur in one of three ways. One approach is to let the team decide how best to allocate the funds. This approach is consistent with an employee empowerment philosophy often found in organizations with quality, innovation, or human capital business strategies. A second approach is to distribute an equal share to each team member. This approach is consistent with an egalitarian compensation philosophy sometimes found in innovation- and quality-driven firms. The third approach is to provide an equal percentage of the pool based on the base pay level of each employee. This is a more traditional approach that is likely to be found with all business strategies and is based upon the merit pay culture in many organizations. Money The more value that teams add to the organization, the more likely that cash will be used as the reward. Teams are often essential in business environments with a human capital, innovation, quality, and customer service focus. Time Off Some teams require a large amount of work outside the normal forty-hour week put in by most employees. In recognition of this factor, some organizations grant compensatory time off for team members. Obviously, cost-conscious employers are unlikely to follow this approach. Recognition The more difficult it is to demonstrate the ongoing value of teams to the organization, the more likely it is that recognition programs will be used. Also, the smaller the budget available for pay increases, the more likely it is that recognition programs will be used. Stock Stock options are infrequently used to reward team performance because they dilute the stock base available for shareholders. However, in some innovative, organizational learning, and human capital environments, it makes good sense to issue stock. By doing so, former team members have a vested interest to help current team members. In the absence of stock, previous team members may be less willing to help current team members perform because they no longer receive the rewards. As a result, the organization may lose the benefit of their knowledge. In a balanced scorecard environment, with an emphasis on cost as well as on the business strategies previously mentioned, a vested interest in current team member performance can be created by delaying a portion of the former team members' reward until after the current team's performance is up to the desired standard. Case Study CASE 1 Computer Storage Products Company Background. Techstore is a $6 billion manufacturer of computer storage products. The company has been in business for twenty years. New product development teams are a critical factor in the company's success. A constant flow of new products must be created because once they are on the market, profit margins erode quickly as competitors "reverse engineer" the product and are also able to sell the product. Product development teams are cross-functional in nature and consist of midlevel employees from engineering, marketing, finance, and operations. Business Strategy. The business strategy of Techstore is firmly grounded in the values of the founding partners of the company. These same values have remained at the heart of the business strategy for twenty years. One of these values is teamwork. Teamwork, along with other values and financial and customer service goals, forms the balanced scorecard that drives the company's business plans. Compensation Strategies. The company has a strong commitment to employee involvement as part of its value system. Because of the difficult labor market in which Techstore competes, emphasis is placed primarily on external equity. There is also a strong belief that rewards should be on the basis of performance rather than on tenure with the organization. Base Pay. Because of the emphasis on external equity in order to attract and retain talented personnel, Techstore uses a market-based pay system for base salaries. The plan works well because Techstore is in a labor market in which accurate salary data are readily available through industry, professional, and civic associations. Base pay is set at the seventieth percentile of the labor market. Rewards. Along with many other high technology companies, Techstore uses a wide variety of reward programs to attract and retain people. There is a merit pay system to reward individual contributions along with a profit-sharing plan to reward organizational success. Spot bonuses and generous benefits are provided as well. Stock is shared with higher-level personnel. Team Pay. The business case can be clearly made that teams add value to the business. They are the key drivers of financial success, as spelled out in the background section. Hence, even though team members already receive above-market base pay through membership in the organization and are eligible for additional individual and organizational rewards, they can also earn a team bonus because of the value the team adds to the business above and beyond the individual contributions of team members performing their functional roles in the organization. Team performance is assessed using a balance scorecard of very specific measures. These measures include financials, customer product ratings, and team competencies based on the values of the company. Prior to completion of the product, the team meets with senior management and customers to develop performance levels for each of the balanced scorecard categories based on market projections. Evaluations are then conducted by the team, customers, and, ultimately, senior management. Because of the value-added nature of these teams, a bonus pool is budgeted in advance of actual sales for each product development team. Bonuses are distributed to the product development teams as a percentage of their salary level. Both individual and team contributions are evaluated