The Efficacy of Team-Based Rewards

Maintaining a healthy team dynamic is a foremost challenge for many companies. Highly skilled employees are increasingly becoming an asset, and how to motivate them to achieve the goals set by organizations has become central to organizational strategists. The most important outcome of this sort of planning is that the employee works to the best of their ability both in an individual capacity, as well as in a group of his or her peers. The question is then how best to employ and motivate competent individuals to achieve these dual goals within a successful organization. Several competing schools of thought have developed in this area, which together fall under the heading of ‘compensation’. An increasingly popular form of this kind of compensation is known as team-based reward, which has many potential benefits for an organization wishing to improve their incentive structure.

Reward programs in general are designed from three main criteria. First, they must be ‘internally legitimate’, meaning that the rewards to employees must in some way match their performance. Second, the reward must be ‘externally competitive’, for example the reward must be correlated to the market price of the accomplished performance. The third and final criterion is that it should offer a personalized motivation for personnel. Team-based reward systems are designed to compensate a group of people for their combined contribution to a project or an organization.

It has become a popular way of motivating people to achieve common goals, as it incentivizes teamwork and facilitates a collaborative rather than individualistic atmosphere. Types of team-based rewards have been outline by Matt Bolch (2007). One type is known as incentive pay, in which a team of employees receives a monetary reward based on improved performance against predetermined targets. Recognition, another type, involves a one-time reward for performing well beyond expectations. Profit-sharing involves giving employees a share of corporate profits in a distributive way. Gain-sharing is also sometimes used, in which a percentage of the value of increased productivity is given to workers under a prearranged formula.

There are numerous advantages to team-based reward systems, in part due to the increasing emphasis on team-based projects in organizations. According to Kimberly Merriman (2008), organizations are beginning to embrace “the conventional wisdom that team-based pay is the best way to encourage cooperation”. In a survey conducted by a leading compensation association WorldatWork, 83% of respondents viewed team-based variable pay programs as “strongly to moderately effective”. Furthermore, the University of Southern California’s Centre for Effective Organizations indicates that 85% of Fortune 1000 companies used team-based pay to some degree in 2005, up from 59% in 1990. Team-based incentives increase the willingness of employees to put in increased effort to their tasks because they do not want to let their co-workers down, according to a study by University of California, Santa Barbara. An increase in effort resulting from the social effects of the team was observed even in cases in which the probability of receiving a reward was lower. The motivational effect of a team-based reward was most noticeable in individuals who require external incentives, and less so for internally motivated individuals.

There are, however, downsides to team-based rewards. The most obvious one is that there are in every team some members who put in more effort than their peers. Equal rewards for everybody in the team can foster resentment on the part of the hard workers against their less productive colleagues, reducing an effective team dynamic. According to Haines and Tagger (2006), team based rewards “may fail to recognize individual differences and can sometimes encourage free riding (withholding effort in the belief that rewards can be received by letting others do the work), potentially leading to reduced cooperation and team failures”. Furthermore, if team-based rewards are implemented incorrectly, it can increase competitive or destructive tendencies both within and between teams. As Bolch (2007) notes, such competitive behaviour “promotes impermeable boundaries on the teams—i.e., a lack of information sharing and collegiality. Therefore, attempting to award the best of middling or low-performing teams among a group of middling or low-performing teams will provide a negative return on investment”.

Team-based rewards can have major benefits for an organization. The social pressures on individual members of a team can motivate them to increase their efforts to not let their team-members down. However, it has been observed by Rousseau et al. (1998) that although the benefits of team-based rewards are clear, they work best under specific situations highly correlated to the issue of trust. Such a feature is predominant in teams with a high level of task interdependence, for example. The reason is that in such teams, team-members rely on the results of their colleagues in order to reach their goals. Noone member works in isolation. In summation therefore, team-based rewards are a valuable option for organizations wanting to improve the quality and effectiveness of their group-incentive structure. They can be used either individually or together with other incentive structures to optimise efficiency. Which assortment is used will depend on the organization, but the efficacy of team-based rewards is clear.

Adam Watson

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