Team-Based Pay System Design
There are many considerations in the designing of a team-based compensation
system. After the alignment of pay with strategy, culture, and competencies of the
employee, then the next step is to determine the type or types of team in a particular
organization. There are four types of teams: The first is the parallel team that is
defined as a part-time team that can be temporary or permanent that employees
participate on in addition to their normal activities. The second type of team is a
process team that carries out the work processes and is done collectively by members
of a team. A project, or time-based team, is the third type of team and is the opposite
of a parallel team in that members work full-time for the duration and until
completion of a project. A fourth type is a hybrid organization that includes a mixture
of the teams described above.
Another consideration that the organization should take into account is the number of
job categories in an organization. The concept is termed broad banding, or
encompassing more jobs into fewer bands, and it is used to determine the number of
pay grades. The narrower the band, the fewer the differences, and the greater the
equality of pay opportunity among the people within that band. After determining the
bands, one must determine the parameters used to pay every job. This is the base pay
for each job. Setting base pay is usually based on market pricing and job evaluations.
Market pricing indicates what others in the market would pay for the same job. Job
evaluations assess what skills and work is involved in a particular job. Also, one must
determine the total pay allocated to the base pay.
The next step in the design of a team-based compensation system is the performance
appraisal stage. The criteria upon which the rewards are given are necessary in order
to create the link between strategy and reward. An organization must define the
performance criteria of their employees. There are four criteria used in measuring
team performance. The first is a demonstration of behavioral competencies that are
personal attributes and behaviors such as attitude, motives, and traits that predict
longer-term success. The second criterion is the acquisition and/or the demonstration
of skills and knowledge. Thirdly, there needs to be an achievement of specific
objectives within a specified period of time, best known as management by objectives
(MBO’s). Finally, the results (quantitative or qualitative) are used to measure the
performance of the team.
These criteria are different depending on the type of team present in an
organization. The parallel teams would primarily use the MBO’s approach followed
by the demonstration of behavioral competencies and the results of the team effort. In
a process team, the primary criterion used is the demonstration of behavioral
competencies followed by the acquisition of skills and knowledge and results. Finally,
in a project team, the most important criteria is what the results are followed by
demonstration of behavioral competencies and the achievement of specific objectives
in a specified period of time.
Another component of pay is the increase in base pay. Individuals will sometimes
ask for raises and in a team-based environment, it is much more difficult. One reason
for the difficulty lies in the fact that different types of teams require different ways in
which to handle the demands to increase base pay.
The third component of pay is recognition. Recognizing team results is very
important in the sense that it can motivate team members and increase the team’s
level of cohesiveness. If team members are praised for a job on which they all
contributed, their teamwork will be reinforced. Recognition can actually have more of
a motivating effect that reaches into the future. Non-monetary rewards such as
plaques, trophies, vacation trips, and small gifts can be the best incentive for team
members. However, the most important part of this kind of recognition is that
management must give it with sincerity. In implementing recognition, the
organization must reward teams that exceed objectives, they must determine who is
eligible, and they should have several levels of recognition. For example, appreciation
non-cash rewards, awards for significant financial contribution, and awards for
extraordinary financial results. It is recommended that non-cash rewards be the
primary type of recognition for all team types, and cash be the secondary reward for
parallel and process teams but not for project teams.
The fourth main component of a compensation plan is the incentive plan. There are
nine basic elements to an incentive plan that needs to be assessed beforehand. These
are eligibility to receive incentives, participation, measurement, alignment of team
and organizational goals, funding, timing (shorter time between payoffs is better
because it raises motivation), benefits, administration, and evaluation of the whether
or not the plan needs changes.
Implementation of a reward system is the next step after identifying and assessing
the different pay components. There are three phases to implementation. The first
phase is labeled feasibility, which asks whether the strategy in the organization is
feasible at the stage, they are in currently. It includes planning, environmental
assessment, readiness diagnostic, and the compensation strategy. The second phase is
the design phase and it includes the design concept, the design components, testing of
the compensation strategy, transition approach, union participation strategy, and
administrative requirements. The third phase is the actual implementation of the
program
and
it
includes
education/communication
program,
organizational
integration, and ongoing monitoring. As mentioned earlier, it is important that the
organization be ready to implement the new compensation system. The team design
needs to be stable before implementing a new pay structure. The organization must
stress communication and flexibility. There must be management support of teams;
the culture must be one of cooperation; and there also needs to be strong
administrative support that records team performance. Only after these elements are in
place should an organization attempt to design and implement a team-based
compensation system.
For any team-based pay plans to be implemented, there must be a link to the
organization’s strategy. Team goals should be subsumed under the organization’s
overall goals and objectives. Pay should be aligned with the accomplishment of those
objectives. A performance measurement system also needs to be established. It is
imperative that there are explicit measures of how well the team is performing in
reaching the desired goals. These measures usually include such factors as
productivity and quality. This is important in meeting goals and also measuring how
much the team members should be paid according to their measured performance
from the predetermined criteria. Another important design consideration is the
allocation method to the team members. Various methods of distributing rewards –
Equal payments to all members of the team; differential payments to team members
based on their contribution to the team’s performance; and differential payments
determined by a ratio of each group member’s base pay to the total base pay of the
group. The first method fosters cooperation, whereas the second method may result in
some members feeling slighted. A measure of cooperation and teamwork must be
built in to this plan if used. The third ratio method reflects the market rates of the jobs.
The last design consideration is the payment method. Team rewards should be kept
separated from base pay so that the team member knows that their reward is strictly
because of the performance of their team.
Team pay results in- Improved productivity (Better results are reported for those
using team incentives than those using individual incentives in a team environment.
These results seem to be long-term, as well); Improved employee satisfaction with
the job and pay (This is due, in large part, to the improvement of their skills through
teamwork and to the greater control over their pay than in the past); Reduced costs
(Production costs are often decreased as employees perform more effectively and
efficiently as a team); Reduced turnover and absence(because employees feel that
they have a stake in the production, and they are more satisfied); An advantage to the
customers is that the product is improved and the service quality is improved
(This is because the employees start becoming well versed in the operations of the
team and can, therefore, identify some of the important product and service
improvements that can be made).
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