CIPD - Team reward

Pay and reward

Revised March 2008

This factsheet gives introductory guidance. It:

assesses the advantages and disadvantages of team pay
sets out the requirements to be met
shows how systems should be introduced and managed
concentrates on the team reward process for managerial, technical and professional staff
includes the CIPD viewpoint.

The nature of teams

Characteristics of an effective team are that:

it exists to attain a defined purpose
individuals are committed collectively and personally
individuals reinforce each other's intentions to pursue team purpose.

The purpose of teams

teams are concerned with results and building relationships.
teams develop when barriers to effective performance are overcome.
in surmounting obstacles, teams build trust and confidence.

Types of team

Organisational teams - a 'top management team', bound together because it contributes to overall objectives..
Work teams - self-contained and permanent, delivering output. They focus on achievement of common purpose and are a function of common purpose and are a function of individuals working well.
Project teams - brought together to complete a task. Once the task is complete, they disband.
Ad hoc teams - set up to deal with a problem. They are short lived and operate as a task force.

Requirements

Core values and management style

Top management should:

believe good team work will make a significant contribution
believe superior team performance deserves to be rewarded financially
devolve authority to teams
give scope for teams to manage themselves.

Team characteristics

Team pay works best if teams:

stand alone with agreed targets and standards
have autonomy
are composed of people whose work is interdependent
are stable
are well-established and make good use of complementary skills
are composed of flexible, multi-skilled team players who are capable of expressing a different point of view if it is for the good of the whole.

Incentives

For team pay to work well:

everybody must understand and accept the targets
the reward must be clearly linked to effort and achievement
the reward must be worth striving for
performance measures must be fair, consistent and acceptable
everybody must be able to track performance in relation to targets and standards
the team must influence its performance by changing behaviour or decisions
the incentive formula must be easily understood
reward must closely follow accomplishment
the scheme must be appropriate
the scheme should be carefully designed, installed, maintained and adapted to meet changing circumstances.

Reward processes

The rationale

Team reward aims to reinforce behaviour which leads to effective teamwork. It encourages group endeavour rather than just individual performance. It can be argued that pay systems which encourage the individual do not foster teamwork. In addition, it is argued that managers treat team members as individuals only, rather than relating to them in terms of what the team can achieve. An appropriate balance has to be struck between individual performance and the individual's performance in a team.

The fundamentals

We all do what we are rewarded for, whether in a team or as an individual. When considering team-based rewards there are two fundamental questions to be asked.

Should teams be rewarded by financial means, non-financial means or a combination of the two?

Most team reward systems emphasise team pay rather than non-financial rewards. Pay is an important form of recognition and a motivator. However, the ultimate team reward is recognition of the successful completion of a task. Employees are more in favour of non-financial than financial rewards for teamwork.

Teams respond to all types of reward from pay, bonuses, public recognition, to satisfaction with team accomplishment, well-being derived from strong work relationships and increased responsibility.

The context

Pay strategies for teamworking are diverging. There are companies that are devising incentives such as coupled team and individual bonuses, while others are flattening pay differentials and putting little emphasis on incentives.

Before team pay is considered, it is necessary to ensure basic pay is right.

Hierarchical pay structures are inappropriate for teamworking. It is difficult to foster team spirit if individuals are concentrating on promotion.

The reward mix

There can be up to three elements in a reward package:

Individual - a basic salary but varied in relation to performance or skill/competence.
Team - related to the achievement of team targets.
Organisation - related to business performance - measured as profit or added value. These may be in the form of cash or shares.

Managing team reward

It is important to define the role of management and teams. Equally, it is important to decide on performance measures and determine how these can be used to advantage.

The management role

Management must:

conduct an initial needs analysis
analyse current practice
define individual and team reward philosophy
consider team pay reinforcement and non- financial rewards
create a collaborative climate
identify critical success factors
involve all employees
communicate the benefits
train employees and team leaders to optimise team performance
provide team-building training
help individuals improve their skills
monitor and evaluate
audit the costs and ensure the scheme is self-financing
promote the value of non-financial rewards
recognise team accomplishments with appropriate action.

The team's role

Teams must:

participate in the scheme's design and modification
define critical success factors and performance measures
set objectives
identify accomplishments
monitor and evaluate team performance
establish priorities
analyse the financial rewards and decide on improvements
conduct peer reviews of individuals
identify training and development needs
suggest improvements to the scheme
promote non-financial rewards.

Performance measures

Performance measures should be selected as the basis for setting goals and evaluating results. There are two types of performance measures:

Output/outcome, which includes:

performance
achievement of goals and standards
the integration of inter-team efforts.

Input/process, which includes:

the levels of knowledge and skills
the quality of interactions and collective effort
involvement in decision-making
planning and goal-setting
self-directed measurement and control of performance
the resolution of conflict within the team
the flexibility of the team to adapt to unforeseen problems.

Advantages and disadvantages

The advantages

Team pay can:

encourage co-operative work and behaviour
clarify goals and priorities at team and organisational level
emphasise a flatter and process-based organisation
act as a lever for organisational change
encourage flexible working and multi-skilling
offer a fairer perceived payment system
collectively improve performance and team process
encourage the less effective to meet team standards
develop self-managed and directed teams.

The disadvantages

Team pay can:

diminish individual self-worth
mask individual team contribution
compel individuals to conform to oppressive group norms
result in low output which is sufficient only to gain a reasonable reward
cause difficulties when developing performance measures which are fair
shift problems of unco-operative behaviour from individuals in teams to the relationships between teams
prejudice organisational flexibility - cohesive and high-performance teams may be unwilling to change.

Action plan

assess the need for, and determine if the organisation is ready for, team rewards.
identify teams.
set objectives.
consult employees.
consider the options, either team pay and/or non-financial rewards.
design the scheme with employees' help.
communicate details.
conduct training in managing team rewards and in team-building.
introduce team rewards.
monitor.
evaluate.

It is essential to develop and introduce team pay with great care. The complementary impact of non-financial reward should always be acknowledged. Good teamwork may be enhanced by the reward system but there are other ways of developing it.

describe and think of the organisation's functions as processes carried out by interlocking teams.
devise communications which develop identification.
emphasise the key values of constructive teamwork.
ensure the purpose and objectives of teams are clearly defined.
create teams that are largely self-managed, where short-term objectives are set and performance is measured.
take care to appoint and train team leaders who will achieve results and develop the team.
use training to improve team processes.
set overlapping or interlocking team objectives in the form of targets or projects to be completed.
assess individual performance, and team player effectiveness, on results.
set up cross-functional teams with a brief to get on with the job.

Some key points

Our latest reward management survey found that around 27% of employers operate a team-based bonus plan. By sector, private service sector employers are more likely to use such an arrangement (30%).
- Go to our annual reward surveys
Formal team bonuses are more common for senior managers than manual staff.
Most employers now manage individual's pay progression by linking it to an assessment of an employee's performance and examining the skills and competencies that they apply in their job. This approach is the most popular method of determining salary rises for senior staff, middle/first-line managers and non-manual non-management staff.

In 1995, the IPD conducted in-depth research into team reward. The findings¹ included:

it is not possible to prescribe a standard model or approach as there are so many different types of teams and schemes.
there are stringent conditions for the introduction of team pay - this is thought to account for the small number of schemes in the survey.
the mechanics of the team pay schemes are less important for success than management style, culture and the working environment.
teams are able to plan and implement their own improvement programmes if they receive feedback and meet regularly to discuss performance.
over 50% of organisations with team pay believe it is improving performance.
for many people, the extent to which team pay should replace individual performance-related pay is an unresolved issue.
alongside team bonus, some organisations are introducing, or considering, individual skill or competence reward for personal contribution.
many organisations are including team worker capability as a key 'input' factor in performance management systems.
some individuals expressed the opinion that team pay is either inadequate or inappropriate for performance improvement. Other forms of reward should be used instead of, or in conjunction with, team pay.

CIPD viewpoint

CIPD believes that team reward is a just and equitable way to acknowledge the contribution made by people as team members or individuals. It allows organisations to demonstrate that they value teams and individuals who perform well and that high levels of performance are important. Team reward can help focus the priorities on quality, customer service, innovation and co-operative work.

But improving team performance cannot be left to the reward system alone. The quality of teamwork depends on:

culture
structure and operating processes
values
performance management
management style
employee development programmes.

Reward systems, however well-conceived and effective they may be, are not a substitute for good management.

The CIPD's and other research have shown that team pay has been more 'talked-up' than practiced. The introduction of team-based pay can fail due to ill-timed communications and poorly defined teams.

However, it should not be dismissed as another 'flavour of the month'. Many organisations truly believe it works well for them but there are strong arguments against relying on team pay alone. Consideration should be given to supporting team pay with non-financial rewards - such as through recognition.

References

ARMSTRONG, M. and RYDEN, O. (1996) The IPD guide on team reward. London: Institute of Personnel and Development. (now out-of-print but available for loan to CIPD members from the Library and Information Services, tel +44 (0)20 8263 3355)

Team reward

The nature of teams

The purpose of teams

Types of team

Requirements

Core values and management style

Team characteristics

Incentives

Reward processes

The rationale

The fundamentals

The context

The reward mix

Managing team reward

The management role

The team's role

Performance measures

Advantages and disadvantages

The advantages

The disadvantages

Action plan

Some key points

CIPD viewpoint

References

Further reading

Books