Designing team-based compensation

Designing team-based compensation- Teams have emerged as a widely used vehicle for facilitating the movement of power, information, and knowledge to the lower levels of the organization. Many things need to be taken into consideration while a team-based compensation system is designed. Firstly, the payment must be in alignment with the culture, strategy, and competencies of the employee. Next, the types of teams in the organization must be determined. There are four broad types of teams – a) parallel team, that is, a part-time team that may either be permanent or temporary where employees participate along with their normal activities; b) process team, that is, a team which implements work processes through collective efforts of the team members; c) project/time-based team, in which members work full time until the completion of the project; d) hybrid organization, which is a hybrid of all the aforementioned teams. Organizations also need to consider the number of job categories within the agency. Broad banding, or the method of encompassing a large number of jobs into fewer bands, is used to determine the number of pay grades. Narrower bands imply fewer differences and result in greater equality of pay opportunity among employees within the given band. Once the bands are determined, parameters for payments of each job need to be put into place. These parameters are the base pay for jobs. Typically, the base pay is set according to job evaluations and market pricing. While market prices indicate the price that other competitors in the market would pay for the same job, job evaluations assess the work and skill set involved. The total pay allocated to the base pay must also be determined.

Performance appraisal comes next in the process of designing a team-based compensation system. To be able to create a link between strategy and reward, the criteria upon which rewards are to be given must be determined. The performance criteria of employees have to be defined by the organization. Team performance can be measured by four criteria. These are a) demonstration of behavioral competency – motives, traits and attitudes, etc. that predict long-term success; b) acquisition and demonstration of knowledge and skills; c) management by objectives (MBOs) – the achievement of specific objectives within a specified period of time and d) team performance – that is measured through both quantitative and qualitative results.

Team pay results in:

Improved productivity (teams using team incentives are reported to show better and long-lasting results as compared to those working with individual incentives).
Improved employee satisfaction with regards to job and pay (this is largely a result of improvement in skills and knowledge through teamwork and relatively greater control over their pay).
Reduced costs (efficient and effective performance as a team often reduces production costs).
Reduced turnover and absence (employees are more satisfied as they feel they have a role to play in the productions).
Customers get the added advantage of improved product and service quality (as employees become well versed in the operations of the team and are therefore capable of identifying important product and service improvements).