Team-Based Rewards

Rewards for performance are commonly used to maximize work output and productivity. With the increased use of team-based work, a variety of team-based reward systems have been developed, with the intent of maximizing performance and satisfaction in work teams. Team-based rewards are commonly defined as any formal incentives provided to a work team or at least one of its individual team members. Rewards may be based on organizational, team, or team member performance or other outcomes (e.g., sales, customer satisfaction, and profit).

Rewards provided to teams can be categorized as monetary or nonmonetary. Monetary team-based rewards include one-time cash bonuses, permanently increased base salary, and variable pay (i.e., earning a specified percentage of base salary). Nonmonetary team-based rewards include achievement awards, time off work, and special dinners. Team-based rewards can be distributed equally across team members, so that all members receive the same reward (e.g., amount of money, recognition award), or nonequally, either based on individual performance within the team (i.e., equitably) or in proportion to individual base salary.

There are seven major categories of team-based rewards:

  • Team gainsharing/profit sharing. Team rewards are tied to organizational outcomes; rewards are generally cash in nature and shared equally among all teams in the organization. With profit sharing, the organizational outcome is financial in nature (e.g., organizational profit); gainsharing refers to nonfinancial organizational outcomes (e.g., overall company customer satisfaction, improvements in organizational productivity or quality).
  • Team goal-based rewards. The organization (often in conjunction with the team) formulates goals or targets for each team that are believed to reflect effective short- or long-term performance outcomes (e.g., predetermined production objectives, customer ser-vice goals). When the team meets its goal(s), it earns predetermined reward(s).
  • Team discretionary rewards. Also known as spot rewards, these team-based rewards, like goal-based rewards, evaluate team outcomes (e.g., customer satisfaction, team productivity) when determining whether a specific team should be provided with incentives. Unlike in goal-based systems, however, the team is not provided with a predetermined performance standard that will guarantee the receipt of a specific predetermined reward. Instead, when the organization determines a team has done an outstanding job, the team is provided with a reward.
  • Team skill rewards. Teams are rewarded for acquiring valued skills (e.g., collaboration, cooperation, interpersonal understanding) regardless of team outcomes, following the rationale that if such skills improve, desired outcomes will eventually be achieved. Skills are generally evaluated by supervisors.
  • Team member skill rewards. Individual team members are rewarded for acquiring team-related skills (e.g., adaptability, communication, leadership, initiation of ideas). Skills are generally evaluated by other team members and/or supervisors.
  • Team member goal-based rewards. Individual team members are rewarded when they achieve predetermined performance goals, often in conjunction with quarterly or annual formal performance evaluations.
  • Team member merit rewards. Individual team members are rewarded when they make an outstanding contribution to the team, as determined by other team members and/or supervisors.

Research on Team-Based Rewards

Research on team-based rewards has generally lagged behind other categories of work team research. Although much additional research is required, existing work suggests that team-based rewards may have greater impact on the productivity of lower-performing team members. Additionally, highest-performing employees appear to prefer individually based rewards. An accumulating body of evidence suggests that as team interdependence increases, team-based rewards are most effective when based on equal rewards for team members; otherwise, group cohesiveness and performance may be negatively affected.

Team-Based Reward Effectiveness

To date, practical experience suggests that several factors need to be considered when choosing a team reward system. As noted above, the majority of these guidelines have not been the target of substantial research.

  • Team interdependence. High within-team interdependence (e.g., need for cooperation in performing tasks and meeting team goals) suggests the need for equal distribution of rewards among team members. Current research does not clearly support the belief that such reward systems encourage slacking among team members. Equitable reward systems may be more useful for less interdependent teams. To the extent team cooperation is required throughout the organization (i.e., high between-team interdependence), profit-sharing systems may be most effective.
  • Full- versus part-time teams. Full-time work teams may benefit most from clear, predetermined performance targets. Skills incentive systems may be useful for these teams, as they encourage team members to learn one another’s tasks. When tenure on a work team is part-time and temporary, an important consideration is ensuring that team-based rewards are not so enticing that they conflict with other (non-team) job responsibilities.
  • Line-of-sight. As the basis for reward is further outside of the team’s immediate control (commonly termed the line-of-sight problem), reward systems may become less effective. This is a particular concern in large organizations, where individual teams may perceive little direct control over organizational outcomes as a whole (e.g., organizational profit).
  • Measurable performance standards. It is important to ensure that it is possible to measure aspects of performance that are the basis for rewards. This may be particularly critical when it is necessary to assess contributions of team members relative to team outcomes; otherwise, rewards may be perceived as unjust.
  • Additional factors. Other factors that influence team-based reward effectiveness may include team composition (same or mixed gender; same or mixed occupation teams); organizational context factors (e.g., type of industry, size of organization); and team pressures (e.g., time pressure, stress), to name a few.

References:

  1. Beersma, B., Hollenbeck, J. R., & Humphrey, S. E. (2003). Cooperation, competition and team performance: Toward a contingency approach. Academy of Management Journal, 46(5), 572-590.
  2. Hoffman, J. R., & Rogelberg, S. G. (1998). A guide to team incentive systems. Team Performance Management, 4(1), 23-32.
  3. Jenkins, G. D., Mitra, A., & Gupta, N. (1998). Are financial incentives related to performance? A meta-analytic review of empirical research. Journal of Applied Psychology, 83(5), 777-787.
  4. Johnson, D. W., Maruyama, G., Johnson, R., Nelson, D., & Skon, L. (1981). Effects of cooperative, competitive, and individual goal structures on achievement: A meta-analysis. Psychological Bulletin, 89, 47-62.
  5. Rynes, S. L., Gerhart, B., & Parks, L. (2005). Personnel psychology: Performance evaluation and pay for performance. Annual Review of Psychology, 56, 571-600.
  6. Stoneman, K. G., & Dickinson, A. M. (1989). Team member performance as a function of group contingencies and group size. Journal of Organizational Behavior Management, 10, 131-150.
  7. Wageman, R., & Baker, G. (1997). Incentives and cooperation: The joint effects of task and reward interdependence on group performance. Journal of Organizational Behavior, 18, 139-158.

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