New CIPD guidance on team pay

TEAM REWARD

New CIPD guidance on team pay

The debate over the most effective pay system continues apace with various philosophies emerging as preferred options. One such option, often championed by reward specialists, is team pay and a recent factsheet published by the Chartered Institute of Personnel and Development provides a detailed explanation of the approach as well as outlining its advantages and disadvantages.

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Among the other issues covered by the factsheet are:

  • the requirements necessary for team-based pay

  • how systems should be introduced and managed

  • the team reward process for managerial, technical and professional staff.

To gain an idea of the prevalence of this type of approach, the CIPD’s latest reward management survey found that around 27% of employers said they operate a team-based bonus plan.

By sector, private service employers are more likely to use such an arrangement (30%), while formal team bonuses are more common for senior managers than more junior staff.

The CIPD also reports that pay strategies for teamworking are diverging with companies devising incentives such as coupled team and individual bonuses, while others are flattening pay differentials and putting little emphasis on incentives.

The theory

Team reward aims to reinforce behaviour which leads to effective teamwork and encourages group endeavour rather than just individual performance. It can be argued that pay systems which encourage the individual do not foster teamwork and therefore an appropriate balance has to be struck between individual performance and the individual's performance in a team.

Requirements for team-based pay

The CIPD outlines a number of requirements necessary for team-based pay to operate effectively. Among these are that top management should believe good team work will make a significant contribution and that superior team performance deserves to be rewarded financially. In addition, authority needs to be devolved to teams so they can have scope to manage themselves.

It also explains that team pay works best if teams are:

  • standalone with agreed targets and standards

  • composed of people whose work is interdependent

  • stable

  • well established and make good use of complementary skills

  • 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.

Team-based incentives

For team pay to work well, the factsheet asserts that everybody must understand and accept the targets while the reward must be clearly linked to effort and achievement. The reward itself must be worth striving for and any performance measures must be fair, consistent and acceptable. In addition, the factsheet states that:

  • 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

  • before team pay is considered, it is necessary to ensure basic pay is right

  • hierarchical pay structures are inappropriate for teamworking because it is difficult to foster team spirit if individuals are concentrating on promotion.

Preparing for team pay

For those considering team pay the factsheet says that companies need to assess the need for, and determine if they are ready for, team rewards. In addition, they need to identify teams, set objectives, consult employees and consider the options, either team pay and/or non-financial rewards.

Further, companies should design the scheme with employees' help and communicate the details effectively alongside training in managing team rewards and in team building. Finally, this should all be reinforced with team rewards followed by regular monitoring and evaluation of the system.

A final word

Despite the potential benefits of team pay, the CIPD warns that:

“Reward systems, however well-conceived and effective they may be, are not a substitute for good management as they can fail due to ill-timed communications and poorly defined teams. However, team pay should not be dismissed as another 'flavour of the month' approach. 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.”

Want to know more?

Title: Team Reward Factsheet, Chartered Institute of Personnel and Development, March 2008.

Availability: To download the Team Reward Factsheet, go to www.cipd.co.uk/onlineinfodocuments/factsheets.htm.

The Chartered Institute of Personnel and Development (CIPD) has more than 130,000 members and is the “leading professional institute for those involved in the management and development of people”. For more information visit www.cipd.co.uk.