Team-Based compensation

Team compensation consists of pay, benefits, and other rewards delivered to members of work teams in return for their contributions to the performance and capabilities of their teams. In contrast to individual compensation for individual work, team compensation refers to rewards for cooperative products or services of teams, for which members share both the responsibility and accountability, and which they accomplish together through coordinated, interdependent efforts. Compensation systems in team-based organizations ideally reward team performance while motivating individual performance and fostering cooperation among teams.

Team compensation represents part of an employee's total compensation, in addition to components linked to individual capabilities or performance. Individual pay components, such as base salary, usually reflect education, work experience, training, and the labor market. An additional pay-for-skill component may compensate an individual's demonstrated, special skills, such as proficiency with specific medical procedures or software. A typical component of an individual compensation package is the organization's benefits package for all employees: medical and life insurance, retirement contributions, education assistance, stock options, and others. Compensation packages differ greatly in the combinations of components they include and the designs of the components.

Many organizations use team compensation to motivate and reward team performance. Team compensation usually consists of variable pay based on performance against a measurable target or objective on one or more performance indicators. Compensation can involve incentive pay for team performance, pay bonuses for exceptional performance by teams, or individual bonuses for contributions by team members to their teams’ accomplishments. Examples include a 20% annual salary bonus to members of a project team for completing their project within budget and within specifications, a one-time $100,000 bonus split among members of a medical research team on approval of their patent for a new drug, and a monthly salary bonus to members of hospital patient care teams whose customer satisfaction ratings exceed a certain minimum.

Organizations may use team compensation when individual compensation fails to motivate the cooperation required by the business. For example, individual members of patient care units at a hospital might deliver excellent care but collectively exceed cost targets. Their managers might organize them into teams and offer team compensation focused partly on cost efficiency, perhaps a monthly bonus to teams who meet targets for both quality of care and cost efficiency.

Team compensation can help in recruiting, hiring, and retaining capable individuals, motivating them to cooperate, and providing incentives for continuous improvement and learning. Team compensation, as part of the organization's compensation system, helps express and reinforce the culture. Ideally, all components of a compensation system, including the team component, link performance incentives with the organization's mission, values, and success.

Dilemmas in designing and administering team compensation include (a) how to appropriately measure team performance; (b) how to link measures of team performance to the organization's success; (c) how to create a clear line of sight for team members—a psychological link between efforts toward improving their team's performance and the rewards for those efforts; and (d) how to minimize competition among teams eligible for team-based rewards.