FAQ - How is team pay structured?

Q.   How is team pay generally structured in organizations?

A.   Below is some general information concerning structuring team compensation.

BASE COMPENSATION

The base compensation for a team member is the same as for anyone else: it is based on an assessment of the job size through job evaluation/grading.   Of course, being on a self-directed team may change the job size, but perhaps not enough to move it up a whole grade.

TEAM PAY

It is common to have some kind of bonus linked to team performance.   The simplest way to do this is to treat the team as the unit of performance instead of the individual. But, use exactly the SAME process.   For example, if you have a performance appraisal process that sets goals for an individual and then appraise them on how they achieved these goals (perhaps on a scale of 1 to 5). You can then use the same process for the team.   The bonus can be shared equally among team members or apportioned based on their grade (if you have senior and very junior people on the same team then getting the same dollar figure may not feel fair to the senior people).

THEORY VS. PRACTICE

The theory of team pay is to reward the team as a team.   In practice, there are difficulties in defining and measuring goals.   There is also the problem of individual performance (or lack of it).   It can even be difficult to define who is "on the team" since some people may contribute part, but not all, of their time to the team.

BOTTOM LINE

The generally recommended practice is to have elements of individual pay, team pay and pay based on overall company performance.   It is never easy to do this and there are always certain problems and shortcomings with all pay packages.

Perhaps the bottom line is that pay is not the most important thing in creating effective teams.

The most important pay issue to be aware of is that pay can destroy teams.   A system that gives high rewards based on individual performance will almost certainly interfere with teamwork.