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McAdams, J. (2000). The essential role of rewarding teams and

teamwork : 15 . Compensation and Benefits Management, 16 (4)

(AR30509)

he Essential Role ofRewarding Teams

and Teamwork

o o o o o o o o o o o o o o

o o

JERRY

Mc D MS

mployee

incentive

pla.ns

are so common in

North America that

they

risk be

co

ming

pmverless.

lt

i.s possible to

structU're

effective

plans, h

O llJever,

and avoid

undesirable results.

Among

plan

design

options

are

incentive plans that

recognize everyone

in

the

organization and

tlwse that zero in

on

special project

teams. s always, good

implernentation of the plan

design will get the company what

it

wants.

SUSAN VITALE IS

FRUSTRATED

.

She's

coming to

grips

wth

the

realization

that

she

hasn t paid enough

attention

to

her human

capital, her employees.

As a

vice-presi.dent

of operations, she manages physical

c p i t ~ the labs and production, and

economic

capital

through

the

budgeting and expenditures process.

Be

cause

she's

been

adept on both

fronts,

operations is

exceeding budgeted perfonnance plan.

Yet she knows something is amiss.

Jerry

McAdams is a thought-leader for Strategic Rewards for

Watson Wyatt Worldwide and co-founder

of

lhe Consortium

for Alternave Reward Stl'ategies Research (CARS).

He s

a

me

mber

of

the

fac

uh

y ofWorldatWork. (formerly American

ompensation Association) and is a regular speaker at

human resources conferences.

This article is based en

th

e book Rewarding T

eoms, Lsstms Jrom

lht

Tre11ches, by

Glenn Parker, je T)'

McAdams,

and David Zielinski.

Copyright 2000.jossey-Bass, lnc., Pub

shers, San Francisco.

Susan has left the 1nanagement-and leadership

-

of more

than

1

000 people

largely to company poli

ces and admini,stration processes, prnarily

the

do-

tnain

of

Hwnan

Resources.

But

reperwssions Jrorn the

CONPRO team project- the team s feeling that 1nan

agement could have played a

more

visible and hands

on role in championing and rewarding teamwork

have her closely examiningher

1nanagement style.

Susan is scheduled for her weekly one-on-one

lunch with a trusted

peer, General Manager

jeny

Parker.

They

have

warlud

together

for

m.ore

than

1O

years, and the relationship is comfortable.

The

two

regularly bounce ideas

off

each other

and

explore ways

ofmeeting

their respective business

goals.

fter

ordering lunch in

the execu

tive dining

room, Susan

asks, Do

you remember the CONPRO

team? Su

re,

]erry

responds.

" think

it 's one of

our

real success stories. At least, corporate thinks it is. l

agree

that th

ey should be

nominated for

the

Chainnan

s

Award."

"

thought it was pretty successful in the end, but

it

sure

took

a while to

get

ther

e,

"she says.

A

nyway, we

had a

feedback session,

and

1

was surprised about

hO llJ

negative some of the comments were about how the ar

ganiz.ation 1nanages

teams

."

5

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C O M P E N S A T I O N B E N E F I T S M A N A G E M E N T

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2

jerry

was

surprised.

How

can that

be?

The

em

ployee apinion su-ruey we just did shows

we're

doing

pretty good and peaple think this

is

a good enviromnent

to

work

in.

We

gave Rupert . . . ahhh, what

's-his

name? .

. . Collins that employee of

tite

year awltrd.

Benefits are competitive and so is compensation. 1 talk

about

teamwork

all

the time.

He

paused

to

sip

his

chiUed white wine.

1

know,

says

Susan, but

i some of rntr best

peaple tell

us

that

we

talk teamwork, but don 't live it,

that extra effort

is

rewarded

only

with the opportunity

to pul out even

more

effort fur no

extra

pay, that we

wflTk

in

silos,

and

that

all

the

meaningful rewards

are

reseroed jflT managernent, we've got

a

problem. We t.alk

a

good garne about the

irnportance

of peaple, but

'm

starting to think

we

m.ay be creating a

pleasing

work

environrnent,

but not

a place where perj(JT7nance is

adequately

recognized

ur

rewarded. Especially team

per

formance."

O

K if you

think

its

a

probl.em, then

it

probably

is,

"j eny

says.

vVhere

do we

sta

rt?

"That's arwther

problem.

1 need a ro(td map. l

guess 1

start

by looking at where

we 've been

and where

we are

nuw.

1 went to

a

va-riable compensation. meeting

in New

York

l.ast year and got so1ne material on

reward

systems Jor wurk tearns.

I'll

try to fin it.

DISCOVERING THE DISCOVERY

PROCESS: A SYSTEMS AUDIT

G

etting all

emp

loyees engaged in pursuil

of

organizational goals-as individuals, as

part

of small work teams, or as broader

organizational units-requires action and consis

tent

follow-through by the management team.

Unfonunately, management interventions that

can

spur

such engagement su ch

as

reward

plans, communication devices, or training pro

grams-are often created and implemented not

as a coordinated

sys

tem, but independent

of

one

another. Even when they are pan of a coordi

nated plan, they're often designed at cross-pur

poses. It 's not at all unusual for companies to

trai n people how to work as high-performing

teams, and then publicly celebrate

or

reward

only the work of outstanding individuals. Two

practices perceived by employees as sending con

trary messages.

Reward and recognition systems, communi

cation and performance feedback devices, and

training tools must be aligned along the same

path, with

the

left

hand

in full understanding

of

what

tl1e

right is up to, and with the same end

goal. The alignment of purpose

stans

with vision

and mission and is

put

into operation through

work systems, communications, management

coaching, personal/ professional development,

performance measurement-and,

of

course, re

ward systems.

Improving where you're headed first re

quires understanding where you currently stand.

We'd argue, for instance, that the balance of or

ganizations with more than a

few

hundred em

ployees would be hard pressed to answer most of

the following questions:

Reward Systems

ls there an inventory

or

audit

of

all reinforce

ment

plans (social, celebrations, cash, non

cash, etc.) presently operating at any level of

the organization?

What corporate objectives are supponed by

each reward or recognition plan, and how do

we know if they've been successful?

Are the reward systems consistem with the

organiZt'ltional culture and management

messages?

How

well

do people

understand

how each

plan works-or how aware are thcy that the

plans exist?

Who is eligible for each plan, and how many

actually receive awards?

How much is spent on each plan and what is

the average or median

i f

there is a wide

range) award earnin

gs

per person?

What is the value-contribution from the plans

(performance improvement, reinforcing the

mission and vision statements, tcamwork,

customer success, maintaining

or

improving

the organization's competitive position in the

labor market, etc.)?

Communicatlons and Performance

Feedback

How often are company

or

organizational

unit measures

and

performance objectives

communicated-and explained-to all em

ployees?

How often are employees told

about

the

or

gan ization s successes, failures, and competi

Lion

in the marketplace?

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T H E S S E N T 1 A L R O LE O F R E W A R O 1 N G T E A M S A N O T E A M W O R K 7

How often are

em

ployees asked- and more

importantly, listened to-about their ideas

for improving company

or

business

unit

per

formance?

As

you move toward a team-based culture,

strategies, and practices

under

these categories

will

need to be maintained, redesigned, or tossed

altogether to match the new direction. But con

ducting such a systems alignment audit is critica

before installing a team-based re rard or recogni

tion system; doing the latter in isolation

wi ll

greatly limit its impact. The objective is to create

an integrated portfolio of practices that "lever

ages" or makes maximum use of

human

capital

to improve business performance.

Susan's

experience

with "leveraging" human capital

has not heen hugely successful (J ()er the long run. Man-

agement has been sending out

directives,

and estahlish-

ing many

measu

res

o

StlCcess (usually financial)

since

she's heen there. Management By Objectives (MBO)

was all the rage fo-r a

while,

but quickly showed itseif

as

mo-re

o

a planning/paperwoik exercise than a

way

to

engage,

excite, and align all

employees

toward a com-

mon purpose. MBO

is

now a part o

most

everyone's

job,

but

Susan isn't

convinced

it makes a great deal

o

difference

in

pef1Jle's o-r the organization's peifrmnance.

The real

problmn is

creating accountability at

m.anagerial and supervisqry fevels Jo-r suppo-rting and

rewarding

teamwork

in

the

ranks.

Perfrmnance

?nan

agement

is

a mixed bag. 1he o-rganization has

in

creased

its Jocus on

devel()/Jing competencies and

has

encouraged managers to ?n(J ()e peopl.e around, hoping

the new

oppo-rtunities

will

increase

thei:r

sense

o satis

factiO'n and develop

11UJ1 e

diverse skills in the wo-rkfo-rce.

The

m.erit pay plan, however, still dist'Tilmtes

only

a

paltry 3 to 5 percent ayear to the balance

o

employees,

barely

keeping pace

with injlation. A handful

o

"out

standing peifqnners get 8 to 1O pe1cent. Employees

believe

salary increases

are

a

"-right"

they

're

entitled

to.

There

are fezv,

i any, incentive plans tied to o-rganiza

tional unit or project team

peifrmnance,

and stillfewer

recognitiO'n

tools

used

to celebrate teamwO'Tk in

the o-r

ganization.

As

the

o-rganizatiO'n

was preparing its application

for the Malcohn

Baldrige

National Quality

Award,

continuous improve1nent project

teams

sprouted up

everywhere. But most

o

the process

impr(J'()enwnts

those

teams suggested have

been

successjuUy

integrated

into

the departments' stand.atd

way

o doing business, and

tite

"team" activity has

dwind:d

away.

RecognitiO'n

focuses on

an

"employee o

the

month and then of the

year.

" Their immediate super

visqrs

o-r

managers nominate employees, and final se

lection

is

by

a top 1nanage1nent committee.

There

is little

peer-based

recognition. Lately, it

seems

as i Susan has

to

beg

to get nominatillns every

month.

The quality

o

the

nominations

is

dropping

-rapidly.

Any project

tean S,

stLCh

as CONPRO, are consid

ered "rewarded" simply i they

present

results t top

management.

Tite cookout

was appreciated,

but

the

T

shirts

were

misunderstood as representing the true value

o their

contributinns. Probably a

mistake

to

pass those

out when

she

did.

A

few

years

ago,

Susan

created

a gain-sha:ring

pl.an fo-r production. It was based on a cmnpl.ex far

mula measuring redttctiO'n

o

labO r c

osts

per ttnit

o

prodtLCtion against a standard. Engineering got tied

up redefining standards and in

the

difficult

practice

o

m.easuring peifonnance against

goals,

and the plan

simply lost

mmnentum. Payouts

shrank, and the plan

was terminated not

long

after introdttction.

But Susan figured it was

time

to take up the re

ward and recognition issue a.gain.

Well-designed

team

based

rewards

have

a unifying effect and

offer

an

op

pmtunity to create aligntnent and accountability, along

with spurring perfrmnance

impr(J'()ement

and

collaho-ra

tive behaviors. She knows rewards alone won 't solve the

proble?n,

but they will get pe()/Jle's attention and give

teams a sense that the fmits o their

labo-r

aren't going

only

into

the o-rganization

s

coffers.

Then she fO'Und the presentatiO'n from the

vari

able

compensatm woikshop.

It descrihed a Reinfo-rce-

ment Model Jor choosing and using various reward

and

recognition

strategies.

THE ROADMAP AN ORGANIZING

MODEL FOR REWARDS

T

he Reinforcement Model is

an

easy

way

to

look at your reward plan options. It begins

with the organization's objectives

and

de

si

r

ed

culture.

Business objectives tend to be straightfor

ward. Profit, revenue growth, cycle time, EVA

financia retum calculations, customer satisfac

tion, quality, new

product

development, and op

erating expense reduction are typical. Reward

plans must be aligned with these objectives to

ensure management support. "Nice todo objec

tives are not

as

effective as "key to our success"

ones. Sorne objectives translate nicely

into

meas-

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C O M P E N S A T I O N B ENEF IT S M A N A G E M F N T

A U T U MN 2000

u res against which performance can be judged.

Sorne require drilling down to find those activi-

ties, projects, and relevant contributory measures

that, when addressed,

will

affect performance.

Susan

ticked

off tite

organization

s

primary business

objectives:

Growth

Cycle time

Retaining

the

workforce

Retum

on net assets

Customer satisfaction/loyalty/success

While the Ust could

contain up to 2 additmal

objec-

tives,

all of

them

important

at

di.fferent levels o

the

organization, she understood that.

people

couldn t focus

on

more

titan 3

to

5

objectives.

f

she

had

to

put

her

hu1nan

capital

t work on

just a

few

objectives, these

would be

the

critical ones.

The

best physical exercise plans are those

that you will do.

The

same is true with reward

plans.

The

best ones

are

those that the organiza

on will embrace as important to meet its needs.

That means all levels

of

management accepng

the plans as business strategies to engage its em-

ployees in addressing its objectives. And that s a

matter of culture. Organizaonal culture (and

how to influence it) has been the subject of

many a book

and

academic research. The or

ganization s vision, mission, history, operating

norms, strategy, environment, and structure

form culture. For the purpose

of

discussing re

ward plans, culture can be described as how the

organizaon ulizes its employees to get work

done. t

is

more than work design.

lt is

the way

people are considered when there is a desire to

improve performance.

One

general description of the whole or

ganizaon s culture is possible, although organi

zaons are rnade up of a number of sub

organizational units, each with a slightly

di ffer-

ent culture. Accounng has a different culture

than Marketing. Manufacturing has a different

culture than Custorner Service. Hopefully, they

are aligned with the overreaching organizaonal

culture, with the differences simply reflecting the

nature of the work they do.

One of the

keys

to success in irnproving or

ganizational performance is to ensure that re-

ward plans reinforce the desired culture, or at

least attempt to reduce the gap between the ex

isng and desired culture.

Exhibit l Continuum of Organization Culture and

lmprovement

Approaches

Organizational Culture: How

Work

Gets Done

Task and Job- Individually Focused Hierarchical, Traditional T e a m ~ _

Based (example: -

and

Mea.sured - (example: directive, top -

o l l a b o ~ a t J v e

..........

. .

1

. ) (example. sales) down) (example. open-

ClV1

servJce book, fluid

ask and Job

Redesign

Organizational Perfonnance lmprovement Approaches

mprove Individual

Performance

Management

Direction

and

Strategy

teams)

t

Employee

Engagement in

lmproving

Processes

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24

C O M P E N S T lO N

B E N E F l T S M N G E M E N T

U T U M N

2

workgroup. The unit appears on an organiza

tional chart. Panicipation may be limited to cer

tain levels

of

employees in that organizaonal

unit

(everyone, all non-exempt people, all ex-

empt, or everyone but those on the management

incentive plan). The performance-award sched

ule is pre-announced. Panicipants know how

much they can eam as a function of perform

ance against the measures. lt focuses on the pri

mary business objectives

and

can use perfor

mance measures most appropriate for the

panicipating organizational unit. Sometimes

there are combinations of levels of measures.

As

an

example, 25 percent

of

payout is based on

how well the whole company does on retum on

assets,

25

percent on how well the division im-

proves

cycle

time, and 50 percent split between

two

measures

at

the department level.

All

meas

ures, however, should be aligned with the pri

mary business objectives. (See Exhibit 6.)

n organizational unit incentive can be the

most powerful reward plan type to suppon a cul

ture of teamwork. Organizational unit incentive

plans can make a business strategy come

alive.

It

is a powerful way to leverage human capital to

improve performance.

It engages all

or

most

of

the employee bas

e.

Exhibit 6. Organizational Unit Incentives

/

It is pays out only when the improvement

occurs.

It is results-based,

not

activity-based.

It provides an opponunity to communicate,

reinforce, educate,

and

engage employees

for the accomplishment of specific and criti

cal objectives.

It can be measured for effecveness.

It is dynamic in that it changes as business

needs change.

Organizational unit incenve plans are usu

ally announced for a year

with

the option to be

revis

ed, kept the same,

or

terminated, depending

on the outcome of

an

effectiveness assessment.

One

of overlooked aspects of an organiza

tional unit incentive plan is the opponunity to

create accountability for all leve ls

of

manage

ment. Most managers are measured on their in

dividual contributions rather than the accom-

plishment of their areas of responsibility and the

performance of the

ir

people. The discipline of

actually cutting a check bas

ed

on performance

against measurable objectives provides the op

portunity

and the discipline

to follow-through,

recalibrate, and actually find out what

yo

u got

for your money (something lacking in MBO and

traditional management measurem

ent

plans.)

7

Individual

r g a o b a t i ~ n a l

Project

Pro,ject

Individual

Organizational

Team

Unit

V

nit

_J_

_L..

l

L

1_

_L.

J

J _

--'-

__L

.....

J _

Base compensa.on

C.pahlllllu lncl>lcloal Wcopllon Projed lncend-.,s

Organizational

andBe111ftll

D e ~ o p

locl>i..,al lnctnthes

~ l t b r a

tasure

and rtward

Unit Incentives

ttract o

nd

rtoin

oldllo and

/mprove individuo/

ouurandU s

pro}tt:t re rults

lo Basepll) c:ompotendu ptrformanc

ptrformance

Manacment-fonned

Align people with

.

Adjustmcnts

ro

T echnical .

Sales incc:ntlve

Orpnizllional

oeam

peormanct

organizationol

bMCp ll) Co=:rTracla

or commlssion

success,

Self-fonned

Objectives

Bendil.$

Compelency -

plano

missionlvision employoeu:ams

.

Annual

o n u ~

Based Peormanoe

Pieco-I'Ble

oeltbrations

(suggestion.

Jmprove pon dwse

Manaement

MBO-based

Spoo

bonuses. continuous

objectives

inc

entives manog:mcnl

lmprovemcnt)

Formu b-based

disaetion.

iocenrives with

IJOIDftation or

p ~ 1 >

preannowx:ed

performance-

award schedule

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T H E E S S E N T I L R O L E OF R E W R D I N G T E M S

N D

T E M W O R K 25

Sorne organizational unit incentive plans

are really awareness and communications plans

in drag. t

is

rare that the plan designers realize

they have des igned a plan that

is

a methodology

for

the

distribution of payouts based

on

a for

mula, rather than a plan that improves perform

ance. These are long line-of-sight plans.

(Line of

sight

is

how well the employees believe lhat they

or

theirworkgroup. department, etc. can actually

contribute to affecting

lhe

measures.) Economic

value

added

(EVA), eamings before taxes, return

on capital assets, and customer satisfaction in

dexes are examples of measures

that

are oflen

not understood by the employees, making those

measures have a long line ofsight. Companywide

measures, covering diverse divisions and de

partments

and

sometimes international opera

tions, also contribule

lO

a long line

of

sight.

The

ex.istence of

the

plan has little effecl

on

the per

formance because the measures are too remote

to the average employee.

These long line-of-sight organizational unit

incentive plans can be effective, if

managemem

understands what

effective

means. These plans are

for communication of critical objectives,

the

op

portunity

lO

educate employees about the meas

ures, and

to reinforce the vision

and

mission.

The question then becomes is the value of a

plan worth the expense?

In

more cases than

one

might think, it is. This

is

particularly lrue when

the company has purposely decided

O pay peo

ple slightly below the competitive labor market

and make up the difference, and more,

through

the organizational unit incentive plan.

The

measures us

ed

in a plan

for

this strategy

need

to

be

calibrated to ensure a payout

of

at least that

of

the

gap between market and the organiza

tion's base pay, but it

is

the upside opponunity

that

makes it attractive to

the

employee.

The

fact

that the payout

is

variable with overall perform

ance protects

the

company from payout unless

the performance

is

there.

Organizatmal unit incentive plans give Susan

the

Jocus she is

looking

for.

She

makes

a strong statem.enl

that this

is

a jramework

Jor

actm, with aligmnent to

frrimary

business objectives, to engage all employees in a

com'T Um purpose: one

that

is goodJor the organizatm

a:nd good jor them. She forms a crossfunctional, muUi

level design team who goes through

a

discovery process

to ensure

that

they u:nderstand how

the

employees feel

about

the organization and

what managemen

.t will

(really) support. They design

the

plan and present it to

Susan after

about

Jour months

o

work, spending

about

a day

every

two weeks in formal meetings. All payouts

are

in addition to

their exis

ting

reward

plans

(base

pay,

adjustments to base

pay,

and benejits), do rwt

apply

lo those on the management incentive plan, and

will not be added to base

pay

.

Measure1nent

o perjonn

ance wiU be

communicated

each monlh, with

payouts

annually.

(They debated about quarterly

and decided

to

start

conservatively with the option to change it next

year.)

The

basic structttre of

he

plan

Jor

all non-exernpt

and

hourly

employees is shown

in Exhibit

7.

Exhibit 8

shows an

example

of

how

payout for

the

plan would

work (circles

indicate actttal

year-end

performance).

Organizational

revenue

growth earns 2%

Departmental

cycle time earns

6%

Department

measure

(custmnized lo its ttnique

needs) earns

1

Total of 2% + 6% + 1 = 9% o base pay

Exempt e7nfJloyees up

to

those managers on the

man

age7nenl in

cen

tive plan

simply could

have

higher pay

outs.

The biggest

surprise

was lww much

diffiwlty the

design team

had getting

agree1nent

on the

m.easures

for

each

depart1nent. What

were assumed

to be

tight

measures

(ajter all, they had been running the business

with

thos

emeasures jor

years)

tumed out to

be rwt

quite

good

enough when

a.n incentive was

tied to

tlmn.

They

began

to

call

the

process

the

Drano effect.

It

forced

people to confront

the

legitimacy o

the

rneasures and

how they could be collected

and fed back

to the

partici

pants in a

ti1nely

and creditable manner. Susan and

the team

agreed the process was

worth

it even

i

the

'Vrarw effect

was the only

outcorne

o he

process.

She

and the

team presented

the plan

to the

rest

o

top

management,

ajter

so1ne

individual

preparation

o

eac

h oj

he

decisi.on

makers. The

actual

presenter

was a

non-exempt prodttction e1nployee who

seroed

on the

team . Her passion

Jor

the plan and insight to how the

organization

worked from

the bottmn

up added a

great

deal

o credibility to

the process.

The

plan was

approved i quarterl

y

reviews are held Jor top manage

ment and a complete

assessment

begins

two

months

befare

the

end o he first year o operation.

7/27/2019 AR30509-OCR

12/13

7/27/2019 AR30509-OCR

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T H E E

S S E N T I L R O

L E O R

E W R D I N G

T E M S N O

T E M W

O R K 27

It

is

a

mix

of

plans

t

hat

can b

ecome the

fr am e

work for aco

n for the core

employee s

nd

the

m a n a g e men

t ranks .

I t

is

a carefu

lly

cons idered

mix that refle

cts the

degr

ee

to which

th

e organizatio

n believes

that people can m

ake a

difference.

n

av era ge plan, well i m p l e m e n ted,

will

alw

ays do be t te r than a

bril l iant plan,

poorly im

p lem e

nted.

It

is all

bout

h

ow you im pl

ement whatyou

have designed

. Implem enta

t ion

is

th ree-f

o ld :

aining mana

gement ownersh

ip dawn through

supervisary

L evels.

App r

oval does

not mean

co

mmitment. M

anagement c

omrn l tment

is

the criti

cal distinction

betw een pla n

s that are

effective

nd

those

th tjust

l imp along with

s

uppon limited t

o lip service.

lt requires

educat ion o

n how th e p

lans work

nd

how

they are tool

s to engage, e

ducate,

nd

m

oti

vat

e peop le to m e

e t the organiz

ation s needs.

Rolling

outtheplan an

d operating i

t as a bus

iness

st rategy.

E

ffecve plans

constant..ly co

mmuni

cate

performance-

to-date, ed uc

ate

on

th e

measures

, nd form ally

engage emplo

yees in

cont

r ibut ing to success.

L

is

also

impon nt

to

get

feedb

ack from

the e

mp

lo yees

on

a regu

la r b

asis.

ou

hav

e time to fix

someth ing

i f

you can

f ind

out

w hat

is

not

w orkin

g e

r

li

er

rath

er than

la ter

.

Assessment oeffe

ctiveness.

M an

agement

reviews

of performa nce

shou ld b e h

eld quanerly

.

Two m on

ths before th

e end

of

an

annua l

plan, a

total revie

w should

be don

e

,

g

a thering in

format ion fr

om employe

es,

managem

ent,

nd

th e

perform ance

data.

Plans

do not

live forever . They require

refurb

ishment regula

rly.