Compensation: The factors affecting one company's change from individual to team incentive

Abstract

Compensation is approached from the perspective of developing strategic advantage. As such, compensation must be viewed from a broad perspective, and the interrelationship with noncompensation systems must be considered. Companies trying to select or develop the "right" compensation plan today often believe it must be based on pay-for-performance.

First, the literature is examined regarding the effects of both individual and group pay-for-performance programs on factors such as productivity. If one approach proves to be clearly more effective, then the decision of what type of plan to use would be simplified. The literature review includes interventions that are not compensation related, such as goal setting and group feedback. If they as effective or more effective than incentive dollars, then this could reduce significantly the investment an organization needs to make in order to improve performance. Next, a study of a manufacturer that is changing from an individual incentive plan based on piecework to a team based incentive is described. One feature of the team plan is that individual opportunities for earnings vary significantly for members of the same team (who may be doing the same or similar work).

The main research question is whether this variation has an effect on team success. The effects of several variables on the success of the teams are examined. These variables are: variation in earnings potential among team members, variation in earnings potential between teams, team size, experience in a previous team's compensation plan, and sequence in time of the team's opportunity for earning incentive pay. A discussion of the results includes concerns about sustaining the effectiveness of the team incentive program. The focus is placed again on obtaining strategic advantage by thinking of a compensation plan from a broad perspective as one of a group of interdependent systems at work in the organization. As such, it is suggested that the company studied begin now to focus on the non-compensation variable that can have a positive synergistic interaction with the team incentive plan.