There is no "We" in Team
Originally posted March 2010
In his March 4, 2010 article for the Wall Street Journal (How Much Does Pay Matter?) author Alan Murray concludes his article by saying: “The bottom line is this: Incentive pay is an effective tool in situations where performance can be fairly measured and where it is based largely on individual effort. But it is less effective in situations – common in today’s workplace – where the measurements are highly subjective and the work is done by teams.”
We agree that there are situations where incentive pay might be ineffective but the scenarios where we find that to be the case differ from those suggested by Mr. Murray.
We see problems where incentive pay is poorly linked to the company’s business and people strategies. If the incentives are not driving the desired behavior, then certainly the pay can seem arbitrary and unfair. Essentially, for businesses, compensation of any kind is a means to an end, not the end itself. It is the most important tool a company has to send messages about the behaviors expected and needed to drive business results.
So if a company wants employees to invest their energies on those things that drive business strategy, HR and management need to begin with a bottom up approach to designing the rewards programs. There is no “one size fits all” approach. Additionally, companies should look at jobs and determine which ones are most important to the success of the business. Keu roles at retailer Walmart would be different from those at Neiman Marcus, for example. Even though they are in the same industry, their business strategies differ greatly (low cost vs. luxury market).
We also see problems with incentive pay where the total rewards strategies (TRS) and structures are outdated. Every company should review its TRS at least once every 5 years — more frequently for start-ups, troubled companies and those who have had a major business event (acquisition, divestiture, etc).
There is no reason why incentive pay cannot be structured to effectively motivate teams as well as individuals. For the companies who find this to be an issue, we believe the problem doesn’t lie with the workplace, it lies with an outdated rewards structure. It is time to revisit the total rewards strategy and refresh its structure to meet the changing workplace model.
Companies need to consider the business environment, expectations of key stakeholders, the vision, mission and values of the company, its organization capabilities and people strategy. Ignoring any of these important areas could result in incentive pay that is misaligned and is not only underappreciated by employees but worse, fails to help deliver business results.