compensating teams[1]

8/6/2019 Compensating Teams[1]

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C om pensation &

Rewarding the TeamMake sure team-oriented eompensationplans are designed earefully.By M att BolchW alk into any Nucor Corp.plant, and nearly every pro-duction worker can tell youwithin a tenth of a percent what histeam's weekly bonus viill be at tbatpoint. Tba t wo rker probably can tell youwhat product is running next and howthat will affect the bonus as well.

"I t 's truly remarkable how much in-

formation the employees know. It 's abeautiful thin g to see," says Dan K nig,manager of HR and organi/ ,a t ional de-velopment a t Nucor in Charlotte , N.C.Nucor is the largest steel joist and deckmantifacturcr in the world and thebiggest steel producer in the UnitedStates, with net sales in 2005 of $12.7billion. All but a handful of its U,700employees are based in the UnitedStates.

Nucor is the rare company that livesand dies by the spirit of team work . Thatis evident in its organizational design,management philosophy and incentiveplans. Kach employee participates inone of four incentive plans.

For many companies, ha\ ' ing a com-pensation plan that rewards employeesfor successful teamwork fits their orga-nizational model.

Com panies that have such plans takev a r io u s a p p r o a c h e s t o s t r u c tu r in gteani-biLsed pay. HR professionals atcompanies that use these plans say theycan be an effective way to reward teamperformance, but must be carefullyc ra fted to avoid unin tend ed conse -quences that could undt ' rmine individ-tial initiative and business goals.

Jason Kovac, senior com pensationma nag er at W ortdatW ork, a ScotLsdale,Ariz.-bascd nonproiU education jLssoci-a tion for com pensation , benefits and to -tal reward s, .says interest in team -basedpay has waxed and waned ovei' the pjistseveral years, first gaining traction intheea rh tomid-19 .40s .According to Jim Fox, founder andsenior pa r tne r a t the compensa t ion


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l o m p e n s a t i o n &Benef i t s AgendaAssociates LLC, based in St. Paul,Minn., 12 percent of privately heldfirms, mostly in manufacturing, havesome sort of gainsharing p rogram. Andthe use of teiini-based incentives also isgaining support among hospitals andhealth systems that often tie rewards tospecific go als, such as increased patien tsatisfaction scores or a reduction in re-ceivables, he says.Fo rm F o l l o w s F u n c t i o nwhile team-based pay isnt a panaceafor organizational ills, it can be a usefiiltool to motivate and reward employees.But to be effective, a company's culturemust embrace the team concept, teamdivisions should make sense, and goalsshould be clear.However, don't think you can get thebest from your team by designing a com-pensation plan first, says Fox, He be-lieves tbat the best teams form bythemselves and the consideration ofwhether teams should be compensatedfor their work beyond base pay is a ques-tion that should be deliberated only aflerthe team is formed."The best advice I can give is to getthe [team] setup right," Fox says. "Paycomes later, if" at all, to reward teammembers for their eftbrts. Pay will notcorrect the problems with an ill-conceived team . But if a team has beendesigned conectly, the pay model neces-sary to sustain its performance will be anatural outcome of the team develop-ment proces.s."So me D o n ' t swhile there are many approaches toteam-based pay, a company that is heav-ily team-based or that uses multipleteams should resist the urge to pit teamsagainst one another or reward individ-ual team membere with extra recogni-tion (and pay), says Ch ristopher Aveiy, aTexas-based speaker and consultantwho specializes in issues concerning in-dividual and shared responsibility in theworkplace and the author of TeamworkIN an Individual Skill: Getting YourWork Done When. Sharing ResponMbili-ty (Berrett-Koehler. 2001) ."Fostering competition between theteams promotes impermeable bound-

mation sharin g and collegialit}'." Averysays. "Therefore, attempting to awardthe best of middling or low-performingteams among a group of middling orlow-performing teams will provide anegative return on investment."And singling out a team member forextra pay is a surefire way to sabotagethe team dynamicunless the group re-ceives a bonus and divvies the fimdsamong themselves. "When teams per-form highly, it is the interaction[amon g] team memhers, not the mem-bere themselves, that creates thehigh performance," Averysays. "If you ask suchmembers who wassingly responsiblefor the high per-formance of theteam, they'll say'Huh?' or 'Wewere,' and meanit." If managementwants to reward ahigh-pertbrming teammember, give that per-son a raise, Aver}' adds.And remember that eventhough teamwork is an essential aspectof many organizations, no team worksperfectly all the tim e. Don't ignore mes-sages that things aren't working or indi-cations that a team member orsupervisor is not doing his part. At Nu-cor, "If youVe not contributing with theteam, they certainly will let you know

> O n l i n e R e s o u r c e sf o r more in fo rmat ion about compen-sat ing employees for teamwork, see theonl ine vers ion of this ar t ic le at - wv .. s h r m . p r g / h r m a g a z i n e / 0 7 Fe b r u a r y f o rlinks to: An SHR M research paper on team -based pav considerat ions. An 5HR M whi te paper on team com-pensat ion method s .

The SHRM Online Compensat ion &Benef i ts Focus Area home p age.

A n HR Magazine ar t icle about compen -sa t ing teams. An SHRM research paper on compen-sa t ion t rends .' An annual salary budget survey by

about it," Kmg says. "Tlie few poor play-ers get weeded o ut by their peers."The same tenet holds true for super-visors the team feels aren't pulling theirweight on the plant floor. "When Ijoined Nucor, my boss told me this is on eof the few com panies wh ere the employ-ees ciui fire their boss," says Km g, who

joined the company fiveyears ago.How Nucor D oe s ItOf the four incentive plans at N ucor, theone aimed at production employees i.sthe purest team-based compen-sation plan, used for groupsof 12 to 20 people, in-cluding maintenanceworkers and super-visors."People e. qiecta complicated

r i i icentivel plan,\ ^ H ^ f f l ^ l {A % H hi>t our plan is re -ally simple: q uali-ty tons out thedoor and pay week-

ly," Krug says.The ct)mpany re-duces the num ber of weeklyshifls when necessary- to keep em-ployees working. But worker can stillearn incentive pay even for shortenedworkweeks because of low productionthresholds before bonuses kick in, Krugsays.There is no upper limit on bontises ateam can earn, but they are usually be-tween 100 percent and 220 percent ofbase salary and average 170 percent to180 percent.That takes care of the quantity part,

but what about the quality of thegoods? At Nucor, the tonnage of subparproducts is subtracted from total out-put in increasing multiples the fartherbad p roducts travel from the source. Ifa team catches inferior goods in itswork area, the tonnage is simply sub-tracted. If it reaches the next internalcustomer or the shipping department,the amount of bad product subtractedis doubled. And if it reaches the cus-tomer, tonnage in a multiple of three issubtracted.With bonuses included, the typicalNucor steel mill worker makes $72,000


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plan that paid out an additional $18,000|>er employee in 2005. Krug says.Although production workers' per-fbrinance is most closely tied to team-hased incentives, every N ucor employeeparticipates in a bon us or incentive planthat cniph;isizes performance. "Recep-tionists, secretariesyou name itwe're all part of a team," Kiaig stresses.Profitsioniil and clerical staffers par-ticipate in a bonu.s program biused ontheir division's financial performance

scorecard approach, rewarding eacbgroup of employees up to $1,500 a yearper employee based on two factors: de-livering its profit objective and its ratingon a team scorecard, tbe cnteiia fbrwhich varies amon g units. If the compa-ny does not meet iLs profit objective,management can authorize a smallerpayout, which will be temp ered by teamperformanee on the .scorecard.Perfonnance and financial objectives

are weighted on the scorecard and posted

Since Nucor implem entedits incentive plan in 1966,the com pany has beenprofitable each quarter.

that can equal up to one-third of theirhase pay. Department managers also arerewarded twice-yearly, hased on returnon assets, of up to 80 percent of theirh;tse pay.Senior num agers' salaries are set low-er than in comparable companies, with

tbe remainder of their comjiensationbiised on Nueor's annual overall per-centage of net inccjme to stockholders'equit\".Ten percent of the company's operat-ing profit also is divided among all em-[lloyees, except fur senior managers.Since Nucor implemented its incen-tive plan in 1966, the company has beenprofitable each qu arter and no employeehas hecn laid off.

Keeping Score.'YuutliL'r .succcsstui team-oriented planis employed at Gulfstream AerospaceCorp., wbich has been rewarding em-ployees based on overall company per-(brmance for years.In 2001. the ineentive program waschanged to tie pertbrmance pay moreclosely to team goals. Tbe size of teamsvaries by location and job function andranges fi-oni 60 to .900 p;u-ticipimts, saysBoh Holben, director of compensationand benefits for Savannah, Cia.-based(lulfstream, a wholly owned subsidiaryof General Dynamics.

in each work area for everyone to see.Scorecards also can be accessed by em-ployees via the company intranet.An initial payment can be made atmid-year of up to $500 based on teamperformance. Groups can score higherthan 100 percent on an objective anduse the overage to offset future deficits,but tbose adjustments may not be equiv-alent because of the scorecards weigbt-ed formula."We've tweaked the program fromtime to tim e, but we have received posi-tive feedback from managers and em-ployees and believe it has made adifference in our organization." saysHolben.In one case a single incident knockeda team's payout from 90 percent to 60

percent, so workers realize the p otentialconsequences of their actions. "The in-eentive plan definitely has workers' at-tention."Nucor s "bonus system is woven intoour culture," agrees Krug."In down years, we all make lessmoney. In good years, we make more,"he continues. "The organizational con-trol holds us all accountable for ourperform ance." DD

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