Rewarding employees efficiently is a major hurdle for many corporations. Nick Martindale considers the tricky balance of recognising team and individual performance.
- Understanding different roles across the business can help guide the decision whether to primarily reward individually or collectively
- A mix of individual and team rewards often serves to keep people engaged with the wider organisation goals
- Asking staff what they would like can work well with money-can't-buy experiences often popular
In the last issue WSB reviewed the academic evidence surrounding the success of bonuses and incentives. With the case well made for their inclusion in reward packages, it is important for such schemes to be introduced and utilised correctly.
Debate over just how and why people are rewarded for exceptional performance has been brought sharply into focus in recent years.
Yet for employers the real priority is to ensure people are appropriately recognised for their work, ensuring they remain engaged and motivated to put in the effort in the future and demonstrate the kinds of behaviour required by the broader business.
For some, this could involve heavily incentivising individuals to hit their own targets, while others may look to recognise the performance put in by a broader team.
"Research on which is most effective is controversial with some studies claiming that team rewards are 45% more effective than individual ones, and others reporting that a 75/25 rule should be employed, where 75% of rewards should be individual and 25% should be team based to deliver the best results," says Ashridge Centre for Research in Executive Education director Patricia Hind.
Individual incentives actually came back into fashion during the downturn, says Towers Watson UK practice lead for reward Tom Hellier, as organisations sought to hold on to their top talent and target reward budgets towards the best performers.
"It's something that most organisations tend to spend a lot of time talking about and exploring and over the course of the past few years we've seen a fairly aggressive shift towards individual performance," he says. "We do hear about companies weighting up the pros and cons of a team-based reward mechanism but we hear more talk than see action."
Its own experience suggests the number of organisations using purely team-based incentives or rewards are down in the low single figures, such as 3, 4 or 5%.
Individual rewards tend to revolve around monetary compensation, and are usually linked to specific targets, making them particularly well suited for sales positions and roles where levels of productivity are clearly visible, suggests Ashridge's Hind.
"They reward high performers over low performers and can be used competitively," she says. "One meta-analysis study claimed to find that individual-based programmes increased performance by 19%."
But there are also risks, she adds, particularly through disincentivising those who do not hit their targets and therefore do not receive as much - or any - of the pot as their colleagues.
Such rewards do not have to be purely cash-based, however. Innecto Reward Consulting conducted a large piece of research for a client into just what its employees (drawn from Holland, the US, Singapore, China and the UK), wanted as rewards, and how that differs across geographies.
"What people valued were the money-can't-buy experiences," says Innecto director of consulting Deborah Rees.
"So rather than the bunch of flowers or bottle of wine which people said were nice to get, there was also a sense that it would be great to have a grown-up internship, so work experience in the Singapore office for four weeks which would really reward people in a different way. Some of the younger employees said they would like it if they could be moved up the IT upgrade list or have a better laptop."
Gift cards and vouchers are also an option, and one where there is less risk of the proceeds being absorbed into everyday costs and not fully appreciated by the recipient.
"These have maximum impact when rewarding staff independently, as they give choice to the individual," suggests Sodexo Benefits and Rewards Services marketing director Jamie Mackenzie. "When employees are able to choose their own treat based on their personal likes and interests, it increases the relevance and value of the gift and they are more likely to repeat the desired business behaviours."
In fact, individual recognition does not have to cost anything. "Public, verbal praise works really well on an individual level and can be integrated seamlessly into the end of an all-company meeting," says Thomsons Online Benefits consulting director Matthew Gregson.
"But employers need to strike a careful balance between recognising employees and showing anything that could be perceived as favouritism."
Yet despite the low levels of organisations that exclusively reward people on a team basis, interest in encouraging team performance alongside individual metrics is growing.
"Where we're seeing clients wanting to talk about this is where they're trying to encourage teams to work together towards a very defined goal," says Aon Hewitt principal reward consultant Jackie Waller. "So if you have roles with reasonably equal members who all want to work together, rather than fostering competition where they're all fighting for the same bonus pot, then making a team achievement pot can help everyone work towards the same goal."
This tends to work particularly well for project-based work, she adds.
"It tends to be an environment where everyone has a very clear role and there are some very obvious milestones and tangible deliverables that can be rewarded," she says. "Often because they're people who are working together from different parts of the business it also encourages the breaking down of silos."
It can also work well in other team environments - such as call centres or manufacturing plants - where there are team-based targets, as well as individual ones, she adds.
Ashridge's Hind believes such schemes can help to improve both individual and team performance, as well as encouraging loyalty and commitment.
"Some team-based reward systems have been found to increase employee performance by as much as 48%," she says. "They are also effective in shaping employee performance to be more in line with company values and goals. An example of where team-based rewards could work would be in software development where several teams contribute to the final deliverable."
Hay Group UK and Ireland head of reward consulting Mark Thomson says team-based incentives, such as productivity bonuses, prove particularly popular in blue-collar positions.
He gives the example of a scheme the NHS developed for a team of hospital porters.
"Team-based incentives were put in place to encourage the porters to adopt new working practices tied to productivity gains," he says. "If individuals failed to use the new technology, the performance of the team was compromised and so there was significant peer pressure on everybody to change their traditional ways of working."
All-employee profit-share schemes such as that operated by John Lewis also work well, but the concept is harder to operate in more complex environments such as professional support functions, sales teams and line management roles, adds Thomson.
"This is because even defining who is in the team is a challenge, and working out what metrics should be used to drive the team scorecard is extremely difficult," he explains.
Support functions, where there tends to be little or no direct interaction with an end-customer, also lend themselves to team incentives, believes Innecto's Rees.
"There is a strong link for salespeople between individual control and their sales bonus," she says.
"But for the team supporting those, whether they're out on the road or are working in a longer-term sales environment where it takes longer to get to a sale, a team-based, collegiate environment can work very well. You might say that for every £1 that the sales team earns they get 10p and the sales team share another 10p, so there is this sense of a common destiny and purpose."
With team bonuses, there is perhaps even more scope to introduce non-monetary elements, for example by rewarding teams with company days out, an evening meal or a trip to a hotel or spa.
"You might reward a team with a lunch and then they can all go home early," suggests Rees.
"Or something we're doing with a client at the moment is where young apprentices who perform really well in their assessments are invited to meet with the head of their company, have an inspirational speaker and then a lunch to celebrate what they've done. Those ad hoc and more discretionary incentives can work quite well, and they don't cost a great deal of money."
Team-based incentives may also work better in certain countries and cultures.
Innecto's research also threw up some interesting findings around the degree to which individual or team-based incentives were valued or wanted by employees in different parts of the world.
"The Chinese and Singapore groups were much more modest in what they wanted; they didn't want their boss to stand up and give them a round of applause; it was more private and they wanted to be noticed as part of a team," she says.
"The UK and Holland were somewhere in the middle and the US was very keen on the annual award ceremony with the red carpet and saw that very much as part of the recognition package, in a way that European and Asian countries don't. Quite a lot of people in those areas said they would feel awkward and embarrassed to be standing up, when actually a lot of their team had done that work with them."
Yet there is a risk attached to such team-focused awards, particularly around alienating those who have performed best or worked the hardest. "They're still not that common and the reason for that is because high-performers feel they're not being fairly rewarded because they're getting the same as everyone else," says Aon Hewitt's Waller.
"One of the critical things that we say to clients when they're thinking about how to structure these is to make sure everyone is clear about their roles and what they need to achieve. They seem to work best where everyone has rather similar roles in the team, so if you have a team where you have senior and junior people and they're all working to the same reward that sometimes doesn't work very well."
In reality, most organisations are likely to use a combination of individual and team-based metrics, with different blends for particular groups of employees or functions of the business.
"You do see combinations and they tend to work in a number of ways," says Towers Watson's Hellier.
"One would be for an organisation to have different components to an annual incentive plan, so the largest and most significant component is an organisation-wide performance measure, usually a financial measure, and then underneath that is a team-based measure and that might make up a proportion of the overall weighting. Another way is to have an overall view of performance for the purpose of determining the reward and then a multiplier that might take into account team-based performance."
Even those which don't introduce formal financial metrics are likely to want to use some form of reward mechanism to motivate their teams, as well as particular individuals.
"Employers should consider a balance between rewarding staff in their teams and individually, encouraging the constructive and motivational effects of each approach," concludes Sodexo's Mackenzie.
"What's important is that employers understand their staff, tailoring rewards to suit employee demographics, and taking cultural and generational differences into account. If the type of recognition and situation is carefully considered on a case-by-case basis, both approaches can work well."
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