team target or individual target

8/2/2019 Team Target or Individual Target

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1What is more effective in Companies or Organizations that are using Lean or Six-Sigma: Individual

Target or Team Target?

What is more effective in Companies or Organizations that

are using Lean or Six-Sigma: Individual Target or Team Target?

There is a prior question whether it is appropriate to have any

form of incentive pay as opposed to straight salary. If it has been

decided that the former is desirable, the next question is the form of

the incentive pay1. Performance related incentive should be

implemented for individual and team based performance/ the

weightage between the individual and team will primarily depend

upon the nature of Job2.

Irrespective of companies are using Lean Sigma or not,financial incentives improve task performance moderately to

significantly, but the effectiveness dependents on organizational

conditions. Two recent reviews of the effects of organizational

behavior modification indicate that monetary incentives

significantly improve task performance. Stajkovic and Luthans s

(2003) meta-analysis of 72 fields studies shows that an

organizational behavior modification intervention using monetary

incentives improved task performance by 23 percent, whereas anintervention with social recognition did so by only 17percent and

feedback by only 10percent. Furthermore, by combining all three

types of motivational reinforcers, performance improved by 45

percent. This is a stronger effect on performance than when each

approach was applied separately. Feedback, the strongest phase of

PDCA culture in Lean Organizations, combined with money and

social recognition produced the strongest effect on performance3.

The standard argument in favor of individual target basedincentive scheme (IBIS) is the following: if I am rewarded as an

individual for my output, I get the full value for my commitment; if I

am paid as part of a team reward, I only get part of the reward, so I

may choose not to put in the extra efforts. As a result creative,

suggestion and learning culture of a Lean Organization dilutes. In


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some recent reports, it is said that a team target based incentive

scheme (TBIS) penalizes performers and rewards passengers. This

is known as the free-rider problem. Thus the mass production

organization choosing to institute an IBIS provides stronger

incentives for its employees3. However in Lean Organizations, thisscenario is much more different.

Again focusing primarily small business, Jenkins et al. s

(1998) meta-analysis of 39 studies addresses performance quantity

and quality, found that financial incentives are significantly related

to performance quantity but not to quality does not support the

Lean Principle, Quality at Source at all4.

Group or team target based incentive systems are consistentlyeffective in Lean and Six-Sigma following Organizations, although

they are not well tested in public sector settings, where measures of

organizational performance often are uncertain. Team-based or

small-group incentives are characterized as rewards in which a

portion of individual pay is contingent on measurable group

performance (DeMatteo, Eby, and Sundstrom 1998). Effectiveness

depends on the characteristics of the reward system, the

organization, the team, and individual team members (DeMatteo,Eby, and Sundstrom 1998). Honeywell Johnson and Dickinson

(1999) do find that equally divided small-group incentives sustain

high levels of productivity and satisfaction for group members and

that small-group incentives are at least as effective as individual

incentives with groups of two to twelve3.

The aim of any variable payment by result scheme is to

provide a direct link between pay and output: the more effectively

the worker works, the higher their pay. This direct relationship

means that incentives are stronger than in other schemes. However,

traditional bonus, piecework and work-measured schemes have

declined in recent years, as many employers have moved to all-

round performance rather than simple results/output based pay,


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thats how Lean Sigma companies are defining Excellence. In most

of the Lean Companies bonus schemes incorporate quality

measurements or customer service indicators in the assessment to

avoid the likelihood of workers cutting corners or compromising

safe working methods in order to increase output.

The standard advice when designing best-in-class salescompensation plans has always been to pay for individualperformance. Recently, however, an increasing number ofcompanies are finding that team-based performance measuresbetter reflect the way they sell to customers5.

Before organizations adopt team-based measures and

incentives, they must address two questions: What businessconditions are driving the decision to reward team results rather thanor in addition to individual results?How can an organization know ifthis is the right path to follow?Answering these questions requires aclose look at the companys business model, Operations, Sales andMarketing5.

As for instance, Organizations need to determine how the workof sales teams and individuals comes together to drive the business.Does the organization subsist on competition among lone rangers

who rarely need to work together for the good of the customers? Ordoes it rely on a complex network of account managers, overlaysand geographically dispersed customer teams to work in asymbiotic, seamless way to best meet customer needs?

Once an organization understands these key features, it canassess the pros and cons of measuring individual vs. teamperformance in its sales compensation plan.


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Individual Target Lone Ranger

Pros Cons

Clearest line-of-sight for planparticipants

Demands performance andresults for pay

Clearly differentiates betweenhigh and low performers

Encourages a strong salesculture

Contributes to an every manfor himself environment

May hinder effective teamsales behaviors, createsfiefdoms

Creates crediting issues whena sales effort comes frommultiple contributors

Team Based Target Three Musketeers

Pros Cons

Fosters a collaborative/sellingenvironment happy to help

Enhances a focus on thecustomers needs we arecustomer advocates

Resolves crediting issues forcomplex team sales

Spreads incentives acrosshigh and low performers,potentially allowing lowperformers to draft behindtop performers

Dilutes pay-for-performanceculture

Hinders managements abilityto quickly diagnoseperformance driver(s)

Source: Sibson Consulting

Assuming an organization decides to employ a combination ofteam and individual incentives, which metrics are best suited forteam versus individual measurement? Ideally, an effective sales

compensation plan should have three incentive measures. Thesecan range from the objectively quantifiable (such as customerrevenue) to the more subjective in nature (such as management byobjectives). How the sales strategy and organization support keybusiness objectives will help determine whether a chosen metric isbest suited for team or individual measurement. A company shouldidentify those activities that require the greatest collaboration of the


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team. These may include generating multi-product revenue, cross-territory results or customer satisfaction.

Individual incentives are still critical to success, so anappropriately balanced team vs. individual incentive mix maintainsthe skin in the game for sales reps while supporting andenhancing good team-based decisions for the customer. The bestmethod for a company introducing team-based incentives for thefirst time is to follow a judicious approach to avoid alienating itsvaluable high performers5.

If the company is moving from a pure individual mix,

introducing one team-based measure that accounts for no more

than 30 percent of the total incentive would be advisable leaving

70 percent of the incentive for rewarding individual results. As the

organization becomes more comfortable with team-based measures,

moving up to 50 percent based on team results will still provide a

chance for individual performers to shine and will allow the

company to maintain a strong pay-for-performance culture5.

Although individual performance measures work best for some

organizations, others can benefit from team-based plans. The keys

to success include recognizing a team-based sales organization,selecting the best measures at the team level and finding the right

balance. Executed with care and a sound business case in the right

organization, team-based incentives can support a more

collaborative environment that can improve alignment with the

companys overall objectives and create a winning sales strategy5.

Recent study shows, to Incentivize Teams vs. Individuals:

Incentivized teams increased their performance by 45%;

incentivized individuals increased performance an average of 27%.

The increase in team performance is thought to result from

decreased social loafing that occurs in teams, because of the

monitoring required by incentive programs. Clearly, peer pressure

has significant value6.


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References:

1. See Simon Burgess and Paul Metcalfe, Incentives in Organisations: ASelective Overview of the Literature with Application to the Public

Sector CMPO (1999). University of Bristol

2. See Manjari and Rekha, Formulating the concept, Principle, andParameters for Performance-Related Incentives (PRI), Indian Instituteof Management, Ahmadabad, Feb, 2008

3. Motivating Employees in a New Governance Era, PerformanceParadigm Revisited, by Debra and Laurie, Indiana University and SanFrancisco State University respectively. 2006.

4. Promoting employment relations and HR excellence athttp://www.acas.org.uk/index.aspx?articleid=735 on 19th Feb, 12.

5. Are Team-Based Incentive Measures Right for Your SalesOrganization? By Sheila McCarthy and Shalin Sharma athttp://www.worldatwork.org/waw/adimComment?id=36014

6. Incentives, Motivation and Workplace Performance: Research & BestPractices, Spring 2002. Research Sponsored by The InternationalSociety for Performance Improvement

team target or individual target

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