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Pros & Cons of Team-Based Reward Systems

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  • 0:03 What Is a Team-Based…
  • 1:18 Types of Team-Based…
  • 3:05 What Are the Advantages?
  • 4:10 What Are the Disadvantages?
  • 6:48 Lesson Summary
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Lesson Transcript
Instructor: Tara Schofield

Tara has a PhD in Marketing & Management

Businesses can use a variety of ways to motivate and inspire their employees. One of the most effective tools is offering an incentive for performance. In a team-focused environment, offering a team-based reward has pros and cons.

What Is a Team-Based Reward System?

A team-based reward system is a way to compensate a group of people based on the combined contribution to a project or the organization. It has become a widespread and motivating way to reward a group of people for their efforts to achieve a common goal. As more companies utilize work groups to complete projects and create a team environment, offering an incentive to the members based on the group's performance has become a more common and acceptable way to encourage team members to collaborate.

Let's imagine you've been added to a team to create a new, innovative countertop cooker that keeps food cold until the delayed cook time feature kicks in. It's a large project that will likely take about a year to complete. Your company is taking a new approach to project management. Rather than the project moving through departments, representatives from each department will work exclusively on the team to create, test, launch, and sell the new appliance. Incentives have been created to offer encouragement and support to ensure the project stays on schedule. If each of the deadlines is met, each member of the team will earn a bonus. Once the project is complete and the new appliance is released for sale, additional bonuses will be offered when the appliance hits sales targets.

Types of Team-Based Reward Systems

There are three common systems that are used to offer team-based rewards: these are deadline-driven targets, incentive bonuses, and profit sharing.

  • Deadline-driven targets, sometimes called recognition pay, are a reward system based on hitting specific goals by a definite due date. If a team reaches the objective on time, the team earns a bonus. In the previous example, your team is assigned to create a working prototype for the new appliance within three months of project start. If this target is met, each member will receive a $500 bonus. This bonus encourages the team to work together, accomplish the goals together, and meet the three-month deadline.

  • An incentive bonus is a plan that allows for an extra payment for increasing performance. Sales groups frequently use this form of reward. If the team reaches a pre-determined number of sales, they receive a bonus or commission on those sales. In the countertop cooker example, your team goal was to sell 10,000 units of the new appliance in the first three months. The marketing and sales professionals on your team have worked very hard to place the appliance in national chain stores and online, while the rest of the team helped support those activities. As a result, there were 15,000 units sold in the first three months. This allowed the team to earn an extra $5,000 each as an incentive bonus.

  • Profit sharing is a type of team-based reward that offers employees a small portion of the profit from the performance of the company. It encourages the entire staff to work together, reach common goals, minimize expenses, and reach targets that will help the company achieve the greatest profit. An increase to the bottom line equals an increase in each employee's compensation.

What Are the Advantages?

There are advantages of using team-based reward systems. We'll now look at three of them.

One benefit is that it motivates people to work together. When a financial reward is offered, a team can be more driven and focused on reaching the group goals. A team-reward system can encourage individuals to work together and support the team objectives to earn a reward.

Second, it provides a benefit for reaching a common goal. Working together creates more synergy to achieve a common goal. When teams are struggling to work together, a financial reward can often encourage each member to work harder and focus on the end result.

Lastly, It helps everyone work toward company objectives. In a work group, it is possible that each person has his or her own goals or objectives. A disjointed and unorganized team is the result. However, if the members can put their personal agendas aside and support the company objectives, the team will be much stronger and successful. Offering a reward can help motivate each individual to commit to the group plan.

What Are the Disadvantages?

There are also some disadvantages of using team-based reward systems. Let's look at those now.

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