Team-based compensation - Is it the answer?

I guess that depends on what the question is!  Almost invariably one of the first questions that a prospective employee, whether manager or staff, is interested in getting an answer to is "How much will I be paid and how will I be rewarded?"  There is no doubt that other factors come into an employment decision for any individual - what kind of work will I be doing, who will my supervisor be, who else will I be working with, what's the reputation of the work unit, etc.  But all of us have a base interest in what our compensation will be.  And most of us are also interested in knowing how good performance will be rewarded.

Organizations - and leaders - are even more interested in how their compensation systems impact their bottom line profit/cost performance; how the compensation system allows them to attract, retain and motivate staff; and, how a compensation system helps the organization deliver on its key business objectives. 

Historically, most organizations and leaders have operated with a philosophy that individual performance dictates individual reward.  Increasingly, however, a number of shortcomings have been identified with that approach, most notably that it can set up unhealthy competition between staff and between business units - what might be good performance for one area of the organization might negatively impact the ability of others to perform, and might limit the ability of the organization to achieve overall goals and objectives.

Enter team-based compensation.  The idea is that pay or bonuses (or both) become tied to the organization's overall achievements.  The intent is to shift a culture that perhaps encourages a me-focused perspective to one that is focused on team or broader organizational achievement. 

Making such a shift in compensation system is not to be underestimated.  There are at least two fundamental requirements to make that shift successful and there a number of issues to be managed in the transition.

First, a team-based compensation system requires that a well-articulated set of performance goals and metrics be established for the organization.  These could take any number of forms and might include service goals, budget targets, productivity measures, etc.  Regardless of form, they must be well-defined, broadly communicated, and their connection to pay/bonuses well understood.  If this first step is not done, or is done poorly, an effort to implement team-based compensation is unlikely to achieve desired results if not fail completely.  Without this clarity up-front, managers and staff will at best be confused about expectations or at worst may continue to evaluate their compensation/bonus received against the old model of compensation.

Second, and just as critical, is a need to actually evaluate and manage performance against the new team-based model of compensation.  Once announced or implemented, the work for leadership only really begins.  Leaders now really need to step up to the plate to ensure that the new system is implemented, that performance to the overall objectives of the organization becomes paramount, and that compensation/bonuses directly connect to performance.  If that transparency and linkage is absent the system will rapidly lose credibility. 

There are a number of issues that I believe need to be considered and managed in a team-based compensation system.  First, is the amount of the team-based bonus going to be equitable for all levels of the organization, i.e., same percentage opportunity for all or not?  If not, disincentives for performance may be built in to the system right from the start.  Leaders may need to commit to truly being part of the organization in this very visible way as it lends credibility not only to the compensation/bonus system but to a variety of other organizational initiatives and leadership pronouncements.

Second, leaders need to consider how they can incent innovation and creativity from individuals if only team-based performance is going to be rewarded.  If the efforts of one individual or team contributed to a particular organizational success, but all business units get to share in the gain that is ultimately distributed, will similar individual efforts be forthcoming in the future?

Third, and related to the above, how will a team-based compensation system manage those individuals or business units who consistently don't contribute to the achievement of team results?  In this context, it's not usually the really poor performers/business units that present a challenge in management.  Their lack of performance is usually so poor that management (should) become relatively easy.  Of greater concern is a need to motivate everyone to the same high level of motivation and achievement relating to organizational goals.  This is where regular (more than annual) and rigorous performance management comes into play.  This is where strong leadership and commitment are necessary.  If such does not exist then it becomes all too easy for low or average performers to ride on the coattails of high performers with all getting the same team-based bonus.

Finally, there is an equally contrary need to manage excessive or unhealthy peer pressure that may arise from a team-based compensation/bonus structure. There may be very legitimate reasons for an individual/business unit not being able to contribute in a substantive way to achievement of key organizational objectives in a given reporting time frame.  If a team-based culture - supported by a team-based compensation system - is well established, articulated and supported then such issues can be managed easily enough.  This is particularly true if transparency and sharing of issues is part of a well-established organization culture. 

From my perspective the type of compensation system chosen by an organization is important but of less consequence than how it is implemented and managed on an ongoing basis.  For any compensation system to succeed leadership must be there from day one and through its day-to-day management.  There are no simple solutions.  It's About Leadership.
______________________________

Greg Hadubiak, MHSA, FACHE, CEC, PCC
TEC Canada Chair/Executive Coach/Senior Consultant
hadubiak@wmc.ca

Helping leaders realize their strengths and enabling organizations to achieve their potential through the application of my leadership experience and coaching skills. I act as a point of leverage for my clients. I AM their Force Multiplier.

Sustaining Hope - Redux

Late last week I published a blog entry about sustaining hope in a challenging work environment.  It generated it's fair share of commentary - most of it in the form of e-mails directly to me versus commentary directly to the blog.  Much of that feedback related to the positive impact I have had on people throughout my career as a leader.  I was even flattered enough to be compared favourably - if unreasonably - to the Dilbert cartoon, one of my all-time favourites.  Overall, it was clear that this latest entry had hit some nerve. 

Clearly there continue to be a lot of people looking for inspired leadership and believing that a better environment in which to create their potential can be created. 

Interestingly enough, I'm not the leader of these people anymore and, in some cases, never have been. I have no formal leadership role within any organization at the moment.. I've been out of a formal leadership role since February of this year. So why such resonance on this particular topic?

As we talked I was reminded of a recent conversation with my wife. Not surprisingly, she has often served as my leadership sounding board. And not simply because she is my wife. She is also a health care professional and leader in her own right. More importantly we have arrived at particular points of our career via different paths and experiences and sit at different stages of our respective careers. It's these differences in experience and viewpoint that I have most appreciated as I have developed as a leader. She can reaffirm or challenge my perspectives - often times in the same conversation!

In our latest conversation I was lamenting about lost potential. In particular, I was ranting about how great the possibilities were for creating a truly outstanding organization if only we would really tap into and realize the full energy of the people we work with. Unfortunately, too many of organizations seem content to simply compare themselves to some average "benchmark". Or compromises are made along the way for a variety of reasons that might ensure OK results, but not great results. Or worse yet, our leaders themselves fail to live up to their own stated values or the values of the organization. In the meantime, people in our organizations with star potential labour under these constraints and face the consequences of these compromises until they no longer have the energy to make the difference they are capable of. The result - they disengage or leave the organization.

I came back to this theme with my many of my former work colleague.  Many of them are ready and able to give the energy, passion and commitment we want from all of our staff and management.  Their informal leadership and willingness to make a difference in a broader circle of influence has made them more influential than their job descriptions would indicate.  They have taken on - or been given - difficult challenges, managed performance issues, tried to sustain hope, mentored others, and provided inspiration for many beyond their department. In short, they are just the type of leaders we would want to encourage, support and build into new roles for the organization. But while they still believe in the stated vision and values of their particular organizations, they are not convinced that the same level of commitment exists on the part of the broader organization.  They are disillusioned.

For me, some of the fundamental requirements of any leader is to sustain hope, build capacity, and provide inspiration for those they lead. This necessitates an attempt to work towards some higher, shared purpose. If a leader can articulate - and passionately live - this higher, shared purpose, and inspire his/her followers to this goal, and continue to build the individual capacity of each follower to this end the results can be truly amazing. I have had the privilege of working in at least two such organizations at points in their history where we believed in a common vision and worked passionately as a cohesive team to make it happen.

The fact that such a positive state of organizational health and energy can be achieved makes the lack of it all the harder to accept. One might even argue that it's easier to endure a challenging work environment if you've not actually had a good experience to compare it to! But when you have experienced good leadership, a good organizational culture, and seen a commitment to your personal development...well it's tough to deal with the loss of that environment.

So what's advice to my struggling colleagues? Essentially to stay true to their own values and commitments to their staff. From my point of view their leadership compass is pointed in the right direction and they can continue to make a difference in their circle of influence. And they also need to maintain their connection with like-minded individuals. Continue to connect with colleagues who share common values and commitments. Others are feeling equally frustrated and challenged. So continue to support each other and battle the isolation you might otherwise feel. You are not alone.

What of my own personal commitment to my colleagues? Even though I'm no longer part of any formal organization I still remain committed to their personal success and development. I promise to always pick up the phone or answer an e-mail. I promise to be a sounding board when needed.

I can still be a leader.
______________________________

Greg Hadubiak, MHSA, FACHE, CEC, PCC
TEC Canada Chair/Executive Coach/Senior Consultant
hadubiak@wmc.ca

Helping leaders realize their strengths and enabling organizations to achieve their potential through the application of my leadership experience and coaching skills. I act as a point of leverage for my clients. I AM their Force Multiplier.