How Team Dynamics Impact Incentive Structure (and Vice Versa)

In an effort to encourage collaboration, organizations are increasingly championing the idea that a team’s collective output is more important than any one individual's skill set. Yet employees continue to be rewarded—whether via a bonus, a promotion, or additional perks—for individual efforts. As managers, if we really want to promote collaboration and teamwork, shouldn’t our incentive structures follow suit?

Not All Teams Are Created Equal

To better understand how teams respond to different incentive structures, we interviewed five Directors and VP’s from major organizations in the technology, advertising, and fashion sectors, and found that teams themselves have varying degrees of teamwork. Some teams operated interdependently, while others were really a collection of individuals who independently carried out similar tasks. This distinction became important as we looked at successful incentive structures. Specifically, only in truly interdependent teams did a team-based incentive structure work to motivate team members. If teams didn’t require working interdependently with the others, a team-based structure often fell flat.

The Perils of Social Loafing

The sales team at a global technology firm interviewed was a prime example of a team of individuals. While technically considered a “team,” each salesperson operated independently and was responsible for a set of unique clients—they could close a deal without any input from their fellow sales team members. As a result, a team-based rewards strategy was found to have a demotivating effect on employees. One VP said that he didn’t see the need to stay past five or put in any additional work because his bonus would be the same, no matter what he did. Because rewards were given based on collective output, rather than being tied to individual members’ direct efforts, people had little incentive to expend energy beyond the minimum amount of work required.

This type of feedback may sound familiar, and is a big concern for anyone who wants to implement a team-based incentive structure. Social loafing—the phenomenon where certain team members get by thanks to the efforts of their colleagues—can be a huge cost to an organization, and lead to resentment between colleagues. As one Director of a large fashion house recounts:

“As one of the 'heavy lifters' on the team, I found myself keeping tabs on the work that was—or was not—being done by other team members. There was no real consequence for underperforming, as the motivated members of the team masked the extent to which they were underperforming.”  

Work Together, Win Together

In organizations where work effort required interdependent efforts, team-based rewards proved to be extremely effective. According to a VP of Strategy at a digital design firm, “being rewarded as a group gave us a real sense of pride.” She further explained, “there was no real way for anyone to hide behind anyone else because we were all equally responsible for the end product, just in different ways.”

Unlike teams at other organizations we interviewed, these teams were project-based, and comprised of members from design, technology, client services, and analytics departments. These project teams would sit together, have regular meetings, and were collectively evaluated based on their output. According to the VP, “Rewards aren’t monetary per se, but after a particularly challenging or successful project, the agency will take us out to a nice dinner or bowling— something to show us that they really acknowledge everything that we are doing.” It’s motivating not “[because] the actual so great,” she explained, “but just the fact that they acknowledge all of the work that we do, and we know it matters.”

To help foster this team mentality, the organization also hosts agency-wide hackathons, where simulated project teams come together to solve a problem. The winning team not only gets bragging rights, but also gets funding to put their idea into practice. One of the most recent winning ideas was a technology-infused meditation room where users could personalize their meditation experience via an app. Activities like this help to institutionalize collaboration and minimize social loafing because the work truly becomes a shared effort. As the VP explained, “it’s not like an account manager could just do the coding—everyone has a particular task.”  

Evaluating Your Team’s Incentive Structure

incentive structure

For a team-based incentive structure to be effective, your team must be engaged in interdependent work. Ask yourself if their projects require multiple skill sets, or if it is work that can be done independently. If your organization is largely focused on independent work and you want to encourage more collaboration, look for smaller projects (or even internal ones, like a company party) that will allow for the creation of cross-functional teams. Then set goals that require everyone’s participation, and identify a reward that can be shared as a group, rather than recognize an individual.

This guest post written by Marin Cohn.


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