Team Based Compensation

With the growing use of team-based work in virtually all industries, developing fair and effective compensation policies and processes for teams is a major challenge. Typically, the team structure is flexible and membership fluid with the team composition established only for the life of the project or task (e.g., 3-18 months). Project teams in a matrix organization are typically coordinated by a designated project leader, but teams may also choose their own leaders, or formal leadership may rotate among the members. Roles and responsibilities may be explicitly established at the outset or may evolve as the team members themselves define the problem(s) to be addressed and develop their own structure and division of responsibilities. 
Regardless of the degree of structure and formalization of the team organization, results of the team's efforts must be recognized at least in part as resulting from teamwork, as the coordinated contributions of a group. This fact complicates the attempt to provide equitable and effective compensation for the individuals comprising the team, not to mention others who support the team efforts but are external to it. The key questions to be faced are these:

• How do we fairly reward individuals in the team for their differential talents and contributions while recognizing the performance of the team as a collective whole?
• How can we do so as to enhance individual employee satisfaction and motivation and team development for sustained efforts in the future?

Address these issues by making general recommendations for effective compensation in the following scenario. 

Information System Integration and Development (ISID) Team 
The CEO of Restoration Right Rehabilitation (RRR) Center, Ms. Dot Org, has established a multidisciplinary project team to develop a design and implementation plan for a comprehensive information systems upgrade and integration. This will include the completion of an electronic rehabilitation clinical record system (in development); linkages between the clinical, billing, budgeting, and quality assurance databases; and the development of Web-based decision support utilities. The team members are listed below with the estimated time and effort (T/E) committed to the ISID project, their current salaries, and their performance indexes (PI).

*Although this employee has been rated marginally satisfactory, overall, on the basis of his mean PI for the past 2 years, serious concerns have been raised informally by various members of the team about his brusque interpersonal manner and perceptions that he's not a "team player" and has serious "issues" with some of the other team members. 

The PI is a weighted average of the employee's performance appraisal scores across ten performance factors using supervisory ratings. The most current PIs are considered in making salary increment decisions. Although most PIs are based on ratings given sometime within the past 12-month period, in some cases the period has been longer because of job transfers, supervisory reassignments, and so forth. Noncurrent PIs are noted with a dagger. Note that the ISID project has an estimated life of 12 to 15 months for completion. 
The RRR Center has had a traditional, individual performance-based compensation system with an annual cost-of-living adjustment (COLA) granted for all employees who have achieved satisfactory performance. A merit pay performance pool of 5.5% of the total base salary budget (i.e., approximately $28,200) has been reserved to reward exceptional performance. A COLA of 2.5% (i.e., approximately $12,820) has been provided to distribute among all employees with a current satisfactory performance rating. These salary adjustments are subject to the center's achieving its annual profit margin target and other financial objectives. Recommendations for merit increases made by department heads with justification are competitively awarded by a merit pay committee representing department chairs and top management. 

Assignment

The center has not previously considered recognizing team-based achievement in its compensation plan. Given the information presented above,

1. Develop and justify a pilot merit compensation plan for the ISID team. Indicate specifically what criteria you are using as the basis for merit and any other important assumptions underlying your plan.
2. To illustrate the effects of your proposed merit compensation plan, show how you would distribute the merit pool of $28,200 and the COLA of $12,820 for the current year among the team members on the basis of the data provided and your assumptions.