Appendix Rewarding Teamwork - Leigh Thompson

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Perhaps nothing stirs up more emotion in the workplace than salary, benefits, and rewards. The move to self-managing teams begs the question about reward and compensation in teams because hierarchical pay plans centered on individuals may not make sense in the context of teams and may in fact, be detrimental.1 If pay plans reward the individual, but the corporate message is teams, then teamwork may be undermined.

Variable performance among team members means differentiated pay. Even though teams may be perfectly capable of allocating pay or rewards to individuals in the team, sometimes superstars are not rewarded unless other teammates forgo part of their own profit sharing. Even if a compensation system can be set up that appropriately rewards team effort, some team members may be unwilling to determine their coworkers’ pay. Team members feel more comfortable when performance criteria are based on objective standards.

TYPES OF TEAM PAY

Pay is a communication device. Consider four types of team pay or reward: incentive pay, rec-ognition, profit sharing, and gainsharing (see Exhibit Appendix 1-1). These four systems for rewarding employees should not be viewed as competing approaches, but rather as compatible systems that accomplish different, important objectives.

According to Payscale’s 2015 Compensation Best Practices Report, 61 percent of respon-dents cited compensation as the biggest impact of their decision to take a new job.2 People tend to behave according to the way they are evaluated and paid. Therefore, if the organization values teamwork, team members ultimately must be recognized and compensated for teaming. Most important, employees must understand how the incentive system works in their company. And in general, the simpler, the better. For example, burying incentives and recognition for team membership in the company’s basic compensation package can dampen the intended motivating effect on individuals. Second, an incentive system should be comprehensive enough that people feel fairly treated. Employees compare their pay with that of others. In 2015, thousands of Google employees posted their salary details with one another through a shared spreadsheet housed on Google’s internal network in a bid to ensure fair pay. As many as 5 percent of employees shared their salary information to address pay gaps between persons performing similar jobs.3

1Lawler, E. E., Worley, C. G., & Creelman, D. (2011). Management reset: Organizing for sustainable effectiveness. Hoboken, NJ: Jossey-Bass; Lawler, E. E. (2000). Rewarding excellence: Pay strategies for the new economy. San Francisco, CA: Jossey-Bass.22015 Compensation Best Practices. (2015). Payscale Research Report. resources.payscale.com3Owen, J. (2015, July 21). Google employees are comparing their salary details in a bid to be fairly paid. Independent. independent.co.uk

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346 Appendix1 • RewardingTeamwork

Type Description/TypesAdvantages/Applications Disadvantages

Incentive pay A team of employees receives money based on increased perfor-mance against predetermined targets

• Can combine a focus on individual and team performance

• Team can be given opportunity to allocate

• Employees averse to thinking of themselves as team members

• Risky if base pay is reduced

• Guided by upper management and corporate initiative

Recognition One-time award for a limited number of employees or groups for performing well beyond expectations or for completing a project, program, or product

• Easy to implement• Distributed at the

local (team) level• Introduced easily,

quickly, and inex-pensively without layers of approval

• Comparatively simple

• Employees con-cerned they won’t be recognized for own contributions

• Risky if base pay is reduced

• Carry less front-end motivation

Profit sharing A share of corporate profits is distributed in cash on a current basis to all employ-ees (driven by finan-cial factors)

• Serves commu-nication purpose by signaling that rewards are in balance across the organization

• Informs and edu-cates employees about financial well-being of the organization

• May be too far removed from workers’ con-trol to affect performance

Gainsharing A percentage of the value of increased productivity is given to workers under a prearranged for-mula (driven by operational factors [e.g., quality, pro-ductivity, customer satisfaction])

• Geared toward production- oriented workers

• Add-on to com-pensation, easily accepted by employees

• May be too far removed from workers’ con-trol to affect performance

Exhibit Appendix 1-1 Team-Based Pay


Appendix1 • RewardingTeamwork 347

IncentIve Pay

In terms of salary and pay, base pay is how companies determine an individual’s base salary. This is an integration of internal equity (based on job evaluation) and external equity (based on market data). The second aspect in pay is variable pay. One type of variable pay is incentive pay. According to the Bureau of Labor Statistics, incentive and supplemental pay for private companies surveyed averaged 2.8 percent of the total compensation package of employees.4 As employees move up the organizational chart, the proportion of variable pay increases, along with their amount of control over job tasks. The cutthroat cooperation effect refers to the fact that it is more difficult for teams to move from competitive to cooperative reward structures than vice versa.5 Indeed, teams with a history of competitive reward structures performed worse than teams with a history of cooperative reward structures.6

Incentive systems should combine individual performance and team performance to reflect the degree to which a job calls for individual work and teamwork. “Without team goals, you may find that one of your employees refuses to help out a fellow col-league. That type of behavior is counterproductive to business growth and needs to be nipped in the bud. The best way to encourage teamwork is to pay the entire team when they hit team goals.”7

For example, a bonus pool may be created based on the performance of the entire team. The bonus pool can be divided among the individuals who are members of the team based on how well the individuals performed. Outcome interdependence refers to how much an individual’s own outcomes depend on the performance of others. One factor that influences the effectiveness of outcome interdependence is regulatory focus.8 Promotion-focused people are concerned with progress and achievement; whereas prevention-focused people are concerned with security and vigilance. In one investigation, prevention-focused teams working for team, rather than individual rewards were more engaged, better coordinated, and had better performance; promotion-focused teams were not influenced by outcome interdependence.9

A balance of reward systems can operate in tandem. One system provides bonuses to teams based on their performance; the second rewards individuals based on how well they have performed. These systems can be based on separate budgets so that they do not compete. Hybrid rewards lead to higher levels of team performance than do individual and shared rewards.10 The reason why hybrid rewards are more effective

4Employer costs for employee compensation: September 2015 (2015, December 9). Bureau of Labor Statistics. bls.gov5Johnson, M. D., Hollenbeck, J. R., Humphrey, S. E., Ilgen, D. R., Jundt, D., & Meyer, C. J. (2006). Cutthroat cooperation: Asymmetrical adaptation to changes in team reward structures. Academy of Management Journal, 49, 103–119.6Beersma, B., Hollenbeck, J. R., Conlon, D. E., Humphrey, S. E., & Moon, H. (2009). Cutthroat cooperation: The effects of team role decisions on adaption to alternative reward structures. Organizational Behavior and Human Decision Process, 108, 131–142.7Alter, M. (2008, January 1). Performance based pay. Inc Magazine. inc.com8Beersma, B., Homan, A. C., Van Kleef, G. A., & De Dreu, C. K. (2013). Outcome interdependence shapes the effects of prevention focus on team processes and performance. Organizational Behavior and Human Decision Processes, 121(2), 194–203.9Ibid.10Pearsall, M. J., Christian, M. S., & Ellis, A. P. J. (2010). Motivating interdependent teams: Individual rewards, shared rewards, or something in between? Journal of Applied Psychology, 95(1), 183–191.



is because of improvements in information allocation and reductions in social loafing (free riding).

A critical question is whether to reward behavior or to reward results. Traditional thinking may lead managers to link team performance to their results. Goals such as cost reduction are easy to quantify but for other areas, it is much more difficult. So, many managers reward competencies rather than results: For example, does the person participate? Does the person empower others? Does the person listen in a team envi-ronment? Although team incentives offer significant advantages, there are some poten-tial drawbacks. Incentives may create unintended behavior. When other team members are perceived as free riders, some team members might feel resentful when rewards are allocated based on equality. Moreover, team rewards may not foster cooperation in teams.11 Team rewards may foster competition between teams, leading to suboptimiza-tion of the organizational goals.12

RecognItIon

Recognition, rewards, spot cash awards, or “celebrations of success” reward contribu-tions after the fact, when performance is known. The idea behind team recognition is that money is not everything. There are infinite sources of nonmonetary recognition—plaques, trophies, small gifts, vacations, and dinners with company officers. The most important feature of any of these is to give the gift respectfully, personally, and sincerely. First and foremost, this means that people and teams are singled out—if everyone gets the same recognition, it doesn’t work. Recognitions such as “employee of the month programs” don’t work because eventually, everyone is going to receive the award.13 Moreover, the reward should be chosen with the people in mind. Not everyone likes sporting events or ballet, for example. It is important to clearly tie the recognition to team performance; it will lose its effect if the organization waits two months to reward the team. (For some general guidelines for implementing recognition awards, consult Exhibit Appendix 1-2) Recognition might improve certain outcomes, but not others. For example in an investigation of 88 project managers and their direct supervisors, recognition improved team effectiveness, but not team efficiency.14

In companies with team environments where people’s identities are incorporated into teams, employees may feel a greater need for recognition.15 Former CEO of Camp-bell’s, Doug Conant, wrote 10 to 20 handwritten thank-you notes every day—a total of 30,000 thank-you notes over the course of his tenure.16

CASH AND NONCASH Spot awards (also known as lightning bolts) can either be cash or noncash. Noncash awards, which are the most common, are given out for a job well

11Wageman, R. (1995). Interdependence and group effectiveness. Administrative Science Quarterly, 40(1), 145–180.12Mohrman, S. A., Lawler, E. E., & Mohrman, A. M. (1992). Applying employee involvement in schools. Educational Evaluation and Policy Analysis, 14(4), 347–360.13Nelson, B. (2012). 1501 ways to reward employees. New York: Workman Publishing.14Unger-Aviram, E., Zwikael, O., & Restubog, S. L. D. (2013). Revisiting goals, feedback, recognition, and performance success: The case of project teams. Group & Organization Management, 20(10), 1–31.15Gross, S. E. (2000). Team-based pay. In L. A. Berger & D. R. Berger (Eds.), The compensation handbook: A state-of-the-art guide to compensation strategy and design (4th ed., pp. 261–273). New York: McGraw-Hill.16Kaplan, J. (2015, August 8). This CEO was so obsessed with thank you notes, he sent 30,000 during his career. LinkedIn. linkedin.com



To have maximum possible impact, recognition awards should have the following features:

Purpose/objective The program should clearly recognize what has been accomplished by the team and how that effort is linked to the company’s values.

Eligibility Companies must clearly determine whether teams or individuals will be recognized and how frequently employees are eligible for awards.

Program award levels Use a few levels to recognize different accomplishments and dif-ferent degrees of contributions: (a) application noncash awards (up to $250); (b) awards for significant financial contribution ($250 to $2,500) for team members whose efforts significantly exceed expectations, support the unit’s efforts, and produce measurable results; (c) awards for “extraordinary financial results” ($2,500 to $10,000) for team members whose efforts have exceptional bottom-line impact.

Benefit implications Recognition awards are not considered benefit bearing.

Funding Recognition programs are typically funded out of the expense bud-get of the business unit and department and are often stated as a percentage of the payroll.

Types of awards Noncash versus cash.

Nomination procedures For appreciation awards the nomination procedures should be as simple as possible; for companywide rewards, nomination proce-dures may be much more elaborate with peers, customers, and supervisors all having opportunity for input.

Timing All awards should be given as close to the event as possible to rein-force the actions that led to the event.

Award presentation This should be a positive experience, that makes the winner(s) feel proud; comments should be personalized and refer to details of the achievement; the connection between the accomplishment and the company’s business strategy should be made clear; never present the award in passing; publicize the award (e.g., via memo, e-mail, bulletin board, or newsletter).

Program evaluation Annually, a rewards and recognition committee should be char-tered to evaluate the program in terms of its effectiveness.

Exhibit Appendix 1-2 Implementing Recognition Awards: A Guide

Based on Gross, S. e. (2008). Team-based pay. in L. A. Berger & d. R. Berger (eds.), The compensation handbook: A state-of-the-art guide to compensation strategy and design (5th ed.). new York: McGraw-Hill; Gross, S. e. (1995). Compensation for teams: How to design and implement team-based reward programs. new York: AMACOM.



done and are usually of nominal value. Cash awards can be far more substantial, although usually they are small bonuses. At Squaremouth, all employees receive a raise to match the previous year’s rise in market prices (0.8% in 2015). To make up for some staff a not getting a larger increase in pay however, employees are given periodic spot bonuses such as Apple watches, a $200 “beer” bonus, and a paid day off for their birth-day. Michele Heisler, a physician at Veterans Affairs Ann Arbor Healthcare System, receives an annual bonus contingent upon high quality-of-care patient ratings on her work.17

There is an infinite variety of noncash rewards that companies can give to teams to recognize contributions, ranging from thank-you notes to time off to all-expenses-paid trips for two to exotic places. Some 89 percent of organizations have recognition programs in place to motivate and engage their workforce, and 67 percent of organi-zations offer between three and six different incentive programs.18 PwC’s rewards and recognition program, Marquee has several avenues through which everyone from fellow team members, managers, and even the CEO, can nominate an employee for a bonus in appreciation for outstanding effort and results. Such rewards often rein-force the company image and strengthen the connection between the employer and the employee. Symantec’s Applause Awards program allows employees to reward team members with applause certificates with values from $25 to $1,000. Google, Zappos, NBC, and Southwest Airlines created peer-recognition programs in which team members nominate employees to receive a cash bonus.19 To be effective, recog-nition needs to be clearly focused on the team whose achievements are being cele-brated, rather than on a general self-congratulatory party for the entire unit or organization.

An especially thorny issue is whether recognition awards to teams should recog-nize all team members equally. Managers often think they’re giving their team quality recognition, but it is meaningless because of a lack of respect. Perhaps one employee has a great relationship with her manager and asks for a day off. When the manager tells her she’s too valuable to take any time off, she is demoralized. Another employee with a poor relationship with his boss sees a $1,000 bonus as a ploy and asks, “What is my manager trying to get out of me now?”20 Similarly, giving team members tickets to an evening event in reward for putting in long hours on a project may be deflating to team members with families.

For these reasons, many believe that teams should be given a role in distributing recognition awards—letting the team decide which members get how much. This prac-tice is consistent with the idea of self-managing teams: autonomy and self-management (see Exhibit Appendix 1-3).

17Cohen, P. (2015, May 25). One-time bonuses and perks muscle out pay raises for workers. The New York Times. nytimes.com18Employee recognition programs continue upward trend to achieve organizational goals. (2015, May). World at Work. worldatwork.org19Stern, G.M. (2012, January 26). A digital pat on the back from the boss: What’s it worth. CNN Money. management.fortune.cnn.com; Benefits and Perks. (2016, January 12). [Symantec Corporate Website]. http://www.symantec.com; Recognition and Rewards. (2016, January 12). [PWC Corporate Website]. http://www.pwc.com; Kaplan, “This CEO was so obsessed with thank you notes, he sent 30,000 during his career.”20Ohngren, K. (2009, May 13). Cheap ways to motivate your team. Entrepreneur.com. entrepreneur.com



Based on: Millennial employees crave recognition, employer reward programs miss the mark. (2015, August 5). [press release]. multivu.com; Hayden, J. (2012, March 28). The 9 elements of highly effective employee praise. Inc. inc.com; nelson, B. (2012). 1501 ways to reward employees. new York; Workman publishing.

1. Take a few minutes each day to reflect on whose performance you’ve noticed. Send those individuals thank-you notes.

2. Manage by wandering around. Get out of your office to see, meet, and speak with employees about work they are doing.

3. When you read your mail, look for positive items to share with others or at all-department meetings.

4. Greet individual employees by name and with eye contact. Take a few minutes to see how they are doing. Be sincere.

5. Make an effort to meet with employees you don’t see or speak with very often. Take a break together, have coffee or an off-site lunch.

6. Act on good news. Catch people doing something right and thank them for it.7. Take time to listen when employees need to talk. Be responsive to people, not just to prob-

lems.8. Take time at the beginning or end of meetings to share positive news such as letters from

customers or ask if there is any praise from one team member to another.9. Remember the 4:1 rule. Every time you criticize or correct someone, plan or praise or thank

that same person at least four times.10. Think of mistakes as opportunities for learning. Help employees learn from their mistakes;

don’t criticize employees for making mistakes—especially in front of others.11. Be quick to thank and compliment others and slow to criticize and judge them.12. Spread positive gossip. Tell others what you are pleased about and who is responsible.13. Post the employee’s achievement publicly.14. Post a message on the company’s social media site.15. Send an email to other team members with updates about how the team’s hard work is pay-

ing off.16. Make sure that the praise matches the action. Don’t overpraise or it will lose its meaning.17. Think about someone who does not get noticed often and tell them that their work matters

and is critical to the company’s success.18. Praise your teammates while they are working toward a goal, not after they have achieved it.

Exhibit Appendix 1-3 Recognition Techniques

Two types of incentive pay systems that are not designed specifically for teams but are popular in participative management companies and are consistent with many team-based approaches are profit sharing and gainsharing. They can be tailored for teams.

PRofIt ShaRIng

Many companies use profit sharing schemes wherein a portion of the bottom-line economic profit is given to employees. In the typical profit sharing plan, profit sharing bonuses are put into retirement plans. This makes it more difficult to clearly relate rewards to controllable performance. Thus, most profit sharing plans have little impact on the motivation and behavior of employees.21

21Lawler, Rewarding excellence.



Profit sharing plans serve an important communication purpose by signaling to everyone that rewards are in balance across the organization. Second, they inform and educate employees about the financial health of the organization. Finally, profit sharing makes the labor costs of an organization variable, thus adjusting them to the organiza-tion’s ability to pay.22

gaInShaRIng

Gainsharing involves a measurement of productivity combined with the calculation of a bonus and is designed to offer employees a mutual share of any increases in total organizational productivity. In gainsharing plans, an organization uses a formula to share financial gains with all employees in a single plant or location. The organization establishes a historical base period of performance and uses this to determine whether gains in performance have occurred. Typically, only controllable costs are measured for the purpose of computing gain. Unless a major change takes place in the company’s products or technology, the historical base stays the same during the entire history of the plan. Thus, the organization’s performance is always compared with the time period before it started the gainsharing plan. When the organization’s performance is better than it was in the base period, the plan funds a bonus pool. When its performance falls short, no bonus pool is created; when performance is met or exceeded, the typical plan pays about half of the bonus pool to employees and the rest is kept by the company. Payments are usually made on a monthly basis, with all employees receiving the same percentage of their regular base pay.

Gainsharing enhances coordination and information sharing among teams, insti-gates attitude change, raises performance standards, and enhances idea generation and flexibility. Gainsharing plans are more than just pay incentive plans; they are a way of managing and a technology for organizational development.23 For gainsharing to work successfully, it should be developed in collaboration with the people it will affect. It is important that employees understand the formula and how to influence it, that the standards seem credible, that bonuses be timely, and that some mechanism exists for change. A company needs a participative management system because the plan requires employees to take ownership of the success of the company.24

Profit-sharing plans are typically less effective than gainsharing plans in influencing employee motivation and changing culture than are gainsharing plans.25 This lack of effectiveness is largely attributable to the disconnection between individual performance and corporate profits—even with high-level involvement. This depends on how salient profit sharing benefits are made to the workers. Consider the company that boldly posts its stock value for all employees to view in public areas—people see the value literally.

22Weitzman, M. (1984). The share economy. Cambridge, MA: Harvard University Press.23Martocchio, J. (2012) Strategic compensation: A human resource management approach (7th ed.). New Jersey: Prentice Hall.24Blinder, A. S. (1990). Pay, participation, and productivity. Brookings Review, 8(1), 33–38.25Ibid.



TEAM PERFORMANCE APPRAISAL

Performance appraisals are a source of feedback, a basis for personal development, and a determination of pay. The rise of teams presents special challenges for performance appraisal. It is difficult for a supervisor to conduct a traditional performance appraisal of an individual who is serving at least part-time on a team. When the individual is part of a self-managed, self-directing, or self-governing team, it is virtually impossible, because supervisors are rarely close enough to the teams to evaluate them. The Catch-22 is that if they were, they might hinder the performance of the team. The overarching purpose of a measurement system should be to help a team, rather than to employ top management to gauge its progress.26 Moreover, a truly empowered team should play a lead role in designing its own measurement system.

A change in traditional performance appraisals, precipitated by the rise of teams, affects what is measured in performance reviews. In many traditional control-oriented organizations, the major determinant of employees’ pay is the type of work they do or their seniority. The major alternative is competency-based pay. Companies are increasingly recognizing that dynamic factors, such as competencies and skills, may be a better way to measure success than static measures, such as experience and education.

Job-baSed Pay

Job-based pay is determined by a job evaluation system, which frequently takes a point factor approach to evaluating jobs.27 The point factor approach begins with a written job description that is scored in terms of duties. The point scores are then translated into salary levels. A key advantage of job-based pay systems is that organizations can determine what other companies are paying and can assess whether they are paying more or less than their competitors. Another advantage of job evaluation systems is that they allow for centralized control of an organization’s pay system.

SkIll-baSed Pay

To design a skill-based pay system, a company must identify the tasks that need to be performed in the organization. Next, the organization identifies skills that are needed for those tasks to be performed and develops tests or measures to determine whether a person has learned these skills. For this reason, it is important to specify the skills that an individual can learn in a company. Employees need to be told what they can learn given their position in the organization and how learning skills will affect their pay. People are typically paid only for the skills that they have and are willing to use. Many skill-based plans give people pay increases when they learn a new skill. One system of skill-based pay is a technical ladder, in which individuals are paid for the depth of skill they have in a particular technical specialty. The goal of skill-based pay systems is to manage candidate attraction and employee retention in jobs that require specialization.

26Meyer, C. (1994, May–June). How the right measures help teams excel. Harvard Business Review, pp. 95–103.27Lawler, Rewarding excellence.



comPetency-baSed Pay

Competency-based pay differs from skill-based pay in that employees prove they can use their skills. After all, it is possible for people to attain skills (e.g., training and mentoring programs) but never use them—or be ineffective when using them. It is important for orga-nizations to focus on demonstrated competencies, rather than accumulated accreditations.

Competency-based pay is regarded as a much more sensible and ultimately prof-itable approach to use in a team-based organization. Competency-based pay systems promote flexibility in employees: When employees can perform multiple tasks, orga-nizations gain tremendous flexibility in using their workforce. This of course, is the concept of cross-training. In addition to the benefits of cross-training, individuals who have several skills have an advantage in terms of developing an accurate perspective on organizational problems and challenges. When employees have an overview of the entire company, they are more committed. When they are broadly knowledgeable about the operations of an organization, they can increase their self-management, coordinate with others, use organizational resources, and communicate more effectively.

Competency-based pay systems however, are not perfect. An organization using a competency-based pay system typically commits to giving everyone the opportunity to learn multiple skills and then to demonstrate them; thus, the organization has to make a large investment in training and evaluation. There is a trade-off between getting the work done and skill acquisition and demonstration.

360-DEGREE EVALUATIONS

With the increasing use of teams, peer review is becoming more common and more neces-sary in organizations. Popularly known as 360-degree or multi-rater feedback, the peer review procedure involves getting feedback about an employee from all perspectives: top (supervisors), bottom (subordinates), lateral (coworkers, suppliers, and end-user customers or clients) (see Exhibit Appendix 1-4). Typically, several people (ideally 5 to 10) participate in the evaluation, compared with a traditional review in which only one person, usually a supervisor, provides feedback. SkillSurvey, Inc. developed a program that applies the 360-degree performance review concept to employee recruitment. For example, in its employment search for nurses, each reference provided by the nurse applicants was sent an email asking them to anonymously complete a survey about their former coworker. The performance review results were combined and considered during the hiring process.28 In a 360-degree program, the highest paid should be the highest ranked when the results are plotted on a graph. Anonymity is the key to building a nonbiased feedback system, espe-cially for peers and subordinates. Otherwise, the entire system is compromised.

A big disadvantage of the top–down performance review is evaluation bias. The multiple data points and aggregate responses provided by 360-degree feedback make the bias of a single person less of a problem. A second major disadvantage of single-source evaluation is that it is easy to dismiss the information. Reginald Bull, Chief Human Resource officer of LG Electronics, decided to reveal the facts of his own 360-degree evaluation to ease integration into two Korean companies. On his first day on the job, he displayed summary scores from his most recent 360-degree review, which

28Maurer, R. (2015, December 16). Assessment technology revitalizes reference checks. Society for Human Resource Management. shrm.org



ranked him “average” for the operational phase of projects because, “Once the factories turn on, I get bored.”29

In theory, the 360-degree process provides a multifaceted view of the team member, but putting it into practice can be difficult: If the number of feedback sources is limited, raters are not guaranteed anonymity and may fear retaliation. The system is subject to abuse if members make side deals to rate one another favorably. Despite its difficulties, however, 360-degree or multi-rater feedback usually is regarded to be a fairer assessment of performance than is top–down review.

Although team members are often best qualified to rate one another, this approach has some weaknesses. Team members unpopular for reasons other than performance can suffer. Team members do not always grasp the big picture in terms of organizational goals. As raters, peers can suffer from evaluation biases.

develoPIng a 360-degRee PRogRam

There is no standard method for 360-degree implementation. Some companies admin-ister and develop the whole system. Some allow outside consultants to prepare and analyze feedback to ensure anonymity. To develop a 360-degree evaluation system, con-sider the steps outlined in Exhibit Appendix 1-5.30

29Lublin, J. S. (2011, December 8). Transparency pays off in 360-degree reviews. Wall Street Journal. wsj.com30Lepsinger, R., & Lucia, A. (2009). The Art and Science of 360 Degree Feedback. San Francisco: Jossey-Bass; Hoffman, R. (1995, April). Ten reasons you should be using 360-degree feedback. HR Magazine, 40(4), 82–85; Milliman, J. F., Zawacki, R. F., Norman, C., Powell, L., & Kirksey, J. (1994, November). Companies evaluate employees from all perspectives. Personnel Journal, 73(11), 99–103.

Exhibit Appendix 1-4 360-Degree or Multi-rater Feedback

EmployeeOther TeamMembers’

Ratings

Suppliers’Ratings

Subordinates’Ratings

Superiors’Ratings

Customers’Ratings



The following questions should be considered before implementing 360-degree evaluation programs:

• Should other evaluation systems be utilized in addition to 360-degree feedback?• Should the organization consider hiring an outside consultant?• Should the organization purchase a generic program or create a customized evaluation?• Should the evaluation be computer-based or consist of a paper-and-pencil form?• How many raters should be involved? (Ideally, 5 to 10; fewer than 5 provides limited viewpoints,

and more than 10 consumes time and adds unnecessary complexity.)• Who should be involved in the rating?• Who should choose the raters?• How are terms like peer, supervisor, and subordinate defined by the organization?• How many questions or items should be incorporated into the evaluation?• Should the feedback remain anonymous?• How should employees be educated on the use of constructive criticism and the characteristics

of 360-degree feedback?

Exhibit Appendix 1-5 Things to Think about before Developing a 360-Degree Program in Your Company

Source: Lepsinger, R., & Lucia, A. (2009). The art and science of 360-degree feedback. San Francisco, CA: Jossey-Bass; Hoffman, R. (1995, April). Ten reasons you should be using 360-degree feedback. HR Magazine, 40(4), 82–85; Milliman, J. F., Zawacki, R. F., norman, C., powell, L., & Kirksey, J. (1994, november). Companies evaluate employees from all perspectives. Personnel Journal, 73(11), 99–103.

The practices put into place to address the issues in Exhibit Appendix 1-5 will be different for every organization. Duplicating systems used by world-class companies is not necessarily the best approach. Each organization should develop the 360-degree sys-tem that will optimize effectiveness within its organizational design. Companies should first use a pilot 360-degree program that is not tied to compensation and is not public. In the beginning stages, only the employee sees all of the feedback; gradually, the super-visor is brought into the loop. Eventually, it is important to tie employee compensation to the 360-degree evaluation.

If people other than management are involved in the appraisal process, then they must be trained on the legal issues involved with discrimination law, the Americans with Disabilities Act, and other relevant legislation (see Exhibit Appendix 1-6). While the use of multiple raters has become more popular as many firms move toward team-based management systems, gender and race affect performance reviews, with evalu-ations more positive for subordinates whose managers share their social demographic. Ingrained expectations about what types of people perform better also subtly influ-ence the process.31 The team diagnostic survey (TDS) identifies conditions that increase the likelihood that teams will perform well.32 The TDS can be used on a

31Pfeffer, J. (2009, July 23). Managers and employees alike sense the truth: Workplace appraisals aren’t working. Businessweek. bloomberg.com32Wageman, R., Hackman, J. R., & Lehman, E. V. (2005). The team diagnostic survey: Development of an instrument. The Journal of Applied Behavioral Science, 41(4), 373–398.



360-degree or peer-feedback format. It assesses the effectiveness of team task pro-cesses, the quality of members’ work relationships, and team members’ motivation and satisfaction. The TDS is organized into eight parts: (1) boundaries, interdepen-dency, and stability of the team; (2) purpose of the team; (3) size, effectiveness, diver-sity, skills, decision autonomy, behavior, and brand image of the team; (4) overall satisfaction with rewards for team performance, access to task necessary information, technical advice, training, and material resources; (5) effectiveness and coaching abili-ties of the team leader as well the support/feedback from other members; (6) team commitment, innovation, and knowledge sharing; (7) personal satisfaction with team relationships; and (8) learning opportunities and sense of well-being fostered by team membership.

Based on Bernardin, H. J., & Cascio, W. F. (1988). performance appraisal and the law. in R. S. Schuler, S. A. Youngblood, & V. L. Huber (eds.), Readings in personnel and human resource management (3rd ed., p. 239). St. paul, Mn: West; Aswathappa, K. (2007). Human resource and personnel management. new delhi: Tata McGraw-Hill education; Chavan, S. K. (2011). Legal issues associated with performance appraisal. Management Paradise. managementparadise.com; Baskin, M. (2002, May). Legal guidelines for associations for conducting employee evaluations and performance. ASAE: The Center for Association Leadership. asaecenter.org

1. The important duties and tasks of a particular job should be identified and clearly specified. Specific, job-related criteria should be weighted to reflect its relative importance and objec-tively verifiable. If an employee’s performance appraisal is to consider behaviors other than productivity goals, the rater should be given ample time to observe employee work behaviors on the job.

2. Rating an employee on personal traits such as loyalty, drive, attitude, or dependability is subjective and such criteria should be avoided.

3. Specific performance standards should be formally communicated to employees in advance of the appraisal period.

4. The appraisal process should be the same for all employees within a specific job function.5. All raters should be provided instructions about how to give systematic, unbiased appraisals,

consistently evaluate performance, and prevent discrimination.6. Two or more raters should review each employee independently. The required documenta-

tion of appraisals should be consistent for all raters.7. Performance and behavioral documentation should be prepared by raters in advance of

presenting individual employees with performance appraisal results.8. All employees should be permitted to review their appraisal results and a formal system of

appeal should be available for appraisal disagreements.9. A regular schedule for job evaluations should be established and at least one performance

appraisal should be done per fiscal year.10. Written records of all appraisal contents should be kept in a secure location and all

documentation, especially specific behavioral examples leading to the termination of an employee should be maintained by Human Resources.

Exhibit Appendix 1-6 Prescriptions for Legally Defensible Appraisal Systems



GUIDING PRINCIPLES

An organization that wants to institute some kind of variable team-based pay structure needs to follow a step-by-step approach. Before that however the organization needs to adhere to some basic guiding principles.33

PRIncIPle 1: goalS Should coveR aReaS that team membeRS can affect dIRectly

Compensation won’t motivate employees unless there is a direct line of sight between performance and results.34 In an investigation of 912 employees in 194 workgroups from 45 companies, individual pay for performance (PFP) was positively related to employees’ performance-reward expectancy. Under high levels of contingent reward leadership and profit sharing, this resulted in better job performance.35

PRIncIPle 2: balance the mIx of IndIvIdual and team-baSed Pay

For many teams, a thoughtful balance of individual and group incentives may be most appropriate. A general rule is to balance this proportionally with the amount of indi-vidual and team-based work an employee is expected to do or the percentage of control and responsibility the individual and the team have. It is also important to consider whether feedback should be at the individual or group level. This is because it is possible that individuals might be performing well, but their group is not, or vice versa. The extent to which a person is identified with his or her team is critical when individual and group feedback is discrepant. For example, when a person receives negative feed-back, but the group’s feedback is positive, those who are highly identified with their team are less discouraged than those who are less identified with their team.36

PRIncIPle 3: conSult the team membeRS Who WIll be affected

The programs with the greatest likelihood of success are those that have input from all levels of the organization, including members of the team, teams that support or inter-face with the team, those who will administer the plan, management, and customers. For example, the mutual investment EOR (employee-organization relationship) approach in which employers expect high levels of employee contributions and offer extensive inducements is associated with greater team innovation.37

33Gross, S. E. (2008). Team-based pay. In L. A. Berger & D. R. Berger (Eds.), The compensation handbook: A state-of-the-art guide to compensation strategy and design (5th ed.). New York: McGraw-Hill.34Lawler, Rewarding excellence; Murphy, K. J. (1999). Executive compensation. Handbook of labor economics, 3, 2485–2563.35Han, J. H., Bartol, K. M., & Kim, S. (2015). Tightening up the performance–pay linkage: Roles of contingent reward leadership and profit-sharing in the cross-level influence of individual pay-for-performance. Journal of Applied Psychology, 100(2), 417.36Rabinovich, A., & Morton, T. (2012). Sizing fish and ponds: The joint effects of individual and group-based feedback. Journal of Experimental Social Psychology, 48(1), 244–249.37Jia, L., Shaw, J. D., Tsui, A. S., & Park, T. Y. (2014). A social–structural perspective on employee–organization relationships and team creativity. Academy of Management Journal, 57(3), 869–891.



PRIncIPle 4: avoId oRganIzatIonal myoPIa

Many programs fail, not because they are inherently flawed, but rather because they create problems with other teams, groups, and units within the organization. Managers often are myopic about their own team issues; good leaders are able to ask the question about how the particular team compensation system fits into the larger organization. Another aspect of organizational myopia is the extent to which people are future-focused. Indeed, people who have future-oriented work expectations have greater job satisfaction and lower turnover intentions.38

PRIncIPle 5: deteRmIne elIgIbIlIty (Who QualIfIeS foR the Plan)

Every member of the team should be eligible for the plan, and the plan should indicate when someone becomes eligible or loses eligibility. (Another complication concerns full- and part-time membership.)

PRIncIPle 6: deteRmIne eQuIty method

There are two basic variations: same dollar amount (wherein each team or each member is given the same amount of pay) and same percentage amount (wherein each team or each member is given the same percentage of pay).

PRIncIPle 7: QuantIfy the cRIteRIa uSed to deteRmIne Payout

There are two main ways to measure team results: financial and operational. Financial measures tend to be “bigger,” encompassing profit and loss (measured either compa-nywide or in terms of the team’s contribution) or revenue. Operational measures are typically productivity based (e.g., cycle time). There are several drawbacks to financial measures that primarily stem from the inability of team members to control the corpo-rate-level decisions that will affect their microfinances. Operational measures are more firmly within the team’s grasp.

PRIncIPle 8: deteRmIne hoW taRget levelS of PeRfoRmance aRe eStablIShed and uPdated

Goals can be based on either past performance or projected performance, with advan-tages and disadvantages to each. The most immediate advantage of the historical approach is that people can readily accept it. Many managers however, like to set stretch goals. One popular compromise is raising the bar, in which the baseline is increased and employees are given a one-time payment to compensate them for lost incentive opportunity. Conflict about the amount of the payout however, is likely to result. The rolling average method sets the baseline against which performance is measured as an average of some relevant period of time.

38Chen, G., Ployhart, R. E., Thomas, H. C., Anderson, N., & Bliese, P. D. (2011). The power of momentum: A new model of dynamic relationships between job satisfaction change and turnover intentions. Academy of Management, 54(1), 159–181.



PRIncIPle 9: develoP a budget foR the Plan

All plans should pay for themselves, with the exception of safety plans.

PRIncIPle 10: deteRmIne tImIng of meaSuRementS and PaymentS

Shorter measurement periods and faster payouts motivate employees more and— particularly when pay is at risk—are fairer. However, the disadvantages with a short-turnaround system include administrative overhead and manipulation of results.

PRIncIPle 11: communIcate WIth thoSe Involved

It is important for companies to be completely straightforward about what counts and how things are going. Indeed, people invest more resources on tasks on which they receive high-quality feedback.39 In terms of feedback quality, two things are important: timing and specificity.

PRIncIPle 12: Plan foR the futuRe

As teaming becomes more developed and the organization experiences shifts in culture or focus, a new mix of rewards needs to be defined to keep the organization in alignment.

39Northcraft, G., Schmidt, A. M., & Ashford, S. J. (2011). Feedback and the rationing of time and effort among competing tasks. Journal of Applied Psychology, 96(5), 1076–1086.


Appendix Rewarding Teamwork - Leigh Thompson

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