What Is Team-Based Pay?

Corporate culture tends to emphasize individual performance. Whether it is commission-based pay schemes or employee of the month awards, companies like to encourage workers to rise above the pack. But some firms are thinking the exact opposite: When the pack works together, everybody shines. That's the mentality behind team-based pay, a compensation plan used by some companies to reward individuals based on the work they do in groups.

Team-based pay is a system of compensation in which managers at a company reward members of a project or a department team with bonus compensation or pay increases based on their performance or the successful completion of goals. Unlike individual reward schemes, such as commission-based pay, team-based pay rewards the output of the team as a whole and divides the rewards equally among team members.

Team-based pay may help some companies promote the transfer of knowledge between employees, according to a 1997 "San Francisco Business Times" article. Two employees with very different skill sets may have never been encouraged to share their expertise with each other on their own. Putting those two employees together on a team that can then reap rewards based on their performance not only encourages skill sharing, it makes it a desirable method that can help all involved earn more money or other rewards.

Team-based pay can also encourage workers to acquire new skills they may not have learned otherwise. It benefits a team to educate its least-skilled workers. By tying team success to material rewards, education goes from a luxury to a necessity. Some companies even implement team-based pay based on skill acquisition; some manufacturing firms reward teams of employees who learn new skills or become certified in new areas of expertise, allowing workers to acquire education that previously might have been too costly or time-consuming to consider.

Team-based pay can be difficult to implement at many companies, according to management consultants interviewed by the "San Francisco Business Times." If education is not stressed from the beginning, teams can be weighed down by members with less experience, putting a dent in the paychecks of those who know the most. Evaluations of team performance can also be difficult. Unless benchmarks are clear, such as selling a specific amount of product or reducing costs by a certain percentage, the team-based rewards system can be inconsistent and unfair.