Basing incentive pay on the performance of employee teams involves determining salary and/or bonuses based on the work of a group of employees rather than on individual contributions. To be effective, this type of approach must be clearly defined, achievable and embraced by the participating staffers. If instituted correctly, team-based incentive pay plans can have a positive impact on overall productivity and performance levels.


One advantage of team-based incentive pay plans is that employees are motivated to work together in a collective fashion toward a common goal. Employees have the potential to encourage one another, participate in brainstorming sessions and support each other in their efforts. This approach also has the potential to effectively use the talents of individual staff members in a group setting. The advantage is the full utilization of collective staff knowledge and experience.


When employees must work in tandem with one another, relying on each other’s contributions for their compensation, a spirit of teamwork can emerge. Employees have the potential to feel stronger and more effective in a team unit than they do operating on an individual basis. This can translate to greater staff unity in other aspects of the business, which has the potential to strengthen the workforce and encourage company loyalty and longevity.


Healthy competition can spur greater levels of achievement when employees are working on team-based incentive pay projects. This is especially true in instances where earnings are divided among employees in a group according to productivity. Care must be taken in this regard to ensure equitable performance for equitable pay, or employees may not give you full buy-in to the practice.

Positive Peer Pressure

When a group of employees is working toward a collective goal, chances increase that ambitious workers will encourage greater levels of participation from their less ambitious colleagues. This form of peer pressure can be positive when under-performing staffers apply extra effort so as to not let down their group members. This can have an added advantage of pushing lower-achieving employees to step up their game and operate at new levels.

Increased Earnings

Any time a business owner bases pay on the performance levels of employees, it creates a dynamic in which the more employees produce, the more they earn. This principal applies to the business owner in a similar sense as well. While he may be compensating team efforts at a higher level, the higher earnings also translate to increased profits for the business, creating a win-win for everyone.