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There is a prior question whether it is appropriate to have any form of incentive pay as opposed to straight salary. If it has been decided that the former is desirable, the next question is the form of the incentive pay1. Performance related incentive should be implemented for individual and team based performance/ the weightage between the individual and team will primarily depend upon the nature of Job2. Irrespective of companies are using Lean Sigma or not, financial incentives improve task performance moderately to signiﬁcantly, but the eﬀectiveness dependents on organizational conditions. Two recent reviews of the eﬀects of organizational behavior modiﬁcation indicate that monetary incentives signiﬁcantly improve task performance. Stajkovic and Luthans ’ s (2003) meta-analysis of 72 ﬁelds studies shows that an organizational behavior modiﬁcation intervention using monetary incentives improved task performance by 23 percent, whereas an intervention with social recognition did so by only 17 percent and feedback by only 10 percent. Furthermore, by combining all three types of motivational reinforcers, performance improved by 45 percent. This is a stronger eﬀect on performance than when each approach was applied separately. Feedback, the strongest phase of PDCA culture in Lean Organizations, combined with money and social recognition produced the strongest eﬀect on performance3. The standard argument in favor of individual target based incentive scheme (IBIS) is the following: if I am rewarded as an individual for my output, I get the full value for my commitment; if I am paid as part of a team reward, I only get part of the reward, so I may choose not to put in the extra efforts. As a result creative, suggestion and learning culture of a Lean Organization dilutes. In
What is more effective in Companies or Organizations that are using Lean or Six-Sigma: Individual Target or Team Target?
This is known as the ‘free-rider’ problem. The aim of any variable payment by result scheme is to provide a direct link between pay and output: the more effectively the worker works. and individual team members (DeMatteo. Team-based or small-group incentives are characterized as rewards in which a portion of individual pay is contingent on measurable group performance (DeMatteo. where measures of organizational performance often are uncertain. found that ﬁnancial incentives are signiﬁcantly related to performance quantity but not to quality does not support the Lean Principle. Again focusing primarily small business. However in Lean Organizations. although they are not well tested in public sector settings. Jenkins et al. piecework and work-measured schemes have declined in recent years. “Quality at Source” at all4. and Sundstrom 1998). the organization. traditional bonus. it is said that a team target based incentive scheme (TBIS) “penalizes performers and rewards passengers”. as many employers have moved to allround performance rather than simple results/output based pay. 2 What is more effective in Companies or Organizations that are using Lean or Six-Sigma: Individual Target or Team Target? . However. the higher their pay. and Sundstrom 1998). this scenario is much more different. Eﬀectiveness depends on the characteristics of the reward system. the team. Eby. This direct relationship means that incentives are stronger than in other schemes. Eby. Thus the mass production organization choosing to institute an IBIS provides stronger incentives for its employees3.’ s (1998) meta-analysis of 39 studies addresses performance quantity and quality.some recent reports. Group or team target based incentive systems are consistently eﬀective in Lean and Six-Sigma following Organizations. Honeywell Johnson and Dickinson (1999) do ﬁnd that equally divided small-group incentives sustain high levels of productivity and satisfaction for group members and that small-group incentives are at least as eﬀective as individual incentives with groups of two to twelve3.
overlays and geographically dispersed customer teams to work in a symbiotic. team performance in its sales compensation plan. The standard advice when designing best-in-class sales compensation plans has always been to pay for individual performance. they must address two questions: What business conditions are driving the decision to reward team results rather than or in addition to individual results? How can an organization know if this is the right path to follow? Answering these questions requires a close look at the company’s business model. In most of the Lean Companies bonus schemes incorporate quality measurements or customer service indicators in the assessment to avoid the likelihood of workers cutting corners or compromising safe working methods in order to increase output.that’s how Lean Sigma companies are defining Excellence. Recently. Does the organization subsist on competition among “lone rangers” who rarely need to work together for the good of the customers? Or does it rely on a complex network of account managers. seamless way to best meet customer needs? Once an organization understands these key features. As for instance. however. 3 What is more effective in Companies or Organizations that are using Lean or Six-Sigma: Individual Target or Team Target? . Organizations need to determine how the work of sales teams and individuals comes together to drive the business. Operations. Before organizations adopt team-based measures and incentives. Sales and Marketing5. an increasing number of companies are finding that team-based performance measures better reflect the way they sell to customers5. it can assess the pros and cons of measuring individual vs.
creates fiefdoms Creates crediting issues when a sales effort comes from multiple contributors Team Based Target – “Three Musketeers” Pros • • Cons Fosters a collaborative/selling environment – “happy to help” Enhances a focus on the customer’s needs – “we are customer advocates” Resolves crediting issues for complex team sales • • • • Spreads incentives across high and low performers. How the sales strategy and organization support key business objectives will help determine whether a chosen metric is best suited for team or individual measurement. which metrics are best suited for team versus individual measurement? Ideally. an effective sales compensation plan should have three incentive measures. These can range from the objectively quantifiable (such as customer revenue) to the more subjective in nature (such as management by objectives). potentially allowing low performers to “draft” behind top performers Dilutes pay-for-performance culture Hinders management’s ability to quickly diagnose performance driver(s) Source: Sibson Consulting Assuming an organization decides to employ a combination of team and individual incentives.Individual Target – “Lone Ranger” Pros • • • • Cons Clearest line-of-sight for plan participants Demands performance and results for pay Clearly differentiates between high and low performers Encourages a strong “sales culture” • • • Contributes to an “every man for himself” environment May hinder effective team sales behaviors. A company should identify those activities that require the greatest collaboration of the 4 What is more effective in Companies or Organizations that are using Lean or Six-Sigma: Individual Target or Team Target? .
because of the monitoring required by incentive programs. 5 What is more effective in Companies or Organizations that are using Lean or Six-Sigma: Individual Target or Team Target? . Executed with care and a sound business case in the right organization. The increase in team performance is thought to result from decreased “social loafing” that occurs in teams. peer pressure has significant value6. The keys to success include recognizing a team-based sales organization. moving up to 50 percent based on team results will still provide a chance for individual performers to shine and will allow the company to maintain a strong pay-for-performance culture5. Recent study shows. team-based incentives can support a more collaborative environment that can improve alignment with the company’s overall objectives and create a winning sales strategy5. The best method for a company introducing team-based incentives for the first time is to follow a judicious approach to avoid alienating its valuable high performers5. Clearly. crossterritory results or customer satisfaction. If the company is moving from a pure individual mix. As the organization becomes more comfortable with team-based measures. others can benefit from team-based plans. selecting the best measures at the team level and finding the right balance. incentivized individuals increased performance an average of 27%.team. These may include generating multi-product revenue. Although individual performance measures work best for some organizations. Individual incentives are still critical to success. to Incentivize Teams vs. Individuals: Incentivized teams increased their performance by 45%. introducing one team-based measure that accounts for no more than 30 percent of the total incentive would be advisable — leaving 70 percent of the incentive for rewarding individual results. individual incentive mix maintains the “skin in the game” for sales reps while supporting and enhancing good team-based decisions for the customer. so an appropriately balanced team vs.
Motivating Employees in a New Governance Era. Are Team-Based Incentive Measures Right for Your Sales Organization? By Sheila McCarthy and Shalin Sharma at http://www. See Manjari and Rekha. Indian Institute of Management.uk/index. by Debra and Laurie.worldatwork. Incentives. 2006. Research Sponsored by The International Society for Performance Improvement 6 What is more effective in Companies or Organizations that are using Lean or Six-Sigma: Individual Target or Team Target? . Principle. and Parameters for Performance-Related Incentives (PRI). Motivation and Workplace Performance: Research & Best Practices.acas. 12.References: 1. Indiana University and San Francisco State University respectively.aspx?articleid=735 on 19th Feb. Feb. Promoting employment relations and HR excellence at http://www. Spring 2002. Formulating the concept.org. University of Bristol 2. 5. Ahmadabad. See Simon Burgess and Paul Metcalfe.org/waw/adimComment?id=36014 6. 4. Incentives in Organisations: A Selective Overview of the Literature with Application to the Public Sector CMPO (1999). Performance Paradigm Revisited. 2008 3.
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