How to use team rewards effectively

Key points

• Team rewards can help improve team performance.
• Incentives to teams have stronger effects with small teams, when the team faces complex tasks, when rewards are equitable (vs equal) and when they are perceived as fair.
• When you design your reward strategy, consider organizational and local culture, and use feedback, praise and recognition too.

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Team financial incentives are commonly used to improve performance by motivating groups of employees. Team-based reward strategies might be the first response to the fact that in contemporary organizations, work most often needs to go through different hands to complete. So if you want people to do what it takes for teams to succeed (cooperate, share information, help others), you need to pay for what you ask. Team-based rewards might be the way forward. But are they effective?

What is the impact of team rewards on team performance?

Through a meta-analysis of 30 studies involving more than 7,000 teams, Garbers and Konradt (2014) found that team-based rewards yield moderate positive effects on team performance. This good news means that, from an evidence-based perspective, you may consider team-based reward structures within your reward strategy as one means of increasing team performance. However, there are even more important questions you can ask here: when do team financial incentives yield the strongest motivating effect? What contextual factors do you need to consider when designing your rewards strategy?

Apply equity when rewarding a team, and you’ll get the most out of them

When distributed equitably, bonuses are weighted on the actual contribution of the individual team member. Distributing rewards equally means giving money to all members when the team has reached its goal: everyone gets the same sized piece of the cake.

The evidence suggests that equitably distributed rewards are more effective than equally distributed rewards in affecting team performance. So, for example, the practice of distributing the same bonus to all team members at the end of the financial year, while it might be easier to do, may yield weaker effects on future performance.

Complex tasks could be an opportunity when applying rewards to teams

Team financial incentives appear more effective for performance improvement when they are applied for a team that is involved in complex task rather than simple tasks. Higher task complexity implies that an employee needs more skills and/or resources to perform a task: more complex tasks do not necessarily take longer to complete, they require more skilled people to get them done. So why might financial incentives be more helpful for complex tasks? We can hypothesize that financial incentives may prompt teams to use more resources available and invest more energy, which is what generally happens to succeed at more complex tasks.

Smaller teams respond better to team-based rewards

The effect of team-based rewards depends also on team size: the smaller the team, the stronger the effect of the financial incentives. Maybe smaller teams have stronger bonds, more social interaction among members, and less physical distance between members than larger teams. Also, people may perceive the reward as more fair because individual contribution is easier to gauge in a small team than in larger teams.

Team rewards: some initial design considerations

1. Have a clear idea of the reasons why you are adopting team-based rewards.
   • You should adopt team-based rewards in two general cases: when you can only measure performance at the group level or when there is high interdependence between people and you really can’t isolate the individual contribution.
2. What can team members expect to be rewarded for?
   • You can measure the quality and/or quantity of group results, such as a marketing campaign, a planned event or more simply, units produced and services provided.
   • You need to use both objective and behavior-based measures of performance when judging individual contributions.
   • Provide clear indicators of the team’s performance and ensure team members have influence in choosing these indicators.
   • For technical and repetitive jobs, performance data could be easier to report, while for more complex jobs, you may need to track the time spent on a task and degree of satisfaction of the people who are involved in the work of the employee, this could be a client or a peer.
   • Whatever the job, establish and communicate the relevance of measures of performance to the team and stakeholders involved. During Performance reviews, be clear about the purpose of that moment and use feedback to give meaning appropriately for the reward recognized or not.
3. Frequency of payout and size of reward
   • There is no one-size-fits-all strategy for these two options. For example, frequency of payout may be a function of how often progress against goals is assessed. On the other hand, the size of the reward should be weighed between teams, to ensure allocation is fair considering the conditions in which teams operate.
   • It’s important that the reward is contingent on the behaviors that you want to reinforce, that is, the behaviors that were found to have an effect on performance.
   • While rewards are typically distributed to managerial, professional and technical employees on certain dates in a year, relevant rewards must always be available and achievable.
   • The specific details of how frequently you should pay winning teams and how much the price should be should be coherent with the business strategy and available funds.

Takeaways for your practice

In organizations, success depends highly on collaboration and cooperation within and between teams of individuals. If this is the case in your organization, then adapting rewards to incentivize those behaviors is the first step to take. Here are some takeaways from the research:

• Use team rewards, they work – in particular if you have a small team with complex tasks.
• Make sure team rewards are fair and are perceived as fair – here’s a brief list of things you can do to make sure they are perceived as fair.
  • communicate how you will distribute rewards: if you want to value individual contributions, you’ll need to define and say what the indicators of performance are (e.g. the amount of responsibility, hours worked, individual outcomes). In other words, use equitable pay and be meritocratic. Objectives and performance should be measured among individuals, so that you can show what each team member has done and what they each receive as a reward.
  • Make rewards potentially accessible to everybody:  it would not be fair to set rewards that some will in no way get. Make rewards potentially accessible to everybody: if you set rewards that some will be unable to get, you’ll be setting an unfair practice
• Don’t forget non-monetary rewards –  The impact of your reward practices on collective outcomes depends on a much broader variety of factors than the pay scheme: in a previous summary, we underline the role of Total Reward strategies and – in particular – non-monetary rewards to enhance the employer value proposition in preventing employee turnover.
• Effective teamwork is not only about rewards – make sure to foster trust, psychological safety and quality communication. In other words, train teams to work better together!

Trustworthiness score

We critically evaluated the trustworthiness of the study we used to inform this Evidence Summary. We found that the study design – a meta-analysis of (quasi) experimental studies – is highly appropriate to demonstrate a causal relationship. Therefore we can conclude that it is shown that team-based rewards have a causal effect on team performance.  

Learn how we critically appraise studies to assign them a Trustworthiness Score.

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References

Garbers, Y., & Konradt, U. (2014). The effect of financial incentives on performance: A quantitative review of individual and team‐based financial incentives. Journal of Occupational and Organizational Psychology, 87(1), 102-137.

DeMatteo, J. S., Eby, L. T., & Sundstrom, E. (1998). Team-based rewards: Current empirical evidence. Research in organizational behavior, 20, 141-183.

London, M. (2007). Performance appraisal for groups: Models and methods for assessing group processes and outcomes for development and evaluation. Consulting Psychology Journal: Practice and Research, 59(3), 175.