This document discusses incentive pay and team-based pay. It defines incentive pay as rewarding employees for achieving defined goals, and notes that incentive pay plans can be based on individual, team, business unit, or company performance. Team-based pay encourages collaboration and cooperation among team members to achieve shared goals. The document outlines different types of team-based pay including gain-sharing, profit-sharing, and employee stock ownership plans, and discusses their advantages and disadvantages.

1. Incentive Pay & Team Based Pay
Dr. G C Mohanta, BE, MSc(Engg), MBA, PhD(Mgt)
Professor
Al-Qurmoshi Institute of Business Management
Hyderabad
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2. Incentive Pay
Incentive pay rewards employees for achieving defined
goals.
The company sets performance objectives at the
beginning of the pay period and if these are achieved,
employees receive a lump-sum payment.
Incentive pay plans can be based on the performance of
the individual, team, business unit or company.
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3. Incentive Pay (Contd.)
A lump sum payment (such as, sales commissions) is the
traditional method .
Usually the formula & relationship between performance and
payment of the lump sum, are known beforehand.
Another traditional method of rewarding performance is
piece rates.
Unless related to a reasonable time frame within which the
production should be completed, such rates would not be
related to performance.
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4. Payment by Result (PBR)
PBR incentive schemes are:
➢Individual time saving – incentive paid for time
saved in performing a task
➢Measured Day work – a fixed amount paid for
predetermined & agreed level of working
➢Commission - a Bonus paid linked to sales, reward
pre-determined or percentage of total sales
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5. Individual Performance Related Pay
Individuals receive incentive as increases to basic pay
or cash bonuses, linked to performance
Scope provided for a joined pay progression within
the pay bracket
High level of achievement may be rewarded by cash
bonuses that are not consolidated
Individuals are eligible for such bonuses when they
have reached top of pay bracket and completely
progressed along their learning curve
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6. Team-Based Pay
Companies offer team-based incentive pay to
encourage team members to work together
effectively.
Team-based incentives encourage collaboration and
cooperation to achieve shared goals.
Collaborative teams will structure the work to ensure
that each team member is able to use his skills and
abilities most effectively.
For example, a team member with planning skills
will organize the work flow while team members
with technical skills will focus on completing the
work. 6

7. Aim of Team Based Pay
 To reinforce behaviours that lead and sustain
effective teamwork
To encourage group endeavour and cooperation,
rather than to concentrate only on individual
performance
Research showed that most common method of
providing team based pay, was to distribute bonus to
team members
Design for team based pay will be contingent on
requirements and circumstances of organisation, and
these will always differ
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8. Types of Team Based Pay
Team Based Pay are of three types:
Gain-sharing
Profit-sharing
Employee stock ownership plans (ESOPS).
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9. Gain-sharing
Gain-sharing refers to a compensation system which
divides between the employer and employees the
results of improved performance consequent upon
the better use of human resources resulting in
productivity gains.
Sharing is according to an agreed, pre-determined
formula.
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10. Profit Sharing
These schemes are linked to the profits of an enterprise,
a part of which is paid as bonus to employees
It may be a cash payment, or a deferred payment kept,
for instance, in a special fund for a particular period.
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11. Employee Stock ownership plan
(ESOP)
Employee stock ownership plan (ESOP) - an
employee benefit trust linked to share participation
scheme
Trust receives contributions from company or borrows
money and then buys shares in company and allocate
to employees
Stock option schemes - permit companies to grant
share to directors and employees in tax- effective
manner
They are given opportunity to buy shares in their
companies at a future date, but at the current price
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12. Advantages of Team Based Pay
Team pay can:
➢Encourage team-working and co-operative behaviour
➢Act as a lever for cultural change in the direction of quality
and customer focus
➢Enhance flexible working within teams and encourage
multi-skilling
➢Provides an incentive for group collectively to improve
performance and team process
➢Encourage less effective performers to improve in order to
meet standards
➢Serve as a means of developing self-managed or directed
teams 12

13.
Disadvantages of Team Based Pay
Effectiveness depends on well defined teams, difficult
to identify and they need to be motivated by a purely
financial reward
Team pay may seem inappropriate to individuals
whose feelings of self-worth could be diminished
Distinguishing what individual team would be
rewarded may be difficult to identify
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