This document discusses team-based rewards structures and their impact on team trust. It defines trust and team-based rewards, noting that trust is important for team success. Team-based rewards can foster collaboration but may also undermine trust if not implemented correctly. Optimal conditions for effective team-based rewards include high task interdependence, objective criteria, and a belief in teamwork. However, team-based rewards could reduce cooperation by encouraging social loafing or perceptions of inequity if some members don't pull their weight. They may also increase competitive behavior between teams rather than cooperation. When implemented well in high-trust situations, team-based rewards can enhance team performance, but care is needed in the design.

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Team­Based Rewards Structures and Their Impact on Team Trust
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Introduction and Objectives
By Courtney Calinog (MSLOC student)
Trust is a critical ingredient to ensuring a
healthy team dynamic, with its absence
dramatically hindering team success in
any organizational context. As a result,
the establishment and continual fostering
of team trust is an important yet
challenging task facing managers,
coaches, consultants and organizational
effectiveness practitioners alike.
Team trust can be influenced by a variety
of factors, including the structures
organizations put in place to reward their
employees. An analysis of team­based rewards, in particular, suggests several interesting implications regarding
their impact on team trust. While they can be highly effective when implemented correctly, team­based rewards can
also be a trigger for team trust challenges. A deeper understanding of these dynamics can help the MSLOC
community design and promote healthy team reward structures in their academic and professional pursuits.
This article will provide an overview of trust in teams as a well as a summary of team­based rewards structures.
Through the lens of team trust, it will review the perceived benefits of team­based rewards, including a summary of
the conditions where they can be the most effective. In addition, it will explore potential drawbacks to team­based
rewards and their impact on trust. Finally, a case study demonstrating the successful implementation of team­based
rewards in a low trust team will be reviewed.
Trust and Team­Based Rewards Defined
Trust
According to Ferrin and Dirks (2003), interpersonal trust is defined as “an individual’s belief that another individual
makes efforts to uphold commitments, is honest, and does not take advantage given the opportunity” (p. 19). At the
same time, Rousseau, Sitkin, Burt and Camerer (1998) recognize interdependence and risk as the two conditions
that must exist for trust to arise. In other words, trust is best built in an interdependent team context where
individuals must come together to share information and collaborate. Furthermore, there is a notable element of
risk involved for individuals deploying effort towards a team goal when there is no guarantee that team members
will reciprocate (Ferrin & Dirks, 2003).
Team­Based Rewards
For an increasing number of organizations, implementing a compensation plan that rewards employees for
successful teamwork provides great synergy with their organizational model. Companies that have such plans take
various approaches to structuring team­based rewards, including programs such as incentive pay, recognition,
profit sharing and gainsharing. (See Table 1) Human resources professionals that use these plans indicate they
can be an effective way to reward team performance, but “must be carefully structured to avoid unintended
consequences that could undermine individual initiative and business goals” (Bolch, 2007, p.91).

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Benefits and Acceptance of Team­Based Rewards
With the increasing emphasis on team­based work in organizations, research suggests a growing acceptance and
interest in team­based rewards, with organizations embracing the “conventional wisdom that team­based pay is the
best way to encourage cooperation” (Merriman, 2008). According to a survey conducted by a leading
compensation association called WorldatWork, 83 percent viewed team­based variable pay programs as effective
(Thompson, 2008). In addition, the University of Southern California’s Center for Effective Organizations indicates
that 85% of Fortune 1000 companies used team­based pay to some degree in 2005, up from 59% in 1990
(Merriman, 2008, p. 32).
Fueling this interest is the perception that “such pay systems are likely to enhance members’ pro­social behaviors
and as a result, boost members’ capabilities, flexibility, responsiveness, and productivity” (Bamberger & Levi, 2009,
p. 301). Among many benefits, team­based rewards can foster collaboration and teamwork, allow team goals to be
clearly integrated with organizational objectives and provide incentive for the whole team to improve (Haines &

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Taggar, 2006).
Optimal Conditions for Team­Based Rewards
While the benefits of team­based rewards are clear, there are certain conditions strongly correlated to trust under
which they are more likely to be successful. The first is in teams with a high level of task interdependence (noted by
Rousseau et al. (1998) as a pre­condition to trust) and belief in the value of teamwork. When team members are
highly interdependent and must rely on each other for support or information to reach their desired goals, they are
more likely to realize the value of teamwork. Consequently, what Haines and Taggar refer to as a high “team
rewards attitude” (TRA), reflecting a positive attitude toward receiving team­based rewards, would “flow from the
realization that, in situations of high task interdependence, the desired performance or output can only be achieved
through teamwork” (p. 197). Therefore, teams with high trust and task interdependence are more likely to achieve
high team rewards attitude.
The establishment of objective, fair processes and measurable rewards criteria is also closely linked to the success
and acceptance of team­based rewards. Generally speaking, team members feel more comfortable when
performance criteria are based on objective standards (Thompson, 2008). According to Maurer (2010),
“measurable project rewards seem to restrict opportunities for free­riding, opportunistic behavior or favoritism. This
reduces suspicion and encourages project partners to trust each other” (p. 635). In addition, cooperation amongst
team members is often enhanced by teams’ perception of fairness, which “starts with an allocation of rewards that
members consider equitable” (Merriman, 2008, p. 32).
Pitfalls to Avoid: How Can Team­Based Rewards Undermine Team Trust
Dynamics?
Although research suggests team­based rewards are most effective in high trust situations, their presence alone
can be unsettling to team trust dynamics. As an example, even if a fair and objective team­based rewards system is
in place, team members may still be reluctant or unwilling to monitor each other or determine their coworkers’ pay
(Thompson, 2008). In addition, according to Bolch (2007), leveraging peer feedback to single out and reward
individual team members with extra recognition (and pay) is “a surefire way to sabotage the team dynamic—unless
the group receives a bonus and divvies the funds among themselves… When teams perform highly, it is the
interaction [among] team members, not the members themselves, that creates the high performance. If you ask
such members who was singly responsible for the high performance of the team, they'll say 'Huh?' or 'We were,'
and mean it" (Avery, 2007, as cited in Bolch, 2007, p. 92).
Perceived disparity regarding the contributions of individual team members can also generate reduced
cooperation and/or motivational loss in a team­based rewards environment. According to Haines and Taggar
(2006), team­based rewards “may fail to recognize individual differences and can sometimes encourage free riding
(withholding effort in the belief that rewards can be received by letting others do the work), potentially leading to
reduced cooperation and team failures” (p. 194). Consequently, team­based rewards “‘may be difficult for people to
accept,’ says Jay Schuster, a partner in the Los Angeles­based compensation consulting firm Schuster­Zingheim
and Associates. ‘The notion that some of an individual’s pay is at risk based on someone else’s behavior or by the
team overall is a hard sell’ ”(Garvey, 2002, p.74). Thompson (2008) also recognizes the potential for motivational
loss, characterized by social loafing or free riding, when team­based rewards are used. This may be driven by
feelings of inequity when other team members don’t pull their weight, but rewards are still allocated based on
equality. This perception of unfairness may be particularly prominent for high performers who have “a general
tendency to evaluate team­based rewards as distributively unfair” (Cable & Judge, 1994; DeMatteo & Eby, 1997;
DeMatteo et al., 1997; Duffy, Shaw & Stark, 1999; Yamagashi, 1988; as cited by Haines & Taggar, 2006, p. 202).
Finally, if implemented incorrectly, team­based rewards can increase destructive and/or competitive behavior

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between and within teams in organizations, rather than fostering cooperation. This can lead to the sub­optimization
of organizational goals (Thompson, 2008). According to Bolch (2007), fostering competition for rewards between
teams “promotes impermeable boundaries on the teams—i.e., a lack of information sharing and collegiality.
Therefore, attempting to award the best of middling or low­performing teams among a group of middling or low­
performing teams will provide a negative return on investment" (p. 92). Similarly, team performance appraisal
systems that provide a fixed reward to be divided within a team are destructive because they put individual team
members in competition for rewards (Thompson, 2008).
A Case Study: One Organization’s Journey Implementing Team­Based
Rewards in a Low Trust Team Environment
As cited by the Harvard Business Review (Merriman, 2008), one U.S.­based global manufacturing company
implemented a successful, multi­faceted approach to designing rewards for teams. The guidelines, which take into
account both individual and team performance, were outlined by Merriman (2008) to include:
" When converting three siloed departments to a dozen multifunctional teams focused on
customer accounts, the company queried a cross section of employees and learned that they were very
resistant to team­based compensation.
Listen to employees.
The firm established a system of differentiated compensation based on the specialized
skills each member provides to a team. Because each person has a unique function, it’s relatively easy for
managers to identify individual contributions. Employees are evaluated on measures such as job knowledge
and work quality.
Identify specific roles.
All members of a given team are evaluated by one manager rather than an
array of functional managers.
Be consistent about evaluation.
The company encourages teamwork and cooperation by acknowledging
individuals’ contributions to their teams and explicitly tracking and communicating the teams’ role in the
company’s success" (p. 32).
Unite teams through recognition.
Within this case study, the organization acknowledged their employees’ feeling that it was unfair to have a
significant portion of pay tied to the performance of team members they didn’t fully trust, and deduced that this
feeling of unfairness was disruptive to teamwork. Consequently, they made no attempt to forcibly unite teams
through collective compensation. Instead, by acknowledging individuals’ contributions to their teams while
explicitly recognizing and communicating the teams’ role in the company’s success, they successfully avoided the
challenges that can be encountered by low­trust teams in a team­based rewards environment. (Merriman, 2008)
Conclusion
Team­based rewards have both potential benefits and drawbacks for an organization, especially in the context of
team trust. While they can be successful in highly interdependent team environments when reward measurements
are fair and clear, they can also result in motivational loss, competitive behavior and feelings of discomfort by team
members who are reluctant to determine each other’s pay when such preconditions aren’t in place. As evidenced
in the HBR case study, it’s important for managers to take these dynamics into account when designing a team­
based rewards program and remember that there is not a one size fits all approach.
References
Bamberger, P. A. & Levi, R. (2009). "Team­based reward allocation structures and the helping behaviors of
outcome­interdependent team members " Journal of Managerial Psychology 24(4): 300­327.
Bolch, M. (2007). "Rewarding the Team." HRMagazine 52(2): 91­93.
Ferrin, D. L. & Dirks, K. T. (2003). "The Use of Rewards to Increase and Decrease Trust: Mediating Processes and

5. 1/30/2016 Master's in Learning & Organizational Change at Northwestern University :: Team­Based Rewards Structures and Their Impact on Team Trust
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Differential Effects " Organization Science 14(1): 18­31.
Garvey, C. (2002). "Steer Teams with the Right Pay." HRMagazine 47(5): 70.
Haines, V. & Taggar, S. (2006). "Antecedents of Team Reward Attitude." Group Dynamics: Theory, Research, and
Practice 10(3): 194­205.
Maurer, I. (2010). "How to build trust in inter­organizational projects: The impact of project staffing and project
rewards on the formation of trust, knowledge acquisition and product innovation." International Journal of Project
Management 28(7): 629­637.
Merriman, K. (2008). "Low Trust Teams Prefer Individualized Pay." Harvard Business Review 86(11): 32.
Rousseau, D. M., Sitkin, S. B., Burt, R.S. & Camerer, C. (1998). "Not so different after all; A cross­discipline view of
trust." Acad. Management Rev. 23(3): 393­404.
Thompson, L. L. (2008). Making the team: a guide for managers Upper Saddle River, New Jersey, Pearson
Education, Inc.
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