How team goals influence teams

One team expert we interviewed as part of our Team Mind project is Marc Wagner, Managing Partner of T-Systems/Detecon. He says, “A frequently made mistake is to link targets to performance appraisals and variable pay components of employees.” But why should this be a mistake?

A case study shows why: In a sales organization, high-performing employees in poor teams should be better recognized, sales results that exceeded the team’s results should be individually rewarded, and “up-and-comers” (= sales staff who develop very positively) should be especially nurtured. After lengthy internal discussions, HR management and the works council agreed on the following solution: A portion of the previous year’s company profit was made available to all sales teams as a “bonus pot”. Of this, 75% was paid out according to individual target achievement, e.g. how many products were sold and how much revenue was generated. The remaining 25% was paid out as a special bonus to individuals who were at least 10% above their team average or who were among the top 10% in terms of growth. Only a few months after this system had been introduced, it was abolished again because competitive behavior and resentment within the sales teams increased to such an extent that sales performance dropped significantly.

The equation “goals + rewards = performance” doesn’t add up.

In teams, goals cannot be independent of each other; team members can only do their best, depending on what the others are doing. As a result, individuals work harder in teams without a bonus than with a bonus. However, individual effort diminishes over time and settles down to a sort of “lowest common denominator”. If the team bonus is only small, this tendency becomes even stronger. A high team bonus does not lead to a particularly high individual effort, but at least keeps the effort made by the individual team members stable.