Why individual incentives compromise team performance

As a leader, you are responsible for harnessing and orchestrating the talents and capabilities of employees into a high performance team. To do so requires an ongoing commitment to training, coaching, evaluating, mentoring, and inspiring individuals to achieve their full potential – so in turn, your team can achieve its full potential. Yes, people work for money, but studies consistently show that money is not the prime motivator for job satisfaction and impressive performance.

Individual financial incentives motivate employees in the short-term picture, but emphasizing financial rewards leads employees to focus on personal gain at the expense of teamwork. Avoiding the short-term and producing the right outcomes over the long-term requires preparation. This means planning, discipline, and execution. Preparation shapes and defines your company’s culture. Preparation pulls a team together into a cohesive entity capable of achieving the extraordinary. It’s about the team, pride, quality, and winning.

Anatomy of a Team-Based Pay conversion

I just returned from Oklahoma City where I converted Richard and Jan Hill’s three Eden Salon & Spas from commission to Team-Based Pay. I’ve been doing TBP conversions for over 35 years. I have done them for salons, spas, manufacturing companies and high-end retail stores. And for over 35 years, I have been at the epicenter of the often heated debate between commission and non-commission believers. My usual response to, “I don’t believe in TBP,” is, “It’s not a religion – it’s a compensation system.” Then again, if I’m perceived as some “TBP Guru” on a global crusade converting commission companies to TBP, then perhaps their perception is somewhat true. Commission believers see their method as a prime motivator to perform. TBP believers see their method as a means to create a dynamic culture.

Just last month, J.C. Penney’s new CEO, Ron Johnson, eliminated commission in all stores including clothing, jewelry, cosmetics, appliances, electronics and salons. Until late 2011, Johnson, along with Steve Jobs, headed up the creation and operations of the wildly successful Apple Stores. Apple Stores are non-commission and Johnson wanted to create the same “do what’s best for the customer/relationship building” culture at J.C. Penney. It was a bold move that clearly rocked the boat throughout J.C. Penney, but it also cleared the way to shift the culture to customer-centric rather than sales-centric. It will be interesting to observe the transition.

Pay conversions away from commission top the list as the one change that owners and leaders fear most. However, the fear comes from a lack of understanding about TBP, the conversion process, the systems that drive it, and how to lead a company that no longer has commission as the prime motivator – if it even is the prime motivator.

More than 30 years of carrying the Team-Based Pay torch

Some people called me a pioneer – others thought I was crazy – to suggest that traditional commission-based businesses could convert to a non-commission system. “They won’t be motivated. They’ll quit. What if sales drop? I can’t afford it.” These are the basic responses I’ve patiently listened to and responded to for years. I didn’t create the Team-Based Pay (TBP) system to create controversy; I created it as a business model capable of building dynamic world-class companies.

The challenge with commission is its simplicity. “You earn a piece of whatever you sell.” It’s an “I/me/mine” pay system. Creating extraordinary customer experiences requires systemized and coordinated team effort. It’s virtually impossible to get “team” without rewarding team effort. Commission is used as the prime motivator for performance, while countless studies have proven that money is not the prime motivator. If commission is a motivator, why do you have employees who you’re constantly pushing to perform and achieve “average”? The 80/20 rule is in play with commission, which means that 20% will be motivated to perform. The 80% require extensive leadership engagement, performance systems and accountability. Commission, even with sliding scales, lacks the horsepower to achieve the extraordinary.