To use self-managed teams to improve productivity, management must reinvent work by:

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Self-managed teams are hot. Everyone is talking about them and knows about companies like Buurtzorg and Morning Star. Frederic Laloux has emerged as the new management guru. 

It all sounds sounds very attractive; employees who make their own decisions, managers gone. Research shows that it makes for happier, more engaged employees which leads to an increase in productivity. Self management is also key for organizations to navigate waves of change.

The goal of self management is getting people to start thinking like owners. Instead of thinking about what their manager expects (implicitly or explicitly), they think about what is best for the organization. If a manager continues to decide on a raise or a next step in someone’s career, the very idea of self-management is being threatened. People will continue to make decisions not based on what is best for the organization, but what will make their manager happy.

If a manager continues to decide on a raise or a next step in someone’s career, the very idea of self-management is being threatened. People will continue to make decisions not based on what is best for the organization, but what will make their manager happy.

But if the manager is gone, who is going to evaluate if people are doing well and what rewards (raise, promotion, training, etc.) they deserve? This post is about how you rate and reward in self-managed organizations. 

Your reward system determines your culture

Let me start with the ‘why’.  Why is your reward system so important? This question is best answered with the following table illustrating what goes wrong in so many organizations. 

If your people are not doing what you want them to do, you should not blame them. The problem is not a lack of motivation, or people just no wanting to do stuff. The problem is that people do what they are rewarded to do. The rewards say everything about your culture.

Your culture can be defined by how people in your organization answer the following questions:

·     What does one need to do to get ahead? 

·     What makes people successful here?

·     Is that what made you successful here?

If you do this exercise in a team, the first things that come up are the good things; ‘innovate’, ‘hard work’, ‘openness and teamwork’, ‘eye for detail.’ But if you continue to ask you’ll eventually get to the less desirable truths, like ‘24x7 availability by mail’, ‘sound smart’, ‘get consensus for every decision’. All of these things determine your culture. Your culture is the behaviors you reward and punish.

The word reward needs to be interpreted broadly. Who is getting the promotion, or who has drinks with the owners? Who is getting the cool assignment, or whose name is being mentioned in an all hands meeting? Who is being marginalized on lame projects, or worse, who is getting fired? These are all strong signals to team members about what your true culture is.

And watch out. If your ‘core values’ do not correspond with your visible rewards you’ll breed cynicism in your people.  You can say that ‘treat each other with respect’ is a core value, but if that rude ‘high performer’ is still getting the better projects, your real culture is different than what your core value says. 

Things to Consider:

1. Determine how people think about ‘how do you get ahead here’?
2. Clarify that the term ‘reward’ is broader than mere financial rewards (salaries, bonuses). Promotion, learning, attention, etc. are all part of rewards.
3. Find out whether your core values correspond with what you are actually rewarding.

Design a good reward system in 3 steps.

In his book Reward Systems: Does Yours Measure Up? Steve Kerr outlines the 3 step process to design a reward system that is in line with your company’s mission. 

Steve’s “define-measure-reward” process is simple – define your goal, find a way to measure it, and reward the measured success.

The 3 step process to design a reward system that works are simple - define your goal, find a way to measure, and reward the measured success

Step 1. - Define

General

This is where you establish what is expected of people in your organization. What results need to be achieved? Please recognize that everything follows from how well you define expectations. You have no chance of successfully measuring and rewarding what is not clearly defined.

This is also where you define your mission, vision and core values. You need to answer questions like: Who are we? Why do we exist? What do we stand for? Where do we want to go? And the core values should then direct the behaviors you want (and don’t want) to see. How should people interact with each other internally? How do we interact with our clients, suppliers and other stakeholders?

Self-managed Organizations

If you want to be successful with self-management, your people also need to act like entrepreneurs, be self-organized, take responsibility, reach their goals and resolve tensions and conflicts in a constructive manner.

So you need clarity on this as well. What does someone need to do (or stop doing) to show entrepreneurship and self-management? And what behaviors do you see when someone is taking responsibility? What are the exact goals and when are these goals achieved? And what does it mean exactly in terms of behaviors to solve tensions and conflicts constructively? 

For self-managed organization clarity is needed on what someone needs to do (or stop doing) to show entrepreneurship and self-management. What are the behaviors you see when someone is taking responsibility? What are the exact goals and when are these goals achieved? And what does it mean exactly in terms of behaviors to solve tensions and conflicts constructively? 

But without a manager who provides a clear direction to the team? The short answer is: the team itself.

One of the most important elements of self-managed teams is a clear description of everyone’s roles and responsibilities. There are different ways of doing this. For example:

• Holocracy makes the expectations crystal clear through detailed and very advanced meeting and decision structures. This means that the team is clarifying the roles and responsibilities according to the holocracy rule book (i.e. the constitution).
• Everyone at Morning Star (tomato processor) has a “Colleague Letter of Understanding (CLOU) which is a document that details everyone’s roles and responsibilities.
• The ‘Advice process’ can also create new roles. Someone can suggest to relevant people that a role should be created, changed or removed. Everyone is required to take action if they sense a problem or opportunity. Merely making a comment like ‘someone should be doing something about this’ does not count as an action. Often this means that the person who noticed something will reach out to the appropriate colleague.

Teal Organizations

Laloux states that teal organizations serve an evolutionary purpose. To find out what the evolutionary purpose is, an iterative process is being used whereby everyone is actively listening to what the organization’s role is in the world and acts accordingly.

Teal organizations translate mission, vision and values into explicit behavior statements (what behavior you do or don’t want to see) so as to create a safe environment. The development of the mission, vision, values and behaviors is also a recurring theme in meetings.

Things to Consider

1. Everyone needs to be clear on what is expected of him or her, but what is clear enough?
2. What behavior is needed to be a successful self-managed team and is it clear to everyone exactly what they need to do (or not do)?
3. Are the roles and responsibilities clear and detailed enough for people to fully grasp?
4. Translate mission, vision and values into explicit behavior statements.
5. Ensure that mission, vision, values and behavior statements are a recurring theme and are regularly discussed with everyone.

Step 2. - Measure

General

It is easy to get people excited about rewards – fat bonuses, dazzling share awards, big salaries – but when you start talking about measuring performance their excitement fades. However, starting at the wrong end – rewarding what you don’t know how to measure – is a big mistake.

The success of your reward system is fully dependent on how well you can measure what it is that you are rewarding. ‘How you measure’ is the table that needs to support the weight of your reward. If you want to give the most pay to your best people, then you need to know how to measure ‘best’ (and define it of course).

The success of your reward system is fully dependent on how well you can measure what it is that you are rewarding

Performance Management

The traditional way of measuring (performance management) has been under attack for years because it is considered too bureaucratic, too time consuming, demotivating and because it simply doesn’t work.

Even if you have thrown out the traditional performance management, you cannot escape the need to measure. You want to reward people for the ‘good’ and hold them accountable for the ‘not so good’, so you need to assess what you mean by ‘good’ and ‘not so good.’

Even if you have thrown out the traditional performance management, you cannot escape the need to measure. You want to reward people for the ‘good’ and hold them accountable for the ‘not so good’, so you need to assess what you mean by ‘good’ and ‘not so good.’

Self Management

A common fear you hear voiced is that without a prodding manager, what is keeping people from leaning back? The short answer is: intrinsic motivation, peer pressure and market demands. People do not need pressure from the top, but they do want to know whether they are doing a good job.

Self-managed teams measure things like team results, productivity and profit, just like other organizations. You also see the following: 

• Team focus. Focus is on the team, not the individual
• Transparency. Data is visible to everyone which creates a healthy dose of peer pressure.
• Feedback. There is a strong feedback culture (frequent and effective)
• Peer-based system. Formal performance review discussions are less common. If they are done, a peer based system is used. People at Morning Star still receive feedback once a year from everyone they committed to in their CLOU. And Buurtzorg requires that all team members assess each other at least once a year based on a competency model designed by themselves.

Things to Consider

1. What is the right balance between individual performance and team performance?
2. How transparent do you want to be with your performance data?
3. What is needed to stimulate a culture of feedback?
4. How important is it to differentiate between good performance and mediocre/poor performance?
5. Does it make sense to have annual performance discussions in addition to regular feedback? If so, what is the purpose? Is it to discuss raises? Is it to discuss development and career issues?

Step 3 - Reward

3.1    General

Rewards are anything that increases the probability of a future response. Viewed that way money is obviously a good reward. If you offer people money to do something, chances are they will do it. Feedback is also a type of reward. In the absence of feedback it is impossible for people to systematically improve their behavior. Giving feedback will substantially increase the probability for behavior improvement.

Rewarding the right things is important, but so is choosing the right rewards. Rewards can be either financial (salary, bonus, shares) or non-financial. Non-financial rewards consist of prestige rewards (e.g. job title, invitation to top management conference, etc.) and job content rewards (autonomy, challenging work, recognition, feedback, attention, etc.)

When you talk about rewards, people tend to think that you are only talking about money (financial rewards). Money works because no one refuses it and people will do almost anything to get more. But there is only a limited amount available. How do you distribute this scarce resource in such a way that you get the most bang for your buck? Unfortunately, handing out raises or incentives is not always money well spent.

Moreover, non-financial rewards (prestige and job content rewards) are often way more powerful than one would think. 

3.2    Determine salary in self-managed teams?

Financial rewards are made up of compensation (salary, bonus, etc.) and benefits (pension, health insurance, company car, etc.). And compensation can be further divided into a fixed (salary) and a variable (bonus, shares, etc.) component.

The experts agree, money has a big impact on motivation. However, it is different than you may think - money does not motivate. Yes, you are reading it correctly; more money does not motivate. But not enough money does de-motivate. What counts is that the amount has to be fair.

More money does not motivate. But not enough money does de-motivate. What counts is that the amount has to be fair

The big question then is, what is fair? Is your salary fair (read: high enough) compared to others? Compensation is still affected by market forces. Self-managed organizations also look at the market to figure out the value of roles (Is salary in line with what others pay?).

Zappos is trying to determine how much someone should be paid by using a badge system. Every badge represents a skill or a level of experience and all badges have a certain value. The idea is that collecting more badges is similar to ‘leveling up’ in video games and earning more badges automatically means you’ll be making more money.

3.3    Determine raises in self-managed teams

After the initial value has been set, the question becomes ‘when is someone entitled to a raise?’ People deserve a raise because of good performance and/or they reach a higher (experience) level.

There are 2 methods:

1.   Colleagues decide your raise

For example, once a year everyone ‘rates’ their colleagues. People answer questions about their colleagues like ‘does this person contribute (much) more or (much) less compared to me (on a scale of -3 to +3)’ and ‘this person has a good basis to evaluate me (on a scale of 1 to 5)’. A simple algorithm then determines in what salary bucket someone fits. The ones with more experience, more knowledge and harder workers fill the higher buckets. And the less experienced, less knowledgeable colleagues end in up the lower buckets. 

2.   Self-set salaries

For example, people use an advice process whereby someone proposes a raise after seeking advice and recommendations from colleagues.  In that way, people are made fully responsible for assessing their own contribution to the team and validating with colleagues that the assessment is accurate.

Another example is that someone is required to prepare a ‘pitch’ if they believe that they deserve a raise. The ‘pitch’ includes input from colleagues and is given to a democratically chosen committee, who ultimately approve or deny the raise.

3.4    Who decides?

In a traditional organization, rewards are the responsibility of the manager and HR. The manager makes the determination within the framework created by HR.

In self-managed teams, the responsibility lies with the teams and people themselves. Moreover, self-managed organizations create special roles (in holocracy) or committees to support the process. Members of such committees can be annually democratically elected. Sometimes one of the founders or shareholders is also a committee member.

In a traditional organization, the amount of money available for raises and bonus pay-outs is part of the budgeting process. In a self-managed organization you often see that this is determined by the founders or shareholders. 

3.5     Incentives

In most organizations the predominant thinking is that people will work harder and smarter if they are offered the right financial rewards (read: money). The idea is that incentives will motivate people. Modern organizations do not like this focus on the individual and want to steer clear of competition between team members. Also, they want to avoid large income disparities often caused by relying on fat bonuses or other monetary incentives.

Moreover, research shows that incentives may actually be counterproductive because they ruin intrinsic motivation. If that is the case, you need to wonder what you are paying for as an organization.

Incentives may actually be counterproductive because they ruin intrinsic motivation

An alternative for individual incentives is team incentives. Teams who deliver excellent results will get a bonus to be distributed equally amongst the members. Some organizations go a step further; at the end of the year a portion of the profit will be shared with everyone (same percentage of salary or same amount).

Things to Consider

1. How do you determine the value of roles?
2. Will you let your colleagues determine raises (rating) or will you allow self-set pay (advice process)?
3. Who is supporting the process – democratic election or creating a special role?
4. What is the right mix between fixed and variable compensation?
5. What types of rewards will be offered and to whom?
6. Does the organization believe that incentives motivate? Does the organization believe that individual or team bonuses work best? Or equal profit-sharing?
7. How much money is available for raises/incentives and who decides?
8. How transparent do you want to be with your compensation data (individual compensation, how much money does the organization make available for raises/incentives)?

Conclusion

Self-managed organizations would be wise to follow the 3 step process (define-measure-reward) when designing their reward system. Do not rush through steps 1 and 2 just because you’re most excited about rewards. Starting at the wrong end - choosing rewards before clarifying what you want to reward and how you measure it – is a big mistake. 

The quality of your reward system depends on clearly defining what you expect of people. In a successful self-managed organization everyone knows exactly what their roles and responsibilities are. They also understand what behavior the organization wants to see and what behavior it wants to discourage.

Similarly, the success of your reward system depends on how good your measurement tool is. A manager’s opinion of how well someone performs is replaced by self reflection and the opinions of direct colleagues. The focus is on team performance and ‘feedback is king’ when it comes to learning whether someone is doing well.

When thinking about rewards, self-managed organizations need to consider some fundamental issues: How to determine the value of roles? What process works best for raises? Do incentives motivate? Do you prefer team incentives over individual incentives? Is profit sharing an option? Who supports the process? How much money is available for raises/incentives/profit-sharing and how is that being divided? How transparent do you want to be?

Designing a rewards system that supports your mission will be a piece of cake if you follow the 3 step process and have addressed these fundamental issues. 

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