Inserting the Team Concept into Compensationor Not

In his new position at Hathaway Manufacturing, one of the first things Sandy Caldwell wanted to do was improve productivity through teamwork at every level of the firm.

Sandy started by installing the concept of team management at the highest level, to oversee the operations of the entire plant. The new management team consisted of manufacturing, distribution, planning, technical, and human resource plant managers. Together they developed a new vision for the 500-employee facility, which they expressed in the simple phrase Excellence Together. They drafted a new mission statement for the firm that focused on becoming customer driven and team based, and that called upon employees to raise their level of commitment and begin acting as owners of the firm.

The plan worked well and Sandy was happy to see his idea of a workforce of owners begin to take shape. Teams trained together, developed production plans together, and embraced the technique of 360-degree feedback, in which an employees performance evaluation is obtained from supervisors, subordinates, peers, and internal or external customers. Performance and morale improved, and productivity began to tick upward, all based on team work.

Sandy decided to change one more thing. Hathaways longstanding policy had been to give all employees the same annual pay increase. But Sandy felt that in the new team environment, outstanding performance should be the criterion for pay raises. After consulting with CEO Regina Cioffi, Sandy sent a memo to all employees announcing the change to team-based pay for performance.

The reaction was immediate and 100% negative. None of the employees was happy with the change, and among their complaints, two stood out. First, no one was comfortable with the idea that pay raises might be linked to colleagues rating each other (360-degree appraisal). Second, the change was decided upon, and the way it was announced, put the firms commitment to team effort in doubt. Simply put, employees felt left out of the decision process.

From an OB perspective, which outcomes will Sandy have to expect from dissatisfied employees? List and explain those that apply at all three levels of analysis.