Benefits of a Team-Based Pay Model in Your Warehouse

By Pete Westermann, CEO, Eclipse IA

Pete Westermann, CEO, Eclipse IA

In our current economy, there’s a greater need than ever to increase throughput and keep operational costs down. Operations departments are facing pressure to find a cost-effective solution that works.

For more and more organizations, the solution is a unique approach to employee compensation. By reorganizing pay structure to a productivity team-based pay model, these companies are seeing increased production and retention.

What Is Team-based Pay?

The team-based pay (TBP) model is an incentive pay system. Unlike individual pay systems, team-based pay rewards the output of the team as a whole, and divides the rewards equally among team members. It’s a bold and innovative approach, but studies show that it works — and it increases production and retains more workers.

By emphasizing teamwork, you reduce the risk of favoritism while rewarding the collective effort to get the job done quickly and safely. Employees are motivated to achieve high productivity and quality, and employers see a higher retention rate due to the camaraderie and vested interest employees have for one another.

Many companies have questions about the advantages of TBP. It’s understandable — you don’t want your best employees to leave because they’re paid the same as low performers, and you don’t want freeloaders benefiting off your best workers. But drawbacks can be prevented, and the advantages far outweigh the disadvantages.

Let’s take a look at the benefits you can enjoy from implementing a team-based pay model.

The TBP Method Increases Productivity

With the TBP model, it’s in the best interests of senior employees to help new hires to get up to speed. The sooner they start producing, the more money the entire team can earn. This creates a stronger productivity efficiency than individual pay, because people are working together rather than in individual silos.

Team Pay Means Higher Wages

Data shows that more employees are earning more than in traditional pay models. While your highest performers may not achieve the same pay rates as they would in the individual scheme, the pay is usually comparable. Overall, the great majority of your workforce is earning more, which keeps turnover low and makes you a more attractive employer.

Team Pay Increases Retention

It may seem counterintuitive, but organizations with team-based pay systems actually have increased retention than other companies.

Typically, low earners are newer employees, but they keep getting the harder work, which keeps them earning less. Middle earners may not have been trained properly and they struggle to reach the productivity levels that earn more pay. Out of frustration, employees in these two categories leave for jobs that promise to pay better.

And the retention cycle continues with every new hire.

In contrast, TBP environments have higher retention, because more workers are earning higher incomes. When more of your employees are happy with their pay, it creates greater operational stability.

Team-Based Pay Builds Stronger Leadership

The team-based pay model requires more hands-on management. You can’t just hand out a load — you’re managing the overall environment. Some companies see that as a drawback, but we see it as a benefit. Managers become leaders, motivating associates and helping them stay focused on the production goal.

High performing employees also grow as leaders, because they’re expected to take lower performers under their wings and mentor them up. As they grow as leaders, they invest into the company and groom themselves for leadership positions within your organization.

What If You Lose Your Best Workers?

If teams are paid on a performance model of compensation, your best workers could take a pay cut, and you could lose some of your most productive people. That’s a valid concern, and it’s one of the first things Eclipse IA addresses when our clients’ transition to team pay.

We put incentive systems in place to guarantee associates’ earnings as they onboard with us. High performers show us their most recent pay stubs, and we subsidize their earnings during the transition — as long as they take low earners under their wing and teach them how to improve their production. We promise that if they do this, we’ll get the entire team up to their current rate, or close to it.

Chances are, you’ll lose some of your best workers, but your overall productivity will jump through the roof. You may lose 10 percent productivity due to initial turnover, but gain a net increase in production.

Eclipse IA has recently transitioned 14 sites from individual pay to a team-based pay model. Each site has seen 15-20% increase in retention. In fact, in the 17 years we’ve been in business, we’ve never experienced a decrease in retention during a transition. And, with the team members working together, there is also an increase in dock flow.

Could TBP Be Right for Your Warehouse?

For companies that need to control costs and increase throughput, team-based pay delivers proven advantages. Eclipse IA team of experts can guide you through the process, from exploration to implementation. We’ll help you think through your particular situation and provide the answers you need to determine whether the TBP system makes sense for your warehouse.

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