Barcelona and Real Madrid are dominant forces in world soccer as well as domestically in Spain, but what role does reward management play in their success and what can organizations learn from their successful team reward strategies? With organizations increasingly utilizing team work in order to increase company performance and competitive advantage there are some key lessons that they can learn from two of the most successful teams in world sport today.
Key Topics: Team performance; Pay-for-performance; Pay dispersion, Merit pay; Bonuses
Barcelona and Real Madrid: High performing teams
In the sporting world, Barcelona and Real Madrid are the epitome of a successful team. These two teams have dominated European soccer in recent years, with both winning European soccer’s highest honor, the European Champions League, three time each between 2008-2017. In Spain they have also dominated, with either Barcelona or Real Madrid winning the Spanish league title all but once in the same period (Barcelona 6; Real Madrid 2), while they have both won numerous other domestic and international honors during this time.
While they are great teams, they unsurprisingly also have great players. Most notably the two best players in the world currently play for these clubs, with Lionel Messi playing for Barcelona and Cristiano Ronaldo playing for Real Madrid, players who are also arguably the two best players to have ever played the game. One of these two players have been named Ballon d’Or winner, an honor bestowed on the best player in the world in a given year, in each of the least nine years between 2008-2016, with Messi winning five times and Ronaldo four times. Despite having these players, neither team could be described as a one-man team by any means and both have many exceptionally talented players. Over the ten years from 2007-2016, players from Real Madrid and Barcelona accounted for more than 50% of all players voted into the UEFA team of the year in each of those years.
The reliance of organizations on successful teams
While these teams and their players are held in almost godlike regard by many adoring supporters, they are at their core teams of employees working together to achieve goals set by their organizations. As such, there is much that other organizations, across all industries, can learn from how two of the most successful teams in sport structure team reward to optimize performance.
Over the past two decades, organizations' reliance on the performance of teams of employees has risen significantly, as groups of employees are tasked with more complex goals, and jobs and projects are increasingly designed in a way that success is dependent on employee collaboration and cooperation (Hollenbeck, DeRue, & Guzzo, 2004; Sundstrom,1999).
Motivating teams adds a level of complexity to optimizing performance, as team members often have diverse goals and differing levels of commitment to the team and team goals. Therefore, the success of any team is dependent on the commitment of team members to not only excel personally, but also support one another and work towards team goals. This can result on the need for team members to compromise their personal performance in order achieve team goals.
The importance of reward in individual and team performance
While motivation can stem from various sources, the tool most commonly available to organizations is the use of reward to encourage greater motivation and performance (Rynes, Gerhart, & Parks, 2005). Reward represents a key intervention that organizations can utilize in stimulating performance (Burke et al., 2006; Jackson, Rossi, Hoover, & Johnson, 2012).
Numerous studies have demonstrated a strong link between reward and increased individual and team performance, and that when valued rewards are aligned with clear performance goals, workers will increase effort and performance (Latham & Pinder, 2005; Rynes et al., 2005; Stajkovic & Luthans, 1997).
When it comes to reward management strategy for work teams, organizations can reward individual performance, team performance, or a combination of these mechanisms, as well as utilizing various fixed and variable reward tools (Garbers & Konradt, 2013; Pearsall, Christian, & Ellis, 2010). Given that one of the single largest operating costs for organizations is their employee reward costs, an organization’s success can depend on its decisions regarding reward management strategy and the return on this reward investment.
Barcelona and Real Madrid: Reward strategies for success
While Barcelona and Real Madrid are fierce rivals, they share many of the same strategies when it comes to rewarding their team members. There are a number of key principles that they follow:
Paying the price for the right talent
When it comes to attracting and retaining team members, these teams seek the best talent and are willing to pay a premium for that. Between them Barcelona and Real Madrid have 4 of the 7 most expensive players of all time currently playing for them. Similarly, the compensation they pay to team members is generally high relative to industry peers, and they have two of the top five wage bills in world soccer, with many of their players paid in the upper quartile of the market, and in the case of their ‘star’ players, the top percentile.
They understand that in order to attract and retain the required talent, achieve their goals and maintain their high standards they must operate at the high end of the market. This approach demonstrates the clear link between an organization's strategy on positioning of compensation in the market and the ability to reach their goals.
While all companies will not be able to pursuit a high cost strategy such as this, they should examine the types of employees they need to attract across the organization and in key teams in order to meet their objectives and determine the appropriate strategy needed to attract and retain that talent. If a company's reward strategy involves paying employees at the market median, for example, they should anticipate that a natural implication of this will be that employees attracted and retained by such a strategy are likely to not be the highest caliber of talent in the market.
Rewarding individual and team performance
Both of these teams have a strong emphasis on pay-for-performance, with a significant proportion of players’ compensation linked to performance metrics. These teams both use a hybrid model of team reward, which incorporates rewarding team members for achievement of clear goals based on both individual and collective team performance. Team rewards include shared bonuses based on the team’s success in league and cup competitions, while individual rewards can vary from bonuses for scoring a goal, to avoiding disciplinary sanctions during games. This model allows them to maintain a balance between the team members pursuing personal success over the success of the team.
Using multiple reward types
Both teams utilize multiple reward types in an effort to optimally reward team members. All team members receive a fixed salary which is commensurate with their value to the team. A merit pay approach is then applied, whereby future increases and contract extensions are related to team members maintaining or increasing their value to the team.
In addition to this fixed pay element, both teams reward achievement of goals with various short- and long-term incentives. Some incentives are based on in game performance, such as for scoring or assisting in a goal, while others relate to long term goals such as the team’s end of season league position. Long term incentives are typically operational over 1-year periods, unlike the more prevalent time scale of 2-5 years in many organizations, and this reflects the nature of the business these teams operate in, where relatively short-term success is crucial for long term growth and stability.
One important aspect of both teams’ reward strategies is that they are flexible, tailored and designed to meet individual needs and motivations. They treat team members as individuals. Understanding that team members have different value to the team, as well as different psychological profiles and needs and wants, they tailor reward with the view of optimizing the performance of each team member for the good of the team and the organization in general.
Team members will typically have individual goals and associated bonuses that are related to their role within the team and specific element of performance that the organization wants to encourage, such as scoring goals, assisting goals, conceding fewer goals, and avoiding on-field disciplinary action. They also reward off-field behavior which is beneficial to the organization, such as participating in marketing activities, and attending team sponsored events.
Giving team members a say in designing their reward
Within these teams, team members have a voice in determining what success looks like and how they will be rewarded for it. Many companies have a reward strategy which is essentially imposed on employees without flexibility, and while Barcelona and Real Madrid do have reward strategies that they broadly adhere to, relating to the likes of reward mix, and individual and team bonus plans, they are also willing to be flexible. Through negotiations with team members they arrive at an agreeable reward structure for both parties i.e. the organization and the team member.
In conjunction with determining their reward, team members agree upon associated goals. These goals are clear, understandable, and measurable and are designed to reinforce the strong link between reward and performance. Allowing team members a say in determining their goals and associated reward helps to strengthen their commitment to both individual and team goals.
Pay dispersion can have a positive impact
Pay dispersion is high amongst team members in these teams; with the highest earners making many multiples more than the lowest paid team members. The fact that this does not negatively affect team performance is consistent with organizational research that indicates that dispersion in the level of reward between team members can be motivational if team members believe the dispersion to be fair and appropriately based on individuals' value to the team, and furthermore it allows lower paid team members to aspire to increase their value to the team and receive higher rewards.
This approach to pay dispersion is contrary to the strategy of many companies. Often organizations see high pay dispersion in teams as negative and endeavor to maintain low levels of dispersion. The approach of Barcelona and Real Madrid suggests that, when appropriately managed, pay dispersion can be a key tool in driving team performance.
What the reward strategies of Barcelona and Real Madrid demonstrate is that successful teams have comprehensive reward strategies that are based on a clear vision of the teams’ goals. They treat team members as individuals and use an arsenal of reward tools to create a reward strategy that takes account of differences in team members competencies and psychological profiles in order to encourage optimal team performance.