The Role of Salary and Incentives in the New Product Function

<jats:p>It seems reasonable to expect that a company's reward systems would recognize the importance of the new product function. It also seems reasonable that those systems should take into account the importance of cross‐functional teams. Unfortunately, current reality does not meet those reasonable expectations.</jats:p><jats:p>Laurence P. Feldman presents the results of a 1994 PDMA membership survey on the compensation of new product professionals. This study updates and extends the information collected in his 1990 PDMA survey, and thus meets four objectives: tracking changes in compensation levels since the 1990 survey; assessing the effects of various factors on compensation; examining the structure of non‐salary financial incentives; and obtaining information on the extent and types of nonfinancial incentives used with cross‐functional teams.</jats:p><jats:p>The survey results indicate that compensation of new product professionals increased by 9.6% between 1989 and 1993. This compares unfavorably with a Labor Department benchmark of 14.7%. Survey findings indicate that the compensation of technical or scientific people does not differ significantly from that of marketing personnel. A firm's industry classification has a greater influence on compensation level than does a person's role in the new products process. Even more important are such factors as number of people supervised, length of time with the firm, and education level.</jats:p><jats:p>Respondents indicate that performance‐based financial incentives play a minor role in overall compensation. Such incentives gain importance as you move up the ranks of the organization, accounting for slightly more than 20% of total compensation at the vice presidential level.</jats:p><jats:p>Despite the benefits of using cross‐functional teams, compensation programs typically do not reward team efforts. Less than 20% of the respondents who served on such teams reported that any portion of their compensation was directly attributable to their team effort. In most cases, the new product professional's performance is evaluated by a functional manager rather than the team leader or project leader. In place of financial rewards for contributions to a team effort, companies often use nonfinancial rewards such as plaques, hoping to minimize the effect of possible errors in judging performance.</jats:p>