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McAdams, J. (2000). The essential role of rewarding teams and
teamwork : 15 . Compensation and Benefits Management, 16 (4)
(AR30509)
he Essential Role ofRewarding Teams
and Teamwork
o o o o o o o o o o o o o o
o o
JERRY
Mc D MS
mployee
incentive
pla.ns
are so common in
North America that
they
risk be
co
ming
pmverless.
lt
i.s possible to
structU're
effective
plans, h
O llJever,
and avoid
undesirable results.
Among
plan
design
options
are
incentive plans that
recognize everyone
in
the
organization and
tlwse that zero in
on
special project
teams. s always, good
implernentation of the plan
design will get the company what
it
wants.
SUSAN VITALE IS
FRUSTRATED
.
She's
coming to
grips
wth
the
realization
that
she
hasn t paid enough
attention
to
her human
capital, her employees.
As a
vice-presi.dent
of operations, she manages physical
c p i t ~ the labs and production, and
economic
capital
through
the
budgeting and expenditures process.
Be
cause
she's
been
adept on both
fronts,
operations is
exceeding budgeted perfonnance plan.
Yet she knows something is amiss.
Jerry
McAdams is a thought-leader for Strategic Rewards for
Watson Wyatt Worldwide and co-founder
of
lhe Consortium
for Alternave Reward Stl'ategies Research (CARS).
He s
a
me
mber
of
the
fac
uh
y ofWorldatWork. (formerly American
ompensation Association) and is a regular speaker at
human resources conferences.
This article is based en
th
e book Rewarding T
eoms, Lsstms Jrom
lht
Tre11ches, by
Glenn Parker, je T)'
McAdams,
and David Zielinski.
Copyright 2000.jossey-Bass, lnc., Pub
shers, San Francisco.
Susan has left the 1nanagement-and leadership
-
of more
than
1
000 people
largely to company poli
ces and admini,stration processes, prnarily
the
do-
tnain
of
Hwnan
Resources.
But
reperwssions Jrorn the
CONPRO team project- the team s feeling that 1nan
agement could have played a
more
visible and hands
on role in championing and rewarding teamwork
have her closely examiningher
1nanagement style.
Susan is scheduled for her weekly one-on-one
lunch with a trusted
peer, General Manager
jeny
Parker.
They
have
warlud
together
for
m.ore
than
1O
years, and the relationship is comfortable.
The
two
regularly bounce ideas
off
each other
and
explore ways
ofmeeting
their respective business
goals.
fter
ordering lunch in
the execu
tive dining
room, Susan
asks, Do
you remember the CONPRO
team? Su
re,
]erry
responds.
" think
it 's one of
our
real success stories. At least, corporate thinks it is. l
agree
that th
ey should be
nominated for
the
Chainnan
s
Award."
"
thought it was pretty successful in the end, but
it
sure
took
a while to
get
ther
e,
"she says.
A
nyway, we
had a
feedback session,
and
1
was surprised about
hO llJ
negative some of the comments were about how the ar
ganiz.ation 1nanages
teams
."
5
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C O M P E N S A T I O N B E N E F I T S M A N A G E M E N T
A U T U M N
2
jerry
was
surprised.
How
can that
be?
The
em
ployee apinion su-ruey we just did shows
we're
doing
pretty good and peaple think this
is
a good enviromnent
to
work
in.
We
gave Rupert . . . ahhh, what
's-his
name? .
. . Collins that employee of
tite
year awltrd.
Benefits are competitive and so is compensation. 1 talk
about
teamwork
all
the time.
He
paused
to
sip
his
chiUed white wine.
1
know,
says
Susan, but
i some of rntr best
peaple tell
us
that
we
talk teamwork, but don 't live it,
that extra effort
is
rewarded
only
with the opportunity
to pul out even
more
effort fur no
extra
pay, that we
wflTk
in
silos,
and
that
all
the
meaningful rewards
are
reseroed jflT managernent, we've got
a
problem. We t.alk
a
good garne about the
irnportance
of peaple, but
'm
starting to think
we
m.ay be creating a
pleasing
work
environrnent,
but not
a place where perj(JT7nance is
adequately
recognized
ur
rewarded. Especially team
per
formance."
O
K if you
think
its
a
probl.em, then
it
probably
is,
"j eny
says.
vVhere
do we
sta
rt?
"That's arwther
problem.
1 need a ro(td map. l
guess 1
start
by looking at where
we 've been
and where
we are
nuw.
1 went to
a
va-riable compensation. meeting
in New
York
l.ast year and got so1ne material on
reward
systems Jor wurk tearns.
I'll
try to fin it.
DISCOVERING THE DISCOVERY
PROCESS: A SYSTEMS AUDIT
G
etting all
emp
loyees engaged in pursuil
of
organizational goals-as individuals, as
part
of small work teams, or as broader
organizational units-requires action and consis
tent
follow-through by the management team.
Unfonunately, management interventions that
can
spur
such engagement su ch
as
reward
plans, communication devices, or training pro
grams-are often created and implemented not
as a coordinated
sys
tem, but independent
of
one
another. Even when they are pan of a coordi
nated plan, they're often designed at cross-pur
poses. It 's not at all unusual for companies to
trai n people how to work as high-performing
teams, and then publicly celebrate
or
reward
only the work of outstanding individuals. Two
practices perceived by employees as sending con
trary messages.
Reward and recognition systems, communi
cation and performance feedback devices, and
training tools must be aligned along the same
path, with
the
left
hand
in full understanding
of
what
tl1e
right is up to, and with the same end
goal. The alignment of purpose
stans
with vision
and mission and is
put
into operation through
work systems, communications, management
coaching, personal/ professional development,
performance measurement-and,
of
course, re
ward systems.
Improving where you're headed first re
quires understanding where you currently stand.
We'd argue, for instance, that the balance of or
ganizations with more than a
few
hundred em
ployees would be hard pressed to answer most of
the following questions:
Reward Systems
ls there an inventory
or
audit
of
all reinforce
ment
plans (social, celebrations, cash, non
cash, etc.) presently operating at any level of
the organization?
What corporate objectives are supponed by
each reward or recognition plan, and how do
we know if they've been successful?
Are the reward systems consistem with the
organiZt'ltional culture and management
messages?
How
well
do people
understand
how each
plan works-or how aware are thcy that the
plans exist?
Who is eligible for each plan, and how many
actually receive awards?
How much is spent on each plan and what is
the average or median
i f
there is a wide
range) award earnin
gs
per person?
What is the value-contribution from the plans
(performance improvement, reinforcing the
mission and vision statements, tcamwork,
customer success, maintaining
or
improving
the organization's competitive position in the
labor market, etc.)?
Communicatlons and Performance
Feedback
How often are company
or
organizational
unit measures
and
performance objectives
communicated-and explained-to all em
ployees?
How often are employees told
about
the
or
gan ization s successes, failures, and competi
Lion
in the marketplace?
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T H E S S E N T 1 A L R O LE O F R E W A R O 1 N G T E A M S A N O T E A M W O R K 7
How often are
em
ployees asked- and more
importantly, listened to-about their ideas
for improving company
or
business
unit
per
formance?
As
you move toward a team-based culture,
strategies, and practices
under
these categories
will
need to be maintained, redesigned, or tossed
altogether to match the new direction. But con
ducting such a systems alignment audit is critica
before installing a team-based re rard or recogni
tion system; doing the latter in isolation
wi ll
greatly limit its impact. The objective is to create
an integrated portfolio of practices that "lever
ages" or makes maximum use of
human
capital
to improve business performance.
Susan's
experience
with "leveraging" human capital
has not heen hugely successful (J ()er the long run. Man-
agement has been sending out
directives,
and estahlish-
ing many
measu
res
o
StlCcess (usually financial)
since
she's heen there. Management By Objectives (MBO)
was all the rage fo-r a
while,
but quickly showed itseif
as
mo-re
o
a planning/paperwoik exercise than a
way
to
engage,
excite, and align all
employees
toward a com-
mon purpose. MBO
is
now a part o
most
everyone's
job,
but
Susan isn't
convinced
it makes a great deal
o
difference
in
pef1Jle's o-r the organization's peifrmnance.
The real
problmn is
creating accountability at
m.anagerial and supervisqry fevels Jo-r suppo-rting and
rewarding
teamwork
in
the
ranks.
Perfrmnance
?nan
agement
is
a mixed bag. 1he o-rganization has
in
creased
its Jocus on
devel()/Jing competencies and
has
encouraged managers to ?n(J ()e peopl.e around, hoping
the new
oppo-rtunities
will
increase
thei:r
sense
o satis
factiO'n and develop
11UJ1 e
diverse skills in the wo-rkfo-rce.
The
m.erit pay plan, however, still dist'Tilmtes
only
a
paltry 3 to 5 percent ayear to the balance
o
employees,
barely
keeping pace
with injlation. A handful
o
"out
standing peifqnners get 8 to 1O pe1cent. Employees
believe
salary increases
are
a
"-right"
they
're
entitled
to.
There
are fezv,
i any, incentive plans tied to o-rganiza
tional unit or project team
peifrmnance,
and stillfewer
recognitiO'n
tools
used
to celebrate teamwO'Tk in
the o-r
ganization.
As
the
o-rganizatiO'n
was preparing its application
for the Malcohn
Baldrige
National Quality
Award,
continuous improve1nent project
teams
sprouted up
everywhere. But most
o
the process
impr(J'()enwnts
those
teams suggested have
been
successjuUy
integrated
into
the departments' stand.atd
way
o doing business, and
tite
"team" activity has
dwind:d
away.
RecognitiO'n
focuses on
an
"employee o
the
month and then of the
year.
" Their immediate super
visqrs
o-r
managers nominate employees, and final se
lection
is
by
a top 1nanage1nent committee.
There
is little
peer-based
recognition. Lately, it
seems
as i Susan has
to
beg
to get nominatillns every
month.
The quality
o
the
nominations
is
dropping
-rapidly.
Any project
tean S,
stLCh
as CONPRO, are consid
ered "rewarded" simply i they
present
results t top
management.
Tite cookout
was appreciated,
but
the
T
shirts
were
misunderstood as representing the true value
o their
contributinns. Probably a
mistake
to
pass those
out when
she
did.
A
few
years
ago,
Susan
created
a gain-sha:ring
pl.an fo-r production. It was based on a cmnpl.ex far
mula measuring redttctiO'n
o
labO r c
osts
per ttnit
o
prodtLCtion against a standard. Engineering got tied
up redefining standards and in
the
difficult
practice
o
m.easuring peifonnance against
goals,
and the plan
simply lost
mmnentum. Payouts
shrank, and the plan
was terminated not
long
after introdttction.
But Susan figured it was
time
to take up the re
ward and recognition issue a.gain.
Well-designed
team
based
rewards
have
a unifying effect and
offer
an
op
pmtunity to create aligntnent and accountability, along
with spurring perfrmnance
impr(J'()ement
and
collaho-ra
tive behaviors. She knows rewards alone won 't solve the
proble?n,
but they will get pe()/Jle's attention and give
teams a sense that the fmits o their
labo-r
aren't going
only
into
the o-rganization
s
coffers.
Then she fO'Und the presentatiO'n from the
vari
able
compensatm woikshop.
It descrihed a Reinfo-rce-
ment Model Jor choosing and using various reward
and
recognition
strategies.
THE ROADMAP AN ORGANIZING
MODEL FOR REWARDS
T
he Reinforcement Model is
an
easy
way
to
look at your reward plan options. It begins
with the organization's objectives
and
de
si
r
ed
culture.
Business objectives tend to be straightfor
ward. Profit, revenue growth, cycle time, EVA
financia retum calculations, customer satisfac
tion, quality, new
product
development, and op
erating expense reduction are typical. Reward
plans must be aligned with these objectives to
ensure management support. "Nice todo objec
tives are not
as
effective as "key to our success"
ones. Sorne objectives translate nicely
into
meas-
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C O M P E N S A T I O N B ENEF IT S M A N A G E M F N T
A U T U MN 2000
u res against which performance can be judged.
Sorne require drilling down to find those activi-
ties, projects, and relevant contributory measures
that, when addressed,
will
affect performance.
Susan
ticked
off tite
organization
s
primary business
objectives:
Growth
Cycle time
Retaining
the
workforce
Retum
on net assets
Customer satisfaction/loyalty/success
While the Ust could
contain up to 2 additmal
objec-
tives,
all of
them
important
at
di.fferent levels o
the
organization, she understood that.
people
couldn t focus
on
more
titan 3
to
5
objectives.
f
she
had
to
put
her
hu1nan
capital
t work on
just a
few
objectives, these
would be
the
critical ones.
The
best physical exercise plans are those
that you will do.
The
same is true with reward
plans.
The
best ones
are
those that the organiza
on will embrace as important to meet its needs.
That means all levels
of
management accepng
the plans as business strategies to engage its em-
ployees in addressing its objectives. And that s a
matter of culture. Organizaonal culture (and
how to influence it) has been the subject of
many a book
and
academic research. The or
ganization s vision, mission, history, operating
norms, strategy, environment, and structure
form culture. For the purpose
of
discussing re
ward plans, culture can be described as how the
organizaon ulizes its employees to get work
done. t
is
more than work design.
lt is
the way
people are considered when there is a desire to
improve performance.
One
general description of the whole or
ganizaon s culture is possible, although organi
zaons are rnade up of a number of sub
organizational units, each with a slightly
di ffer-
ent culture. Accounng has a different culture
than Marketing. Manufacturing has a different
culture than Custorner Service. Hopefully, they
are aligned with the overreaching organizaonal
culture, with the differences simply reflecting the
nature of the work they do.
One of the
keys
to success in irnproving or
ganizational performance is to ensure that re-
ward plans reinforce the desired culture, or at
least attempt to reduce the gap between the ex
isng and desired culture.
Exhibit l Continuum of Organization Culture and
lmprovement
Approaches
Organizational Culture: How
Work
Gets Done
Task and Job- Individually Focused Hierarchical, Traditional T e a m ~ _
Based (example: -
and
Mea.sured - (example: directive, top -
o l l a b o ~ a t J v e
..........
. .
1
. ) (example. sales) down) (example. open-
ClV1
servJce book, fluid
ask and Job
Redesign
Organizational Perfonnance lmprovement Approaches
mprove Individual
Performance
Management
Direction
and
Strategy
teams)
t
Employee
Engagement in
lmproving
Processes
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C O M P E N S T lO N
B E N E F l T S M N G E M E N T
U T U M N
2
workgroup. The unit appears on an organiza
tional chart. Panicipation may be limited to cer
tain levels
of
employees in that organizaonal
unit
(everyone, all non-exempt people, all ex-
empt, or everyone but those on the management
incentive plan). The performance-award sched
ule is pre-announced. Panicipants know how
much they can eam as a function of perform
ance against the measures. lt focuses on the pri
mary business objectives
and
can use perfor
mance measures most appropriate for the
panicipating organizational unit. Sometimes
there are combinations of levels of measures.
As
an
example, 25 percent
of
payout is based on
how well the whole company does on retum on
assets,
25
percent on how well the division im-
proves
cycle
time, and 50 percent split between
two
measures
at
the department level.
All
meas
ures, however, should be aligned with the pri
mary business objectives. (See Exhibit 6.)
n organizational unit incentive can be the
most powerful reward plan type to suppon a cul
ture of teamwork. Organizational unit incentive
plans can make a business strategy come
alive.
It
is a powerful way to leverage human capital to
improve performance.
It engages all
or
most
of
the employee bas
e.
Exhibit 6. Organizational Unit Incentives
/
It is pays out only when the improvement
occurs.
It is results-based,
not
activity-based.
It provides an opponunity to communicate,
reinforce, educate,
and
engage employees
for the accomplishment of specific and criti
cal objectives.
It can be measured for effecveness.
It is dynamic in that it changes as business
needs change.
Organizational unit incenve plans are usu
ally announced for a year
with
the option to be
revis
ed, kept the same,
or
terminated, depending
on the outcome of
an
effectiveness assessment.
One
of overlooked aspects of an organiza
tional unit incentive plan is the opponunity to
create accountability for all leve ls
of
manage
ment. Most managers are measured on their in
dividual contributions rather than the accom-
plishment of their areas of responsibility and the
performance of the
ir
people. The discipline of
actually cutting a check bas
ed
on performance
against measurable objectives provides the op
portunity
and the discipline
to follow-through,
recalibrate, and actually find out what
yo
u got
for your money (something lacking in MBO and
traditional management measurem
ent
plans.)
7
Individual
r g a o b a t i ~ n a l
Project
Pro,ject
Individual
Organizational
Team
Unit
V
nit
_J_
_L..
l
L
1_
_L.
J
J _
--'-
__L
.....
J _
Base compensa.on
C.pahlllllu lncl>lcloal Wcopllon Projed lncend-.,s
Organizational
andBe111ftll
D e ~ o p
locl>i..,al lnctnthes
~ l t b r a
tasure
and rtward
Unit Incentives
ttract o
nd
rtoin
oldllo and
/mprove individuo/
ouurandU s
pro}tt:t re rults
lo Basepll) c:ompotendu ptrformanc
ptrformance
Manacment-fonned
Align people with
.
Adjustmcnts
ro
T echnical .
Sales incc:ntlve
Orpnizllional
oeam
peormanct
organizationol
bMCp ll) Co=:rTracla
or commlssion
success,
Self-fonned
Objectives
Bendil.$
Compelency -
plano
missionlvision employoeu:ams
.
Annual
o n u ~
Based Peormanoe
Pieco-I'Ble
oeltbrations
(suggestion.
Jmprove pon dwse
Manaement
MBO-based
Spoo
bonuses. continuous
objectives
inc
entives manog:mcnl
lmprovemcnt)
Formu b-based
disaetion.
iocenrives with
IJOIDftation or
p ~ 1 >
preannowx:ed
performance-
award schedule
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T H E E S S E N T I L R O L E OF R E W R D I N G T E M S
N D
T E M W O R K 25
Sorne organizational unit incentive plans
are really awareness and communications plans
in drag. t
is
rare that the plan designers realize
they have des igned a plan that
is
a methodology
for
the
distribution of payouts based
on
a for
mula, rather than a plan that improves perform
ance. These are long line-of-sight plans.
(Line of
sight
is
how well the employees believe lhat they
or
theirworkgroup. department, etc. can actually
contribute to affecting
lhe
measures.) Economic
value
added
(EVA), eamings before taxes, return
on capital assets, and customer satisfaction in
dexes are examples of measures
that
are oflen
not understood by the employees, making those
measures have a long line ofsight. Companywide
measures, covering diverse divisions and de
partments
and
sometimes international opera
tions, also contribule
lO
a long line
of
sight.
The
ex.istence of
the
plan has little effecl
on
the per
formance because the measures are too remote
to the average employee.
These long line-of-sight organizational unit
incentive plans can be effective, if
managemem
understands what
effective
means. These plans are
for communication of critical objectives,
the
op
portunity
lO
educate employees about the meas
ures, and
to reinforce the vision
and
mission.
The question then becomes is the value of a
plan worth the expense?
In
more cases than
one
might think, it is. This
is
particularly lrue when
the company has purposely decided
O pay peo
ple slightly below the competitive labor market
and make up the difference, and more,
through
the organizational unit incentive plan.
The
measures us
ed
in a plan
for
this strategy
need
to
be
calibrated to ensure a payout
of
at least that
of
the
gap between market and the organiza
tion's base pay, but it
is
the upside opponunity
that
makes it attractive to
the
employee.
The
fact
that the payout
is
variable with overall perform
ance protects
the
company from payout unless
the performance
is
there.
Organizatmal unit incentive plans give Susan
the
Jocus she is
looking
for.
She
makes
a strong statem.enl
that this
is
a jramework
Jor
actm, with aligmnent to
frrimary
business objectives, to engage all employees in a
com'T Um purpose: one
that
is goodJor the organizatm
a:nd good jor them. She forms a crossfunctional, muUi
level design team who goes through
a
discovery process
to ensure
that
they u:nderstand how
the
employees feel
about
the organization and
what managemen
.t will
(really) support. They design
the
plan and present it to
Susan after
about
Jour months
o
work, spending
about
a day
every
two weeks in formal meetings. All payouts
are
in addition to
their exis
ting
reward
plans
(base
pay,
adjustments to base
pay,
and benejits), do rwt
apply
lo those on the management incentive plan, and
will not be added to base
pay
.
Measure1nent
o perjonn
ance wiU be
communicated
each monlh, with
payouts
annually.
(They debated about quarterly
and decided
to
start
conservatively with the option to change it next
year.)
The
basic structttre of
he
plan
Jor
all non-exernpt
and
hourly
employees is shown
in Exhibit
7.
Exhibit 8
shows an
example
of
how
payout for
the
plan would
work (circles
indicate actttal
year-end
performance).
Organizational
revenue
growth earns 2%
Departmental
cycle time earns
6%
Department
measure
(custmnized lo its ttnique
needs) earns
1
Total of 2% + 6% + 1 = 9% o base pay
Exempt e7nfJloyees up
to
those managers on the
man
age7nenl in
cen
tive plan
simply could
have
higher pay
outs.
The biggest
surprise
was lww much
diffiwlty the
design team
had getting
agree1nent
on the
m.easures
for
each
depart1nent. What
were assumed
to be
tight
measures
(ajter all, they had been running the business
with
thos
emeasures jor
years)
tumed out to
be rwt
quite
good
enough when
a.n incentive was
tied to
tlmn.
They
began
to
call
the
process
the
Drano effect.
It
forced
people to confront
the
legitimacy o
the
rneasures and
how they could be collected
and fed back
to the
partici
pants in a
ti1nely
and creditable manner. Susan and
the team
agreed the process was
worth
it even
i
the
'Vrarw effect
was the only
outcorne
o he
process.
She
and the
team presented
the plan
to the
rest
o
top
management,
ajter
so1ne
individual
preparation
o
eac
h oj
he
decisi.on
makers. The
actual
presenter
was a
non-exempt prodttction e1nployee who
seroed
on the
team . Her passion
Jor
the plan and insight to how the
organization
worked from
the bottmn
up added a
great
deal
o credibility to
the process.
The
plan was
approved i quarterl
y
reviews are held Jor top manage
ment and a complete
assessment
begins
two
months
befare
the
end o he first year o operation.
7/27/2019 AR30509-OCR
12/13
7/27/2019 AR30509-OCR
13/13
T H E E
S S E N T I L R O
L E O R
E W R D I N G
T E M S N O
T E M W
O R K 27
It
is
a
mix
of
plans
t
hat
can b
ecome the
fr am e
work for aco
n for the core
employee s
nd
the
m a n a g e men
t ranks .
I t
is
a carefu
lly
cons idered
mix that refle
cts the
degr
ee
to which
th
e organizatio
n believes
that people can m
ake a
difference.
n
av era ge plan, well i m p l e m e n ted,
will
alw
ays do be t te r than a
bril l iant plan,
poorly im
p lem e
nted.
It
is all
bout
h
ow you im pl
ement whatyou
have designed
. Implem enta
t ion
is
th ree-f
o ld :
aining mana
gement ownersh
ip dawn through
supervisary
L evels.
App r
oval does
not mean
co
mmitment. M
anagement c
omrn l tment
is
the criti
cal distinction
betw een pla n
s that are
effective
nd
those
th tjust
l imp along with
s
uppon limited t
o lip service.
lt requires
educat ion o
n how th e p
lans work
nd
how
they are tool
s to engage, e
ducate,
nd
m
oti
vat
e peop le to m e
e t the organiz
ation s needs.
Rolling
outtheplan an
d operating i
t as a bus
iness
st rategy.
E
ffecve plans
constant..ly co
mmuni
cate
performance-
to-date, ed uc
ate
on
th e
measures
, nd form ally
engage emplo
yees in
cont
r ibut ing to success.
L
is
also
impon nt
to
get
feedb
ack from
the e
mp
lo yees
on
a regu
la r b
asis.
ou
hav
e time to fix
someth ing
i f
you can
f ind
out
w hat
is
not
w orkin
g e
r
li
er
rath
er than
la ter
.
Assessment oeffe
ctiveness.
M an
agement
reviews
of performa nce
shou ld b e h
eld quanerly
.
Two m on
ths before th
e end
of
an
annua l
plan, a
total revie
w should
be don
e
,
g
a thering in
format ion fr
om employe
es,
managem
ent,
nd
th e
perform ance
data.
Plans
do not
live forever . They require
refurb
ishment regula
rly.
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