As companies moved forward with the concept, interest in academic and government circles grew. The Scanlon term mistakenly had become associated with a single bonus formula focused on people productivity.
Another hallmark study was published in The study, one of the most comprehensive studies up until that time was sponsored by WorldatWork Formerly the American Compensation Association. The findings reported many positive results in both operational performance and employee attitudes.
In addition the study reported that successful plans lead rather than support cultural change. An important point is that all of these improvement initiatives are nothing more than tools to better engage the workforce and to promote involvement. They believe that a bonus system lacking employee involvement, will somehow miraculously lead to a positive result. The problem is that they are putting the cart in front of the horse , the incentive in front of the involvement.
The gains and resulting payouts are self-funded based on savings generated by the measurement formula. Some plans may utilize broad financial measures that closely resemble profit sharing. However, it is more common to find Gainsharing companies that utilize more narrow operational measures such as productivity, quality, customer service, on-time delivery, and spending. Typically gainsharing plans have multiple measures.
In order for a gain to occur, the performance pie must improve. As the pie expands, the greater the improvement gain , and the more financial benefit for the company and employees. The key point is that there must be an improvement before any sharing occurs.
A critical point is that since gains are typically measured in relationship to a historical baseline, employees and the organization must change in order to generate a gain. Examples of measures are listed below. The gains and losses are shared for each measure and then aggregated into an employee distribution pool. No matter what the measure: productivity, cycle time, yield, spending, or on time delivery, there are always outside factors that will influence the result.
The point is that employees have more control of operational measures than profitability. Companies with this type of Gainsharing model argue that even though profits may be down, profits would have further declined if not for the savings generated from the gainsharing measures.
All employees at a site are generally included in the plan, including hourly, salaried, and managers. In other words the bonus payout percentage is reduced as the Profit Sharing cascades down the organization. The end result could divide the workforce and create feelings of inequity rather than build teamwork and the sense of unity. On the other hand, Gainsharing plans are designed to distribute gains based on an equal percentage of pay or cents per hour worked.
Another Gainsharing line-of-sight enhancement is that Gainsharing is always paid in the form of a cash bonus. The payout of Profit Sharing plans is typically an annual arrangement. On the other hand, Gainsharing typically has the potential for a monthly or quarterly payout opportunity. A gain and resulting payout is best described as a score rather than a bonus.
The score helps give a common focus for employees on measures they can influence and control. Therefore, Gainsharing works best in work environments that require collaboration between individuals, work groups, and departments. Another important feature regarding Gainsharing is that typically a portion of the employees share is placed in a year-end reserve account that is paid to all the eligible participants at the end of each plan year.
In other words, employees will see consequences for worse performance and longer-term thinking is reinforced. If at the end of the plan year the reserve is negative, a company will typically absorb the loss and start the next plan year at zero. The reserve concept helps further develop a sense of employee identity and ownership to the organization. Obviously the sense of ownership would drive many new behaviors.
Unlike Profit Sharing in multi-site operations, Gainsharing is typically site specific. The measures and resulting gains are specific to the facility rather than gains being aggregated from multiple locations and in turn distributed across the organization. Again the concept is to increase controllability and the line-of sight. The concept is to build cooperation and communications between departments instead of building silos. Another distinction between Profit Sharing and Gainsharing relates to the method of plan design and development.
A Profit Sharing plan is typically developed at the top of the organization. In larger corporations the plan may be designed and developed by compensation executives who in turn are granted approval from an executive committee made up of board members.
Often a cross-functional Design Team is assembled that mirrors the makeup of the total organization. The Design Team sorts through a number of issues related to measures, policies, and communication.
The objective is a sense of employee ownership for the plan. In a sense the Design Team members become disciples of the plan and help lead a process for improvement and change. So should the farmer consider installing a Gainsharing plan rather than profit sharing?
Again, the same question must be asked. What is the objective? However, the farmer needs to have the horse in front of the cart. How knowledgeable are employees about the business conditions?
Helps companies achieve sustained improvement in key performance measures Rewards only performance improvement Payouts are self-funded from savings generated by the plan Aligns employees to organization goals Fosters a culture of continuous improvement Enhances employee focus and awareness Increases the feeling of ownership and accountability Enhances the level of involvement, teamwork and cooperation Supports other performance improvement efforts and helps promote positive change Promotes morale, pride, and more positive attitudes toward the organization.
Measures are narrower than organization-wide profit and therefore gains may be paid even though profits may be down. It makes us pay attention to, and take action on the things we need to do to be successful. Are you throwing your money away? Which benefits of Gainsharing interest you most?
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What is Gainsharing? I get the impression that people use the terms Why Profit Sharing Disappoints Companies want to give people an incentive to work harder and smarter. They also want to reward people when performance is there, but avoid How to Motivate with Incentives Motivation is a complex issue. Let me get right to the point. People do what they do to get what they Supervisors want to do well, but Which is the Key to Productivity?
It can seem the importance of How do you keep the spark alive in a Gainsharing System or other pay-for-performance program? When this happens the company suffers. Gainsharing programs by design are meant to be simple in order for there to be complete understanding by all parties.
Metrics used to measure performance are in step with the activities of employees. For example, a reduction in total worked hours to produce a given volume of goods or services. Unlike financial measurements, which can be complex and subject to manipulation, these are straight forward and easily understood by employees. Their direct actions are measured in a way to positively affect the bottom line a company. The focus on gainsharing programs is to tackle the biggest costs first. If the costs are more evenly mixed than the previous example, then a gainsharing program designed to equally incent both actions may necessary e.
At the outset, it may seem impossible if an organization has a lack of good records on activity. Even at the base level of measurement e.
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