Gainsharing

Gainsharing: An Incentive Plan or Employee Involvement' Contributor: Bob Masternak Posted: 12/23/2009 12:00:00 AM EST | 1 What's gainsharing' Isn't it a compensation system that places a big carrot in front of employees in the form of a financial incentive' Isn't it the same as profit sharing that pays an annual bonus to workers when times are good' Is it about people working harder in order to make a little more money' These are but a few misunderstandings about gainsharing. Companies that could benefit the most may immediately close their minds to the approach due to a lack of understanding an unwillingness to change. The name "gainsharing" may be partly responsible for this misunderstanding. It gives a narrow focus to the incentive side of gainsharing and does not necessarily indicate what truly is involved in a successful gainsharing plan. This view holds gainsharing up as a super carrot, as an incentive to get employees' attention and to encourage harder work. It's true that the bonus element is an important part of any gainsharing plan, but to view it strictly as an incentive program is a mistake. The bonus aspect is a very visible part of a gainsharing plan. The potential to earn a bonus quickly can get employee attention. However, companies that have experienced the benefits of improved involvement, communications and teamwork would argue that their gainsharing plan is much more than a compensation program. Six months after a gainsharing plan was installed I asked an employee, "What has changed since the plan began'" The employee’s first comment was, "People listen; we can get things done around here. I'm able to get my ideas implemented." The second comment was, "There is better team work. The other production shifts help out by having things in shape when we report to work." The person’s third comment was, "The monthly bonuses we have been earning are great." Interesting, money wasn’t the first thing the person mentioned. Why' The communication and employee involvement dimensions of gainsharing are critical elements. Involvement promotes the better utilization of the workforce, helps to foster cooperation and teamwork, and opens communications and information sharing. On the other hand, gainsharing is more than an employee involvement program. Gainsharing's bonus dimension provides the link that is absent in many unsuccessful employee involvement endeavors. Employee performance is directly linked to compensation. Gainsharing answers the question, "What's in it for me'" Without this linkage, the employee involvement process has the risk of becoming "just another program that comes and goes." The bonus opportunity is a matter of equity. It says, "We believe it is fair to share." This is particularly important in these times where the compensation gap between executives and the balance of the workforce continues to expand. However, if gainsharing were strictly a bonus system, many plans would have failed after facing the first economic downturn, when the bonus potential is often limited. During hard times, the employee involvement activities help maintain the focus of working smarter, and keep employees interested in the process. So what is gainsharing' Gainsharing may be best described as a system of management in which an organization seeks higher levels of performance through the involvement and participation of its people. As performance improves, employees share financially in the gain. It is a team approach; generally all the employees at a site or operation are included. The typical gainsharing organization measures performance and through a pre-determined formula shares the savings with all employees. The organization's actual performance is compared to baseline performance (often a historical standard) to determine the amount of the gain. Since gains are measured in relationship to a historical baseline, employees and the organization must change in order to generate a gain. To drive performance of an organization by Purpose promoting awareness, alignment, teamwork, communication and involvement. Application The plan commonly applies to a single facility, site or stand-alone organization. Payout is based on operational measures (productivity, quality, spending and service), Measurement measures that improve the “line of site” in terms of what employees do and how they are compensated. Gains and resulting payouts are self-funded Funding based on savings generated by improved performance. Payouts are made only when performance Payment Target has improved over a historical standard or target. Employee Eligibility Typically all employees at a site are eligible for plan payments. Payout is often monthly or quarterly. Many Payout Frequency plans have a year-end reserve fund to account for deficit periods. Payment is cash rather than deferred Form of Payment compensation. Many organizations pay via separate check to increase visibility. Method of Distribution Plan Design and Development Typically all employees receive the same percent payout or cents per hour bonus. Employees often are involved with the design and implementation process. A supporting employee involvement and Communication communication system is an integral element of gainsharing and helps drive improvement initiatives. Pay for Performance Gains are generated only by improved performance over a predetermined base level versus Entitlement of performance. Therefore, gainsharing is viewed as a pay-for-performance initiative. Impact on Behaviors Gainsharing reinforces behaviors that promote improved performance. It is used as a tool to drive cultural and organization change. Gainsharing heightens the level of employee Impact on Attitudes awareness, helps develop the feeling of self worth, and builds a sense of ownership and identity to the organization. The concept of gainsharing, however, is not new. The initial plans, such as Scanlon and Rucker, date back to the 1930s. These are plans with a standard bonus formula and are package approaches. In other words, one formula fits all. Today, the majority of plans are "customized arrangements." They are carefully designed to support a company's business objectives. Plans are often reviewed at least annually, and adjustments are made that make sense for both the company and employees. Unlike profit sharing, gainsharing generally applies to a single business or a separate site within a larger corporation rather than the total corporation. Also, the gainsharing bonus formula favors the use of operational measures rather than profit. The idea is to build a better employee linkage between pay and performance Successful gainsharing plans general have a "team-based suggestions" system for gathering employee ideas and suggestions on ways to improve the organization's performance. The teams are responsible for evaluating and implementing productivity improvement ideas. The system permits employees to funnel suggestions for improved performance to their employee team. The teams empower employees to make decisions regarding idea implementation, with a given level of spending authority. The groups meet monthly, and through consensus, determine whether any ideas should be implemented and the approximate savings/cost. If the idea is approved, but exceeds the team's spending authority, the idea is referred to a Review Board. The Review Board is made up of the top manager, selected staff members, and a representative from each of the teams. In addition to reviewing larger ideas, the Board's role includes announcing the bonus results, discussing business trends and goals, and overseeing plan activities. Business and economic education is important to any gainsharing plan, and the Review Board helps fulfill this role. The involvement system provides a structured way for employees to become more active in the business. It helps to foster communications, up, down, and throughout the organization. Gainsharing combines two of the most active areas in the human resources field: pay for performance and employee. There are two major issues in developing a successful gainsharing plan: the bonus formula and the employee involvement structure. Both pieces are needed and are mutually reinforcing. The bonus rewards performance and answers the question, "What's in it for me'" The involvement structure establishes a vehicle for employees to "work smarter" and improve information sharing. Higher levels of involvement lead to new behaviors and improved organization performance. Improved performance results in a financial bonus, which leads to higher involvement. This mutually reinforcing concept drives continuous improvement.