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Course: COMPENSATION & REWARDS Sub-topic: GAINSHARING TODAY MANY PEOPLE VIEW GAINSHARING STRICTLY AS A BONUS OR GROUP INCENTIVE PLAN. HOWEVER, IT IS MUCH MORE THAN THAT. GAINSHARING HELPS TO DRIVE A CHANGE IN THE CULTURE OF ORGANISATIONS. DISCUSS. Gainsharing is a technique that compensates workers based on improvements in the company's productivity. That is, a compensation system that evaluates its workers performance based on key performance indicators (Mericle, 2004). Gainsharing is a bonus incentive system aimed at improving productivity through employee involvement, with the gains from "working smarter" shared between the employer and the employees according to a predetermined formula. It includes (1) a financial measurement and feedback system to monitor company performance and distribute gains in the form of bonuses when appropriate, and (2) a focused involvement system to eliminate barriers to improved company performance. Gainsharing, in one form or another, has been around since the 1930's (HR Guide, Retrieved 2004). In essence, gainsharing is a strategy organisations employ to enhance their productivity levels through an emphasis on teamwork (involvement) where employers compensate employees for their efforts in trying to keep the organisation’s performance at an optimum level. This also helps to maintain a competitive edge over its competitors since this strategy focuses on maximizing outputs using less resource. That is, operating at an efficient level. Whilst often confused with profit sharing, Gainsharing is definitely not profit sharing, although there are some similarities. Profit sharing is aligning with the company's performance, whereas Gainsharing focuses on the company's most vital performance metrics. Payments come out of increased revenue or reduction in costs. Profit sharing typically runs on a quarterly or annual cycle, whereas Gainsharing generally cycles on a monthly basis. Therefore, with such a high frequency, there is adequate time for feedbacks thereby allowing the closure of performance gaps as well as providing an immediate incentive with which to motivate employees. Whilst Gainsharing can be align with group incentives and bonuses, it is important to note the roles it plays in driving change in the culture of organisations. Gainsharing can change organisational culture for the better, especially in an organization characterized by competitiveness and lack of trust. The organisation may benefit from moving the culture towards collaboration, increased communication and teamwork. Therefore, one should understand the roles gainsharing play in fostering team involvement- through productivity and creativity, equity and increasing relationships. Teamwork is essential if the gainsharing strategy is going to be effective, since it is build around group involvement and less on individual performance. Thus, members within the group and/or department are dependent on each other for the overall success. According to Collins (1998), teamwork enhances and enables coordination and the sharing of knowledge at the lower levels. Social needs are determined through employee participation that allows the group attitudes and behaviors to be align with set targets. Employee’s within this circle are accepting of change and focus more on cost saving rather than mere quantity of production. The incorporation of technology is greater due to market demands and new methods that would yield higher efficiency and by extension higher bonuses. The employee’s attitude also change since they are more goal-oriented, which would indicate emphasis is put on improving work, whether it is to reduce over time or simply putting ideas forward (creativity). It is understandable that where employees are involved in the decision making process, there will be a greater level of cooperation since their efforts and contribution are valued, thus they will be more eager to make the result a success. Boyett (2004), in a survey of firms with Gainsharing plans have revealed 80% of the firms reported measureable growth in their overall productivity, cost saving and/or quality with many reporting gains of 20 to 30%. This implies that with little or no interruption in the workflow, there will be a greater level of production. Hence, gainsharing in such an organisation promotes a culture of productivity since it maximizes the use of its resources, whilst decreasing rejects and rework. Thus, it is understandable why employees of this nature demand more efficient management and better planning. Similarly, organisations that are non-unionized often remain as such, owing to good employee relations. Where these types of relationship exist, there is usually flexible relation between management and unions (rear occurrence of industrial disputes). Furthermore, equity is valuable and essential for employees to be productive and feel motivated to work. Hence, the gainsharing strategy forges a culture of equity, since rewarding performance is more group focused rather than on any specific individual. It means therefore that the level and kind of rewards received are dependent on how well the group performs. That is, its effectiveness in achieving the desired goals set out by the organisation. Besides, given employees are equally compensated, they will be motivated to work as they will not feel robbed or overworked. A level of satisfaction among employees will reduce conflicts within the group, with management and the organisation on a whole, thereby raising staff morale and improving employee relations. Equity brings about fewer grievances, thus workers will remain loyal to the organisation. However, if employers fail to meet worker’s needs, they will feel there is no choice but to leave. This will not only affect the organisation’s rate of turnover but decrease staff morale, since employees will begin to question their job security, making fewer persons wanting to join the organisation. Gainsharing has numerous advantages to the organisation; it helps organisations to achieve sustained improvement in key performance measures, thereby eliminating errors and raising the performance level of staff members. Therefore, rewarding such performances will keep the organisation productive whilst ensuring the performance level does not fall but keep on improving. It enhances employee focus and awareness and therefore ensures that the employees align themselves to the goals of the organisation, incurring limited cost since compensation is derived from savings generated by the plan (HR Guide, Retrieved 2004). According to Gross (1998), a further advantage of gainsharing is that, rather than basing rewards on total company profits, payouts can tie to plant, team, or small work unit’s performance. This structure encourages employees to work cohesively in a team environment. Companies with gainsharing programs are thus able to attract team-oriented risk-takers and simultaneously ensuring that excellence is rewarded with frequent and substantial payouts. Thus, one can agree that overall, gainsharing fosters a culture of continuous improvements through empowerment that in turn creates a sense of belonging among the group. Despite this, there may be negative implications in organisations where gainsharing is used, since gainsharing applies best to and works best in environments that require teamwork and collaboration rather than individual entrepreneurship, for example, a plant setting. It rewards employees based on group performance rather than individual merits despite having varied levels of expertise within the group. In addition, the measures used are narrower than the organization-wide profit and therefore gains maybe paid even though profits may be down. Blau (1999) posits that if organisations have incentive schemes that are high, implementing gainsharing to yield a prompt reward may prove futile. This plan also requires management and workers to be cohesive, that is management should be open to give or share information, especially where performance standards are concern. Since employees are involved in the decision making process, they may question or challenge management decisions that may adversely affect a gain. Blau further states that organisations with management that are not open to participation unlikely to reap success from gainsharing. Similarly, stress levels may increase since everyone has more of a financial stake in the organization's success. Whilst these are strong points, one must acknowledge gainsharing will never apply to all organisations; however, organisations with a compatible structure can utilize this plan and be effective. Nevertheless, it is also the job of the organisation to become compatible by putting in place the ingredients necessary for the plan to be a success in terms of driving change in the culture of the organisation. Gainsharing can radically change the culture of an organization in potentially negative ways. Ideally, gainsharing invites culturally appropriate behaviors amongst employees that promote increased motivation and competence. However, there are no guarantee employees will use appropriate strategies to enhance motivation or improve competence in underperforming employees. Gainsharing can backfire in low-trust environments rather than improve them as it can cause conflicts and division rather than camaraderie and teamwork. It is entirely possible that gainsharing will promote coercive and punitive behavior. Imagine a competitive group of employees suddenly expected to work together and share information and rewards. This drastic change to their culture may increase suspicion and distrust because they have to count on coworkers they have previously not worked with and whom they do not understand for a meaningful part of their annual remuneration. Furthermore, employees may focus only on gainsharing-relevant performance aspects to the neglect of other important factors not being rewarded. Gainsharing will affect employees' motivation and morale if the standards of their performance suddenly and radically change. Gainsharing cannot replace intrinsic motivation. Intrinsic motivation is the more desirable type of motivation as it can better carry employees through difficult or slow times. Organizations must consider the risk of disappointing their employees. Gainsharing may increase employees' expectations that their ideas will become operable, but when the organization cannot ultimately follow-through on this commitment, it may be culturally damaging. Furthermore, if rewards and goals are not appropriate and achievable, the program will fail to motivate. Moreover, a promise of a reward without delivery of that reward will surely affect morale (Sartori, 2009). Gainsharing is a resource-consuming process. Therefore, the organization has to be ready to take on this additional administrative work, since it requires the organisation to change or revise its systems and procedures. It means also that the persons supervising or managing the plan should have some amount of experience to deal with intricacies with the plan. In addition, the organizational culture may need to change before the system becomes operational. This might mean changing to team- rather than individual-based projects, retraining employees to perform different functions, and retraining management to use different appraisal systems. Nonetheless, gainsharing has its place in organisations and where such plans are employed, they usually elicit changes in the culture of the organisation. These changes in culture influence collaboration and group involvement allowing members within the group to value each other in terms of what they bring to the fore. In essence, gainsharing encourages and provide the framework for a culture of productivity and good employee relations. REFERENCES Blau, J. (1999). Illusions of prosperity : America's working families in an age of economic insecurity. new York: Oxford University Press, . Collins, D. (1998). Gainsharing and power: lessons from six Scanlon plans . New York: ILR Press. goals, G. a. (2004). Kenneth S. Mericle, Tong-wŏn Kim. Connecticut: Praeger, . Gross, S. E. (1998). Gainsharing Plan Spurs Record Productivity and Payouts at Ameri Steel. Compensation and Benefits Review , 46-50. Guide, H. (Retrieved 2004, April , 12). HR Guide to the Internet: Compensation: Incentive Plans: Gainsharing. (n.d.). Retrieved from http://www.hr-guide.com Joseph H. Boyett, J. T. (2004). The Gainsharing Design Manual . New york: ASJA Press. Sartori, D. J. (2009). Changing Organizational Culture With Gainsharing Incentive Programs.