Gainsharing

What is gainsharing?

Gainsharing is a company growth strategy that is based on more fully engaging employees and, in turn, rewarding employees’ creativity and productivity by sharing a percentage of gains achieved as a bonus. With gainsharing, the people of the organization are encouraged and rewarded for working together to achieve the most important organizational goals, such as cost reductions, sales increases, increased customer satisfaction, improved return on investment for investors, and more money available for capital investments and growth.

Why would I want gainsharing?

• You are frustrated with stagnant profitability and financial success – A 1992 study by the American Compensation Association showed an average of 129% return on investment in Gainsharing.  Average gains to employees were over $2,200 per year. 
• Your company is performing well but you know you could move to a new level of market share, quality and customer satisfaction, or other measures, if you only knew how.
• You experience waste of the creativity and potential of the people of your organization.
• You haven’t been able to improve job satisfaction.
• Recruiting and retention of quality employees is a constant battle.

What industries benefit from gainsharing?

The short answer is “any industry.”  It has been used in manufacturing, banking, healthcare, retail, printing, and any number of other industries.  The key is being able to measure expenses and revenues to be able to recognize gains, and to have a desire to more fully engage employees.

What size company benefits from gainsharing?

Some experts say it works best in companies smaller than 500 employees.  However, it has been used with great success in companies as large as 300,000 (Sears) and as small as five.  The best gainsharing consultants customize every plan implemented to match the total circumstances of the organization so size is not a major consideration.

How does gainsharing compare with profit sharing?

Profit sharing bonuses are generally determined on an annual basis following the close of the calendar or fiscal year.  Bonuses are paid annually, usually two to three months after the close of the year.  Often times these payments are partially or fully on a deferred basis, going to such vehicles as 401K plans.   

Gainsharing bonuses are generally determined and paid on a monthly or quarterly basis.  The formula most often is calculated as the difference between a baseline, or acceptable, level of productivity and the actual productivity.  For example, if a company has determined a baseline ratio of operating expenses to revenues of 75%, whenever productivity gains achieve a percentage less than 75, a bonus is paid on those gains. 

A key difference then, is that employees are much better able to link their day-to-day work activities to earning a bonus.  The other key difference is that gainsharing plans intentionally attempt to increase employee involvement; profit sharing is much more passive.

What does a gainsharing plan look like?

Most gainsharing plans include a formalized system for gathering, processing, and implementing suggestions for improvement.  Teams are created to represent logical functional areas of the company operate this system.  A screening team operates to facilitate company wide communication and processing of suggestions that affect multiple areas or require a higher initial investment.  And, of course, a bonus formula is created.

Can it work in a unionized company?

Absolutely.  As a matter of fact, the union in a steel company initiated the first gainsharing plan.  If a company is unionized there are additional considerations but some consultants prefer implementing gainsharing in union environments because they often have already developed valuable interpersonal and involvement skills.

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The Possibilities Company    St. Paul, Minnesota    info@theposs.com