Blog‎ > ‎

Gain Sharing

posted Dec 12, 2011, 1:05 PM by Ron Sandler   [ updated Oct 11, 2017, 9:38 AM ]

Gain sharing is 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 origin of Gain sharing dates back to the 1930s when a labor leader, Joe Scanlon, preached that “the worker” had much more to offer than a pair of hands. The premise was that the person closest to the problem often has the best and simplest solution. Moreover, if the worker is involved in the solution, most likely he or she will help the solution work. Scanlon used a team approach to solicit, review, approve, and implement employee ideas and suggestions to drive the improvement process. Moreover, Scanlon and the gain sharing concept shared the financial gains from improved performance. The Scanlon approach was often referred to as “a frontier in labor management cooperation.”

Gain sharing infers that as an organization gains, it shares. The typical gain sharing organization measures performance and through a predetermined 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. Employees and the organization must change to generate a gain. Employees have an opportunity to earn a Gainsharing bonus (when there is a gain) generally on a monthly or quarterly basis. Gainsharing measures are typically based on operational measures (productivity, spending, quality, customer service) which are more controllable by employees rather than organization-wide profits.

The gain sharing system is one that builds ownership and employee identity to the organization. The employee becomes more of a stakeholder. Typical elements of a Gainsharing plan include the following:

  • Gains and resulting payouts are self-funded based on savings generated by improved performance.
  • Gainsharing commonly applies to a single site or department.
  • Many plans often have a year-end reserve fund to account for deficit periods.
  • Employees are often involved with the design process.
  • A supporting employee involvement system is part of the plan in order to drive   improvement initiatives.

Benefits of Gainsharing

·         Helps companies achieve sustained improvement in key performance measures

  • Rewards only performance improvement
  • 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

Gain sharing is focused on social aspects of the organization and looks to make many of the smaller day-by-day changes that drive continuous improvements. The steady and small improvements lead to significant progress over time. The performance bar continues to rise in daily work activities, the employee mindset, and the way people do their work.

When does Gainsharing work best?
Works best when company performance levels can be easily quantified and in a work environment that is based on openness and trust. A supporting system of employee involvement will significantly enhance the long term effectiveness of the plan. Requires management commitment, training and frequent and ongoing communications.

What is the best way to implement Gainsharing? 
If an organization moves forward with a plan, it is best to form a team of employees and a facilitator to work on various elements of the project. The team is involved in preparing many of the rules of the plan and final approval for the plan details from top management. The team is then responsible for presenting and communicating the plan details. Supervisors and managers are trained in the relationship of their role toward the plan. Teams are formed and trained in order to work on performance enhancement initiatives. It's best to have an outside person guide the process in order to work through the pitfalls and to avoid payout out of false gains.

Gain sharing’s reward principle

Gain sharing answers the question: As we make these improvements, what’s in it for me?” Sure, it’s nice to have a job, but doesn’t the top management receive the benefit when we help make these improvements? Is that fair? Gain sharing provides the all-important link to this question.

Gain sharing companies believe it is fair to share. Gain sharing’s bonus system provides a common focus, a score. As performance improves by working smarter, everyone shares. Interestingly, it’s not as much about the money; it’s more about the sharing. Sharing and its effect on the sense of equity are very powerful, leading to a significant effect on the principle of identity. As we all know, an owner of a business acts much differently than the workers. Identity speaks to the sense of purpose, belonging, accountability and ownership. This is what sharing drives. As identity and understanding grow, there is recognition for the need for change. Change leads to improvement, and improvement leads to gains. As identity and the sense of ownership are developed, employees will naturally have ideas on ways to improve performance. Involvement is a means of working smarter and there are never-ending ways to do so. Involvement and working smarter foster continuous improvement.

Undoubtedly, the most important single principle for any performance improvement initiative is the organization's commitment, particularly management commitment. A strong management belief in people and their value is required. The organization must have a capable management team with a dedication to continuous improvement and the recognition for the need for change. Ongoing communication, training, and education must be a long term focus. Commitment is the key to the total process, and no management initiative can be accomplished without it.