What is Gainsharing?
Gainsharing is a generic term used to describe a wide variety of programs and philosophies. For the purpose of this website, "gainsharing" will be described as
An organizational or site-wide based system that provides rewards when previously specified targets or goals are met.
According to this definition Scanlon, goalsharing, profit-sharing, and pay-for-performance will all be considered gainsharing. Random or discretionary bonuses like the annual Christmas bonus will not be considered gainsharing because they are not based on previously specified targets or goals. Individual merit systems or team systems will not be considered gainsharing because they are not organizational or site wide based.
An old concept: In the novel Mobie Dick, Ishmael signed on for the three hundredth lay. Providing he survived the three years at sea he would receive 1/300th of lithe clear net proceeds of the voyage. His friend Queequeg was a master harpooner, so he signed on for ninetieth lay or 1/19th of the net proceeds of the voyage. At least since the 17th. century whalers had their own profit sharing system. However, the gainsharing concept goes back even further. Many ancient armies were paid, based on the spoils they were able to obtain. In a sense they were part of a gainsharing system. Gainsharing has stood the test of time, because it ties into basic human ideas about fairness. As we work together we should benefit from that work. It also recognizes that unless there is gain there can be no sharing. Gainmaking is an important part of gainsharing.
In his book, The Ultimate Advantage (Jossey-Bass, 1992), management guru Edward Lawler notes, "The most important thing we know about gainsharing plans is that they work. The following are some of the common results that have been found in the hundreds of research studies of gainsharing plans:
Coordination, teamwork, and sharing of knowledge are enhanced in the organization.
Employees' social needs are recognized via participation and mutually reinforcing group behavior.
Attention is focused on cost savings.
Acceptance of change due to technology, market and new methods is greater because higher efficiency leads to bonuses.
Employees demand better performance from each other.
Employees try to work smarter.
Employees produce ideas as well as physical work.
When unions are present union-management relations become more flexible.
A 1986 General Accounting Office Report on Gainsharing noted that Organizational-based gainsharing programs are achieving high success ....
All the gainsharing efforts in the DOD report cost savings (ranging from $7,000 to over $1 Million). Some of the installations also report indirect benefits, including decreased sick leave usage and reductions in work backlogs and overtime costs. In addition, some installations report that the gainsharing efforts, by focusing attention on organizational barriers to productivity improvements, help provide mechanisms and incentive for solving these problems.
A 1981 General Accounting Office Report on gainsharing concluded that the use of gainsharing programs in private industry had resulted in significant productivity improvements. Many of the firms in their review attributed significant work force savings to their gainsharing plans. "Savings averaged 17.3 percent at the 13 firms with annual sales of less than $100 million. At the other 11 firms annual sales were $110 million or greater, and savings averaged 16.4 percent." Of the 24 firms providing financial data, those with a gainsharing system "in effect the longest showed the best performance. Firms that had plans in operation over 5 years averaged almost 29 percent savings in work force cost for the most recent 5 year period, with individual firms' average savings ranging from 13.5 to 77.4 percent. Those firms with plans in operation less than 5 years averaged savings of 8.5 percent." These data support the contention that gainsharing systems continue to grow in terms of the benefits they provide and are an effective long term strategy to improve organizational performance. Regarding non-monetary benefits of gainsharing systems as reported in the 1981 GAO study, 80.6% reported improved labor-management relations, 47.2% reported fewer grievances, and 36.1 % reported less absenteeism and reduced turnover.
In general, the vast majority of the firms in this study "expressed satisfaction with their plans," and believed "that the benefits originally anticipated were realized." They expressed belief "that their plans gave them a competitive advantage in marketing their products or services."
A 1982 New York Stock Exchange study reported that gainsharing programs were one of the six fastest growing human resource activities in companies with 500 or more employees.
A 1984 study of 33 documented case studies of gainsharing programs reported that "eighty percent of the companies reported measurable improvements in some hard measure of productivity, cost savings, or quality. Many of these gains were remarkable, ranging from 20 to 30 percent with some even larger. About three-quarters reported that some index of quality of work life improved, such as a decline in grievances, improvement in satisfaction or morale, or an enhanced work climate. Almost all of the cases found outstanding improvements in employee generated ideas for saving money and improving productivity and quality. More than half the gainsharing plans revealed improvements in every dimension studied, indicating that where gainsharing plans work, they work in a variety of areas. The gainsharing plans went beyond wage incentive plans by focusing on several key factors, including communication, cooperation between workers and management and problem-solving teams to improve product quality. Despite the need for a significant investment in development and implementation, the results were often dramatic and across the board. Bullock, R. J. (1984). Gainsharing - A Successful Track Record, World of Work Report, 9
In 1994 the Consortium for Alternative Reward Strategies (CARS) conducted an exhaustive benchmark study of Organization Performance & Rewards. The study is available for purchase from the World of Work (American Compensation Association). Among their findings: These Plans lead organization change as often as they lag it. Plans are installed to improve business performance through people rather than to attract and retain. Payouts are modest about 3% of base pay. Median organizations earned $2.34 for every dollar spent on payouts. Net return on plan investment is 134 percent! Rewards themselves were just one part of a total strategy to improve performance. Communications, employee involvement, feedback and financial justification of the plans were also important.
The Difference between Gainsharing, Goalsharing, Profit Sharing and Scanlon Plans.
A Scanlon Plan in a participatively designed gainmaking and organizational development system. Scanlon Plans have been designed that could be classified as a gainsharing, profitsharing or goal sharing system.
Profitsharing plans pay a percent of the profits to all employees. Gainsharing plans pay based on improvements that can be operational, financial or both. Goalsharing plans pay a bonus when certain goals are met.
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