Gainsharing is a system that 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 systems vary widely
in terms of their design and the degree to which they
are integrated into the regular operating systems
of the company. Of course, the more they are integrated
into the day-to-day operational systems, the more
commitment there is to the Gainsharing system. And,
the more commitment there is to achieving overall
business goals (including the Gainsharing goals) the
better the resulting performance is.
Yes. Gainsharing and Profit Sharing
are similar in that when the company does better,
these improvements are reflected in employees' compensation.
But beyond this basic similarity there are several
1. Power to Motivate Rank and File Employees
For employees to be properly motivated,
there are two basic elements that must be present.
(A) Employees must understand what they
need to do - specifically - to make the performance
Gainsharing is very strong is this regard,
in that a properly designed Gainsharing system will
specify what needs to be done for the Gainsharing
goals to be achieved. That is, employees will have
an answer to the question, "What do I need to
do, and what do we need to do, to make the gains happen."
Profit Sharing does not do a good job
of answering these questions for the rank and file
employees. I may want to increase our profit sharing,
but what do I do - today, right now - to make the
profit sharing happen? A properly designed Gainsharing
system provides these answers.
(B) Employees must believe that if they
do what they understand they should do, that they
will actually get the rewards they are anticipating
from their performance.
Profit Sharing can be weak in this regard
for the rank and file employees, because they can
believe, "Sure I know what to do to make the
performance happen, but management will buy some new
equipment or spend more money somehow, and that's
where our bonus will go."
It is not as though Profit Sharing is
bad. Profit Sharing can be a good system to reward
and motivate high level employees who can "connect
the dots" mentally so they understand the link
between the performance and profits, and what it will
take to make these things happen. It's just that Profit
Sharing and Gainsharing are very different systems,
and that a properly designed and implemented Gainsharing
system is a much more effective tool to motivate the
rank and file employees.
2. Costs Included in the Measurements
Gainsharing differs from Profit Sharing
in that Gainsharing focuses on the most important
costs in a company's financials, whereas Profit Sharing
typically includes all of the line items in a company's
3. Frequency of Feedback
Feedback with Gainsharing is much more
frequent with Gainsharing systems (vs. Profit Sharing).
This more frequent feedback makes it possible to turn
poor performance around, and thus save the week or
the month. This performance feedback can be very valuable,
as most financial statements are not available until
after the month or week in question is over.
Profit Sharing usually provides less frequent feedback
(on a quarterly or annual basis).
4. Frequency of Payouts
Gainsharing systems typically have a
(potential) payout on a monthly basis. Profit Sharing
systems typically payout (potentially) on an annual
basis. Of course, the more closely we tie the rewards
to the performance, the greater the motivational impact
of the rewards paid out.
Sure. Many Gainsharing companies have
Profit Sharing also and the two systems work well
together. With a properly designed, implemented and
maintained Gainsharing system, profits vary with Gainsharing
performance. Thus, your Gainsharing System helps you
to specify what needs to be done and how you are doing
in terms of those objectives as you progress through
the year. Your Gainsharing System pays out (potentially)
as you progress through the year, and your Profit
Sharing system can pay out (potentially) at the end
of the year to fund retirement plans, etc. There is
no inherent conflict between the two systems.
No. Because it is true pay for performance;
sometimes it happens - other times it doesn't. One
of the best things that can happen to a long standing
successful Gainsharing system is to miss paying a
bonus. Since your people will be accustomed to receiving
the bonuses, they will be asking "What's the
matter and what are going to do about it?" When
your employees' W2 earnings are tied to making it
happen, you'll get attention to performance that you
cannot get any other way.
No. You should see an improvement in
quality performance. Since we can show how quality
problems directly impact a given workers gainsharing
earnings we can give them a personal interest in ensuring
that everyone in your company is doing their part
to maximize quality performance. The key is that employees
(with Gainsharing) will personally feel the pain (in
their W2 earnings) of quality problems. Now high scrap
rates and other quality problems not only effect the
company, they effect everyone.
Also, if an undue emphasis is put on high output that
increases quality problems the net result will not
benefit the Gainsharing performance since the quality
problems (and their appropriate associated costs)
will be deducted from the Gainsharing performance
numbers. So it won't do your employees any good to
produce at a high rate if they are producing a great
deal of "junk," since the "junk"
gets subtracted from the good work to produce the
final Gainsharing numbers.
In these cases, most of the gains must
be achieved from cost reductions, which are more difficult
to achieve than productivity increases from holding
costs the same and increasing output. Nonetheless,
the gains from Gainsharing can be significant and
the increased focus and "make it happen"
aggressiveness Gainsharing provides are beneficial
in all business circumstances.
Sure. Many "Job Shop" companies
have successful Gainsharing system. Developing and
maintaining a successful Gainsharing system in this
environment is no more difficult for job shops than
other types of companies.
No. Many of the necessary components
of a Gainsharing system (planning, communication meetings)
can replace or be added to your existing systems.
Most Gainsharing systems use the information that
already exists for the basic Gainsharing information.
Also, many of the Gainsharing calculations can be
automated using existing information. Thus, most successful
Gainsharing systems do not require extra or dedicated
This question reminds me of a story
about Edwards Deming. Someone asked Deming if there
was a best time to implement a Total Quality Management
System. Deming was said to reply, "It doesn't
matter when you start, as long as you begin right
Seriously though, if you can implement when your Company
has more work than it knows how to respond to (large
backlog), the gains from Gainsharing come more quickly
and are easier to achieve. With strong product or
service demand, you will not have to "put on
the brakes" when the productivity increases.
And, you can set aggressive goals and not worry about
running out of work. It is just a psychological fact
that people do not hit their creative peak until they
have more work than they know how to respond to.
No. Successful Gainsharing systems exist
in both union and non-union companies. If you have
a union, they should be included in the design and
approval process, but there is no inherent conflict
between Gainsharing and unions.
Your Gainsharing system should only
include those people who's performance is reflected
in the company financials. Seriously, many Gainsharing
systems include top management, sales people, part-timers
everyone. Since everyone has an impact on our
results (or they wouldn't be on the payroll) our system
should include all of these important people for maximum
Yes, it seems that employees need to
get a $100 bonus (or a month) before the system really
begins to catch their attention. And, that it doesn't
seem real until the bonus check clears at their bank.
To really get the "fire in the belly" that
you want from your Gainsharing system you need to
be paying approximately $200 per month (or the equivalent).
Your payouts will, of course, vary. Once you achieve
the $200 per month level, and the bonus goes down,
your people will be serious about doing what it takes
to back to the level of performance and income they
know they are capable of achieving.
The most essential element is to keep
finding and solving your company problems. Having
excellent, frequent meetings is also important. As
long as employees see that we are continuing to make
progress on the important problems at hand, they stay
"on board" and we keep moving forward with
Gainsharing. If they detect though, that management
is out of touch with the problems, or is not going
to do anything about the problems, the employees will
"check out" mentally because they think
that that management has "checked out" regarding
Yes. When we speak of corporate culture,
we are concerned with the behaviors that are encouraged
and rewarded. Consider what we mean when we say that
the culture of Japan is different from the culture
of Italy. What we are saying is that different behaviors
are expected and rewarded in Japan versus Italy. The
same is true regarding corporate culture.
Gainsharing impacts corporate culture directly because
it changes what is expected and rewarded in your company.
With Gainsharing, you will be specifying what work
needs to be done (and to what quality performance)
to achieve the company/Gainsharing goals, thus specifying
what is expected. You will also be defining what performance
is. You will not be paying bonuses or recording progress
in terms of effort. Only results count. Clearly defining/measuring/reporting
what is expected and how it expected to be done and
then rewarding that performance with company wide
recognition and bonuses will have a profound positive
impact on your company culture. You will develop a
culture that expects and rewards outstanding performance.
The culture change will not happen quickly, (it will
probably take 3 to 6 months to be noticeable) will
be far reaching and worth the effort once achieved.