Gainsharing is a group pay-for-performance program that rewards employees when they improve their performance. Performance, i.e. productivity, quality and safety, is quantified and given a dollar value. When performance improves, employees receive half the value of their improved performance, and the company retains the other half. That means for every dollar earned by employees for improved performance, the company receives a like amount through lower labor costs (less overtime), reduced material costs (less scrap), and better safety (lower workman’s comp. costs). Employee bonuses must be earned and re-earned each short Gainsharing Period, thereby eliminating any sense that they are entitlements paid out just for showing up to work.

Engineering a Gainsharing Plan

In engineering your Gainsharing Plan, Imberman and DeForest executives review your cost structure, competitive stance, and long-term strategic plan. This is necessary because the goals of a Gainsharing Plan, which reward employees on a short-term basis, must be aligned with a company’s long-term strategy if the plan is to be successful.

Why is Gainsharing more effective than profit-sharing or piece-rate?

Although employee productivity has a positive correlation with profitability, factors like material costs, competition, and market conditions are outside of their control. Thus, employees only have partial control over company profitability. For that reason, Gainsharing focuses only on what employees control, productivity and quality.

Under a profit sharing plan, employees could exceed their productivity goals but the company may not be profitable for other reasons. If there are no profits, employees are not rewarded for their improved performance. Contrarily, a company may be profitable and employee performance is sub-par. In either case, profit sharing includes many factors beyond employee control. Because Gainsharing focuses only on what employees control, it is more effective than profit sharing.

A piece rate incentive plan poses a different set of problems. In our experience, piece rate plans divide a work force. When an experienced employee develops a way to beat the production rate, he does not share his knowledge with fellow employees because he knows management will raise the rate and he will earn less. This means an individual employee may profit by piece rate at the expense of the company.

Gainsharing emphasizes the employee teamwork and cooperation needed to achieve company productivity, quality, and delivery goals. Since employees succeed as a group, they share best practices and help one another. Group rewards result in better team performance and better performance means better company profitability.