Gainsharing

What is Gainsharing/Results of Gainsharing

Gainsharing is an imprecise term that is used to describe a wide range of practices.

Gainsharing as a concept is as old as human history. Since the dawn of time, groups of people have joined together to improve their lives. As they have worked together, they have shared in the rewards of their efforts. Those that sow "reap" the rewards. When things don't go well people have also joined together to limit the suffering. In a sense early tribes of people were involved in gainsharing. As business became more formal, the sharing became more formal. For example, Ishamael, the narrator in participated in gainsharing. He signed on for a very hard and risky voyage for "the three hundredth lay." If he survived the voyage he was to receive one three hundredth of "the net proceeds of the voyage." He shared in the risks and he shared in the gains. The whalers were involved in a profit sharing gainsharing system.

The most well known Gainsharing Plans are Scanlon, Rucker�, and Improshare� but most plans are customized. Scanlon plans have provide competitive advantage since the 1930's. Five of the top 100 Best Organizations to work for in America have Scanlon Plans. Scanlon is the only non copyrighted major gainsharing system. There is no charge for using the Scanlon name, principles or processes. Scanlon is the only major gainsharing plan with a nonprofit association of organizations that supports installation, maintenance, and research involving the plan. No two Scanlon Plans are alike. Each is developed by the organization that will be using it. Today, most gainsharing plans are customized and are not "off-the-shelf" products including Scanlon Plans.

We are not aware of anyone still installing Rucker Plans. Improshare, is a trademark of Mitch Fein and his company is still involved in helping to install Improshare Plans.

Scanlon is gainsharing and a whole lot more. Scanlon provides organizations on average over a 130% return on their investment, while increasing compensation, improving quality, communications, and employee relations. Scanlon is a process for individual and organizational development that may include gainsharing as one component of an "Equity" system. Of equal or greater importance to a Scanlon Process is employee involvement and "Identity." Identity is the sharing of information with employees.

If you are interested in exploring gainsharing and want to understand the critical differences between the various gainsharing approaches read or download for free The ABC's of Gainsharing. By exploring Assumptions, Business Literacy, and Commitment (ABC's) you will have a way of classifying and evaluating the various gainsharing approaches.

Gainsharing Results (much of this summary was obtained from Muller, Debettgnies& Co.)

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 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.

Gainsharing: DOD Efforts Highlight and Effective Tool for Enhancing Federal Productivity. (GAO/GGD-86-143BR, September 26, 1986).

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 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."

Productivity Sharing Programs: Can They Contribute to Productivity Improvement? (GAO/AFMD-81-22, March 3, 1981).

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.

People and Productivity: A Challenge to Corporate America, New York Stock Exchange, November 1982.

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 1990 the Consortium for Alternative Reward Strategies (CARS) conducted an exhaustive benchmark study of Organization Performance & Rewards. The study is available for purchase from the 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

At median organizations earn $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.