8 Tips for Implementing a Gainsharing Program

By Pavan Muzumdar
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You’ve seen the signs over the last few years – employees not cooperating, resulting in efficient operations. Incentive plans like “Employee of the Month” and bonuses are given to improve employee sentiment. However, it seems like nothing has changed, and in fact things are only getting worse.

The problem may be that your incentive system may be inadvertently sabotaging your group’s performance. So how can you improve individual performance and also foster a collaborative environment?

One idea – implement a gainsharing program.

Gainsharing 101

So what is a gainsharing program? At its simplest level, it’s a group incentive plan designed to improve company performance. By designing a plan that rewards employees for developing and sharing ideas to increase company productivity, employees and management are working towards the common goal of improving the company. Typically, companies will reward employees on an individual basis, which many incentivize employees to compete with each other. When this happens the company suffers.

Gainsharing programs by design are meant to be simple and realistic in order for there to be complete understanding by all parties. Metrics used to measure performance are in step with the activities of employees, unlike financial measurements which can be complex and subject to manipulation.

For Example: A reduction in total worked hours to produce a given volume of goods or services. Employees will see the value and understand how their hard work positively impacts the goals of the organization. If employees are given unrealistic expectations, the gainsharing program will be unsuccessful.

Some Helpful Hints to Creating and Implementing a Gainsharing Program:

  1. Tackle the biggest costs first.
    If a company spends 90% of their product cost on material, then a gainsharing program designed to reduce material waste and rejects would be appropriate. If the costs are more evenly mixed than the previous example, then adjust the gainsharing program accordingly.
  2. Use the records on hand.
    If detailed records aren’t reliable, start at the base level of measurement e.g. total product cost. As the more useful information becomes available, a refinement of the gainsharing program metrics may be possible.
  3. Start small.
    Although it is not unheard of for companies to initiate a plan for the entire company, gainsharing plans are typically done for a certain set of employees within one set location. For example, sales staff are typically paid on commission, so it may not be necessary to include them unless there is evidence of overuse of company resources and time to acquire a new client.
  4. Be mindful of the current employee-management relationship environment.
    If there is a lack of credibility by the managers to their employees, there may be further prep work needed to be done before implementing a successful gainsharing program.
  5. Understand the company needs.
    Creating and implementing a gainsharing program takes significant effort by all parties and may not be necessary for small issues.
  6. It’s not an easy fix.
    Management across the board need to be active in promoting and nurturing improvements in the organization, not sit on the sidelines.
  7. Review the data.
    Ensure the data is accurate before designing a formula.
  8. Over time, “rachet” the base.
    As employees improve over time, the new base efficiency can be raised to further improvement. One way that is fair to all parties is to adjust the base e.g., add 50% of improvement from last year to this year’s base. This allows the base to grow without employees feeling like their efficiency will punish them in the future. Also, one-time improvements in new equipment or reductions from government regulations should be considered when setting the new base.

Think Collaboratively with Gainsharing

Perhaps the idea of creating a collaborative bonus structure has come up in the past, but the structure hasn’t been there to create it. There are numerous materials online that go into detail on how to create a proper gainsharing program, including “All You Ever Wanted to Know about Gainsharing but Were Afraid to Ask” by Woodruff Imberman. The key is to be diligent and patient with the program – your company will be rewarded by their efforts.

If you’re ready to see your company move in the right direction, but may not have the right systems in place, discover how icubeTM can

Pavan Muzumdar Managing Director