Gainsharing – The Phoenix Rising through the Ashes

Posted on March 19, 2014 by Chris Kelley Posted in Compensation Consulting, KnowledgePay

Gainsharing plans have been enjoying somewhat of a renaissance in popularity the past couple of years as the economy starts to recover from the near economic collapse in 2008 – 2010.  While these plans originally date back to the 1930’s, they seemed to have peaked in popularity in the early 2000’s .  During the darkest times of the recent recession, there seemed to be no new activity in terms of creating new plans and other plans that had been in place were scrapped.  As the markets have started to improve though, the prevalence of gainsharing plans is starting to regain its popularity.

So what is a gainsharing plan anyway?  The definition of a gainsharing plan is actually part of the identity crisis that caused them to fall out of favor during past decade.  A quick search for gainsharing terminology will give you various definitions, but the most common is that they are a compensation incentive plan where a portion of the company’s profits are share with employees.  Employees have ‘skin in the game’ and so they are incentivized to improve performance and productivity.  Therein lies the major problem according to Brad Hill of Tandehill Human Capital.  “First and foremost, gainsharing plans are a commitment to employee involvement where sustained improvements in productivity can lead to a financial reward.  The key difference in that definition is that we focus first on gainsharing being a commitment to employee involvement, not compensation.”

When the focus is on gainsharing being a compensation plan, it’s too easy for both employees and senior management to lose focus when times get tough in the outside economy.  Employees can start to view gainsharing as another entitlement and become disgruntled if payouts don’t happen.  Management on the other hand takes the misguided perspective that this program is a cost that needs to be cut in order to save money.

In both cases, that is the exact opposite of what should happen.

When the economy starts to sour, employees on the frontline are often the ones who hold the key to being able to identify ways to respond and improve productivity.  They need to be unleashed on trying to fix problems, not screwed out of an opportunity to make a difference.

The more progressive management teams that we have seen recently understand that even though the economy is still a challenge and there might still be losses to wrestle with on the financials, employee involvement is the most likely path to success.  This might even mean paying out on a gainsharing plan where there is a loss because they fully recognize that the loss would have been even greater had it not been for the efforts, energy and contributions that come from employees.

The key to success in putting a gainsharing plan in place is not whether or not the financial formula spits out the optimal results.  The key to success is the degree to which management can fully engage the workforce to contribute ideas, and then review, evaluate and implement productivity improvement ideas and openly communicate the activity and results to inspire even more involvement from the people who make it happen.

“Our implementation process is built to maximize employee involvement in the design of the plan, but also for the communication and on-going execution of the plan”, says Hill.  The goal is to get great buy-in from both management and employee participants.  It is this commitment to employee involvement that will determine whether or not the gainsharing efforts will be successful.

For more information on the Tandehill Human Capital approach to gainsharing, click here.