Essential Success Tips for and Possible Disadvantages of Gainsharing Plans

         In our previous Astronology®, we discussed how to increase organizational success by combining gainsharing and the “Balanced Scorecard” strategic performance method. At the end of the article, two questions remained for exploration:

• “What are some critical tips in developing a strategically aligned gainshare program?” and
• “Are there any negative impacts to using such a program?”

        In this Astronology® we answer these questions, and open the floor for your insights on gainsharing plans!

The following four tips are essential for developing a strategically aligned gainshare program linked to a balanced scorecard performance document.

1. The program should be organization-wide in terms of funding and accomplishing key balanced scorecard objectives. The funding can be an increase in net income, or a decrease in operating expenses or some other quantifiable savings. A single organization-wide objective focusing on a quality, customer, or growth objective should be set as a circuit breaker. Failure to meet these objectives results in total forfeiture of any monies gained.
    
2. The program should be an annual one based on the realities of today's complex financial reporting systems and the need for employees to work towards objectives over a realistic period of time. While this may add some pressure in terms of Fair Labor Standards Act (FLSA) overtime calculations for non-exempt employees, this approach tends to be more successful in allowing employees time to correct early failures.
    
3. Place no less than a 25% share of the gain in the employee pool. Less than 25% sends a message that the employees' efforts were not considered valuable by organization management.
    
4. Have a direct linkage to the performance process. Since this process focuses primarily on contributions to strategic objectives and essential functions, base employee payout shares on this contribution. At the end of the gainshare calculation cycle, managers recommend to senior management three levels of share for employees:

• a full share for high contributors,
• a three-quarter share for contributors, and
• a quarter share for those in need of improvement.

Senior management then can make the final assessment for reward distribution.

Gainshare plans aren’t without their potential downsides, however.  Disadvantages to using gainshare plans aligned with performance processes can include the following:

• Leadership Challenges: in many cases, in order to maintain a successful gainsharing plan, leaders may need to have prior experience on how to lead a gainsharing plan.
• Time: It is suggested that it could take a company with over 100 employees close to a year to implement a gainshare plan.  Successful plans aren’t developed and implemented overnight.
• Confidential Information Sharing Concerns: For gainsharing plans to work successfully, communication is key. As employees have an even more vested interest in the success of the organization, information such as expenses, profits, projections, and employee bonuses have to be disclosed to people in senior level positions who may not have had access to this information under other circumstances.
• Employees Can Begin to Focus on the Wrong Details: A sense of entitlement, instead of motivation, can develop with the exposure to information mentioned above. Compound this with regular payments of profit sharing money in favorable times, and employees can begin to feel self-important and negatively impact the organization’s culture, ruining motivation for others.

Since the ultimate goal of using a gainshare plan in performance assessment is to increase motivation, it is prudent for leaders to review the organization’s culture prior to investing in implementing such a plan. A review will allow for proper planning, to avoid some of the potential program downsides, and to address any underlying issues the organization may already be facing.

Has your organization considered or implemented a gainsharing performance assessment program? We would love to hear your experiences! You can share your thoughts by commenting in our comments section at the end of our article, or by emailing us at: astronInfo@astronsolutions.com.