Gain Sharing

Gain Sharing

Employers are often faced with the challenge of looking for ways to boost productivity and profitability while at the same time, motivating employees to accomplish organizational goals. For many employers, variable pay plans have risen to meet this challenge. A variable pay plan ties pay increases to increased performance and productivity. One of the more popular group variable pay plans is called gain sharing. Under gain sharing pay programs, both the employer and the employee benefit from increased productivity. Therefore, gain sharing has often been referred to as a win-win pay program since it is an incentive strategy that ties pay to productivity. Gain sharing is a type of incentive plan designed to increase productivity by linking pay directly to specific improvements in a company’s performance. Gain sharing is used primarily when quantitative levels of production are important measures of business success. Gains are shared with unit/department employees on a monthly, quarterly, semiannual or annual basis according to some predetermined formula calculated on the value of gains of production over labor and other costs. The plan lets employees reap some of the rewards of their efforts through teamwork and cooperation and by working smarter and harder.

Gain sharing plans offer the following:

· Directly ties pay to some important measure of company performance

· Results in productivity improvements when installed

· Appropriate for all groups of employees

· Improves communications and teamwork among employees

· Increases employee awareness of "the big picture"

· Improves job satisfaction and employee relations

· Increases employee participation through involvement in the system

Gain sharing pay programs have the following disadvantages:

· Time consuming to design, implement and administer

· Requires employee orientation, education and training

· Accurate and timely production and cost data must be available

· If not already in place, gain sharing requires a shift to participative management and

employee involvement

Once you decide to add a gain sharing plan to your company you must pick the type of plan you wish to implement into your company. The following is a description of different types of plans a company could implement. A Value Added Plan is the cost of materials and services is subtracted from sales to determine a value added figure. Employee costs are then compared to this figure to arrive at a value added index. This index is compared to value added for future periods to determine if there has been an improvement in productivity. To the extent that employee costs are less than would be the case by applying a value added index to a value added, there is a productivity gain to be shared.