November 2009
Gainsharing, a concept that gained acceptance during the last major recession of the 1980s, is making a comeback during the current recession and with good reason. The essence of Gainsharing is that it can be a key to better productivity and profitability in union and non-union companies alike.
Gainsharing creates an atmosphere of high employee morale and builds strong labor/management bonds. This is critical because of the looming Employee Free Choice Act with its "card-check" unionization or any of the proposed "compromises" that require "quickie" elections. A properly implemented Gainsharing Plan - a pay-for-performance program -- causes employees to see unions as a threat to their wallets in non-union companies and view restrictive work rules as a drawback to their ability to earn bonuses in organized companies.
A number of Wessels Sherman clients are finding that implementing a Gainsharing Plan is an excellent way to build these labor/management bonds while simultaneously improving employee productivity and company bottom-line profitability. Gainsharing is a natural complement to Wessels Sherman's legal counsel for avoiding unionization in non-union companies and easing contract negotiations in unionized ones.
Gainsharing is a group pay-for-performance program rewarding employees when they improve their performance, i.e. productivity, quality, safety, and customer service. Gainsharing does not involve revealing any company "financials" to employees whatsoever.
Employee performance is quantified and given a dollar value in Gainsharing. When employee performance improves over a threshold level pre-set by management, the company retains half the value of that improvement. Employees receive the other half. So for every dollar paid to workers, the company saves a like amount in better productivity (fewer employees, less overtime at premium rates), better quality (fewer internal defects or customer returns), and improved safety (lower workman's comp premiums). The bonuses employees earn are typically paid monthly, and have to be re-earned each and every Gainsharing period. This eliminates any sense of employee entitlement.
There are several keys to an effective Gainsharing Plan. First is employee involvement in plan design under the careful eye of an experienced Gainshare expert; this gives workers part ownership in the plan and a stake in its success. Second is simplicity; employees must understand the plan and know what they have to do to earn a bonus. Third is an open communications system; management communicates downwards effectively to employees about their performance in terms of their Gainsharing Plan, and employees communicate upwards back to management with ideas for increasing their productivity and Gainshare earnings. Employees and management build on this cooperation to reach the common goal of better performance and profitability, with direct and frequent bonuses for employees, when earned. This cooperation creates a tight labor/management bond that precludes employee interest in unions. Workers don't want to substitute union dues for the bonuses they earn under an effective, productivity-boosting Gainshare Plan.
Gainsharing also greatly reduces employee interest in complicated work rules and job classification schemes in unionized plants. Wessels Sherman partners with consultants in designing and implementing Gainsharing plans that prepare employees for future contract negotiations cleaning up contract language. Gainsharing makes this goal easier since it is in everybody's interest to end complicated work rules that hurt productivity and bonus earnings. Earned bonuses under Gainsharing often replace guaranteed pay increases in negotiations.
Gainsharing differs from profit sharing. Under Gainsharing, employees earn bonuses on a short-term basis that parallels their short-term horizons. Workers know what they must do to earn extra money, and how much they can earn. Under profit-sharing, "bonuses" are sometimes paid out annually, but usually used as a retirement vehicle. While employees like the "found money" of year-end profit-sharing bonus awards, they often do not know why they earned the amount they did, nor what they did to earn it. Year-end "mystery" profit-sharing pay-outs do not influence short-term employee behavior and effort, motivate higher productivity, or improve employee attitudes. Gainsharing does all three.
Readers interested in further information should contact Dick Wessels at 630-377-1554 for the following general articles, or to request more detailed studies for their specific industry:
"All You Ever Wanted To Know About Gainsharing, But Were Afraid To Ask," Target Magazine, Assn. for Manufacturing Excellence.
"Gainsharing: Lemon or Lemonade?" Business Horizons Journal, Indiana University School of Business.
"Employee Participation: What It Is, How It Works," Target Magazine, Assn. for Manufacturing Excellence.
"Is Gainsharing the Wave of the Future?" Management Accounting Journal.
"The American Quest for Quality," Business Horizons Journal, Indiana University School of Business.
