Compensation — Gainsharing

For my money, a well-thought, well-implemented gainsharing effort is the holy grail of productivity and efficiency incentives: Paying for performance with money you never would have had anyway, without the improved performance. An incentive plan that funds itself.

For the unenlightened, “Gainsharing” is an incentive plan that, using etsablished, historical threshholds of performance, pays incentives for “gains” based on that thresshold. Usually defined in some fashio of a “split,” such as 50% for the company, 50% for employee incentives.

An example: Company has historically spent $2.00 for every widget it produces. Under a gainsharing plan (oversimplified here for clarity), if the employee effort resulted in making widgets at $1.50 per, then the $0.50 savings, or “Gains,” would be shared equally between the company and employees.

Their are keys to an effective Gainsharing effort:

1. Get it right. Determine the critical lever(s) involved that the gainsharing will apply. These are likely the final productivity measure, e.g., cost per lb., hours per process, waste, rework, etc. Do not use simple payroll dollars. And use a recent trend data point (1 yr, 3 yrs), not some arbitrary “goal.”

2. Keep it simple. If you can’t explain it to the lowest level impacted worker in less than 5 minutes — so they really understand — it’s too complicated.

3. Communicate. You cannot overcommunicate with a gainsharing effort. You must be open and free with sensitive financial data — if you feel you cannot, don’t use gainsharing.

4. Educate. Participants must be able to “connect the dots” between today and “better,” and they need new knowledge tools to do that. Financials, process, etc.

5. Reward. Timely payouts are a must. Monthly for typical blue-collar, perhaps quarterly for more sophisticated workers. You may have to prime the pump at first.

Gainsharing is not a “template” compensation scheme where you can take someone else’s and fill in the blanks. Things like holdback/reconcile, thresholds, buy-downs, etc. all need to be determined, to say nothing of the original pland design.

If done correctly, however, there is nothing better.

But that’s just me…


Kevin Berchelmann

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