Gainsharing - is it still applicable?

When considering financial metrics like ROE and ROAI, organizations focus on improving profitability through company-wide programs such as profit sharing and employee stock ownership. Gainsharing programs in the 1990s aimed to share profits with employees through operational improvements.

What is Gainsharing?

Gainsharing aligns employee interests with company goals to boost performance, efficiency, reduce costs, and improve results for financial rewards. Its main aim is to enhance organizational performance through employee awareness, alignment, teamwork, communication, and involvement, fostering a culture of continuous improvement and shared responsibility.

Gainsharing Vs. Profit Sharing

How It Works

• Performance is evaluated against a historical baseline to monitor operational progress.

• Staff engage in performance enhancement projects.
  

• Financial benefits are distributed to employees through cash bonuses from internal cost savings.

A Hypothetical Example

Bucky's Bicycle Manufacturing, Inc. specializes in crafting personalized bicycles. Before implementing a gainsharing scheme, the company's standard production time for a single bike was 4 hours:

Gainsharing Plan - Baseline Performance

• Production time: 4 hours/bike

• Monthly output: 500 bikes

• Total labor hours: 2,000 hours

• Labor cost: $50,000 ($25/hour average wage)

Improvement Goals

• Reduce production time per bike

• Increase monthly output

• Maintain or improve product quality

Employee Involvement

Ideas included:

• Reorganizing the assembly line layout

• Implementing a just-in-time inventory system

• Introducing ergonomic tools to reduce fatigue
  

Results After Gainsharing Implementation

After three months:

• Production time reduced to 3 hours per bike

• Monthly output increased to 600 bikes

• Total labor hours: 1,800 hours

• Labor cost: $45,000

Calculating and Sharing the Gain

• Labor cost savings: $5,000 per month

• Additional revenue from increased output: $100,000 (assuming $1,000 per bike)

• Total gain: $105,000

• Bucky's decided to split the gain 50/50 between the company and employees:

  • Company share: $52,500

  • Employee share: $52,500

  • With 50 employees, each would receive a bonus of $1,050 for the month.

Effects of Gainsharing Example

• Enhanced Efficiency: Production time per bicycle decreased by 25%. Monthly production rose by 20%.
  

• Reduced Costs: Labor expenses decreased despite the higher output.

• Employee Engagement: Staff actively engaged in improvement projects. Workers received financial incentives.

Gainsharing Overview - Advantages and Disadvantages

• Boosted Employee Engagement: dedication, morale, and drive

• Enhanced Operational Effectiveness: efficiency and cost-efficiency

• Improved Collaboration and Communication: working together towards shared goals

Disadvantages

• Complex Structure necessitates meticulous planning, effective communication, and continuous supervision.

• Potential for Conflict arising from competitiveness.

• Emphasis on Short-Term Objectives might lead to prioritizing immediate gains over long-term goals.

Conclusion

Gainsharing enhances organizational performance by engaging employees, fostering ownership, aligning efforts with goals, and creating a culture of shared success. It drives efficiency, cost savings, boosts morale, and increases productivity. Transparency and communication in gainsharing programs build trust, collaboration, and camaraderie, leading to higher retention and loyalty.