Every organization has a system in place which uses a predetermined formula to measure the performance and reward the employees accordingly. However, to determine whether the employees’ performance has improved, there is always a baseline performance that has already been established and is considered fair to all by the company management. Therefore, gainsharing, in most cases, is based on elements such as customer service, quality, and spending as well as company productivity. However, the gainsharing aspect is different from the focus on profitability in that the employees can control the measures used in gainsharing systems. The internal operations of a company cannot entirely control the profitability of the company, but the gainsharing elements such as quality and quantity can be controlled within the company. However, the most successful system are those that encourage employees involvement even in the design process. Through this, employees are well aware of their expectations, and, therefore, they work to ensure that the primary goals that have been set have been achieved. However, to ensure that gainsharing is evenly distributed in the company, there is always a reserve fund that is meant to fund the process even in cases when the company is not profitable enough to meet those needs. Due to the nature of the gainsharing systems, they can primarily be implemented in standalone or single-site organizations.
Gainsharing has been in use since the 1930s and has been adopted by companies across the globe. This revolves around the need to ensure that the workers can provide the solutions needed by the company to succeed. The main idea behind the gainsharing systems was based on the need to involve employees in decision making, especially on how they can be able to manage costs and reduce the wastes within the company. This dates back to the period where the Scanlon Plan was launched and named after the founder Joe Scanlon (Collins, 2018). The idea, in this case, was to make sure that there was a way to calculate the gains and that every person had access to those gains. The development and the use of the Scanlon plan were instrumental in making sure that all employees in a particular organization had access to the gains that the company had realized and were awarded from their improved performance. On the other hand, the evolution of gainsharing created a platform where equality within the organization would be achieved, which was a shift from a system that would only reward a number of employees. Also, gainsharing was founded on the premise that every person within the organization had an input to the success of the organization. Therefore, it was only necessary to ensure that every person was rewarded accordingly. Thus, through gainsharing programs, the companies could appreciate the employees and theinput they have made towards attaining the set goals (Wren, 2009).
The development of gainsharing creates an environment where the emotional and financial contribution of the employees is considered. At times, companies often provide financial shares that help in fielding their long term development and the ability to deal with the challenges they face daily.This is important as it helps in making sure that employee’s motivation has been consolidated,considering that they feel that their efforts should be rewarded in the long run. Even though this is the case, gainsharing can change from one company to another based on the requirements and the business environment that one is exposed to (Kim, 2005). Therefore, the use of gainsharing is a group incentive given that it focusses on remunerating every employee within the company.
The main gainsharing programs include Improshare, the Rucker plan, and the Scanlon plan.
Scanlon plan is the oldest gainsharing program that has been in use for more than eight decades. It establishes the connection between the productionvalues with the labor cost (Arthur, & Kim, 2005). This helps in creating the rightratio,which in the process helps in determining what needs to be used as the right ratio in the gainsharing process. The extra compensation as per the Scanlon plan, however, is determined by the ratio between the hourly wage and the number of workers in the productionprocess. For instance, if the employees produce 100 cars in three days with the cost of $50 per hour, then they will be paid more if theyproduce 150 cars in threedays at the same cost of labor. As a result, employees are likely to be motivated to produce more cars within a shortperiod, given that they get paid more. This is important as it helps employees in carrying out their duties and responsibilities within a short period. In typical cases, employees may be reluctant to produce more, especially in cases where they can pay little with no incentives. Therefore, this method is essential as it helps in making sure that employees can produce more and, at the same time, improve their efficiency (Hietpas, 2008).
The Rucker Plan
The Rucker Plan, on the other hand, relies on the quality of the output. This is a shift from the Scanlon plan, which mostly focusses on the quantity as the necessary measures of the output of the employees. One of the main issues in the production process is the focus on the quantity, which may motivate the employees to produce substandard goods given that the organization mainly focusses on the quality of production. This concentrates on production that centers on the manufacture of the products with the least materials as possible (Hietpas, 2008). Therefore,if employees can produce products while minimizing the amount of waste, then such employees are remunerated higher. The parameters that can be used in measuring the output of the employees include the return inwards, which means that the ability to reduce the defective items determines the changes in the quality of company products. However, both the Rucker and the Scanlon plans often focus on the strategies that help in making sure that the company’s profitability increases. The company profitability can either be increased by the increase in production as well as waste reduction. The Rucker and Scanlon can be used differently depending on the type of industries and the nature of the products that the company deals with.
Improshare plans, on the other hand, rewards the employees based on their efficiency in the production and therefore uses similar determinants when compared with the Scanlon Plan (Hietpas, 2008).However, the main difference is that Scanlon focuses on labor costs, whereas the Improshare plans focus on the production hours.
Workers’ ownership, on the other hand, focuses on the system that has the capacity to remunerate employees by awarding them equity shares in the company. However, the employees are awarded equity shares based on what they can achieve and how they are able to achieve them (Arthur & Huntley, 2005).
Employees are often encouraged to work innovatively or creatively in the workplace. This primarily focusses on aspects such as employees’ involvement as well as the bonus calculations, which helps in determining employee’s individual benefits(Kim, 2005). Gainsharing systems are vital, given that they are group-oriented and not individual-focused. As a result, this helps in laying down the long term strategies given that group cohesiveness helps in making sure that the long term goals have been achieved (Collins, 2018). One of the main aspects of the gainsharing systems is the focus on the employees’ involvement. It focusses on the need to share the gains with the company employees and therefore helps in promoting group work in the process (Wren, 2009).
Gainsharing systems are implemented in order to increase the success rate in the company, ensure that managers are more responsive, increase the involvement of the employees, be more flexible, consolidating resources and knowledge within the company, cost reduction, and focus on the quality of the company operations (Arthur, & Kim, 2005). However, gainsharing systems can be implemented by both successful companies as well as poor performingcompanies. While the poor performing companies often focus on improvement, better-performing companies often focus on retaining a competitive edge in the market. Better performing companies often rely on the gainsharing system to focus on continuous improvement and ensure that employees have common goals. This is also important given that it creates a system where the company can promote fairness in the sharing process, which helps in promoting teamwork in the process. Therefore, gainsharing systems are beneficial to both the employees as well as the organization in the long run. The benefits generated by the organization from the gainsharing system include increased employee involvement, increased flexibility in the organization, linking the performance with the rewards, improved problem-solving techniques, and the ability to reduce costs and improve the company performance. Even though gainsharing systems are more group-oriented systems, they help individual employees, given that an increase in the company productivity helps in enhancing job security.
Advantages of the gainsharing systems
Gainsharing systems are vital, given that they help in enhancing positive approach, pride, and morale within the company (Wren, 2009). The employees are likely to perform better if they are well aware that their work and responsibilities are appreciated. Through the gainsharing process, the organization often creates an environment where it enhances the positive change and encourages employees to improve in their day to day activities. Through the gainsharing systems, the organization is often cultivating a culture of cooperation, teamwork, and more involvement. This largely centers around the need to introduce a program with the capacity to create awareness within the company and, in the process, helps in making sure that they are focused on the set goals. Given that the gainsharing systems often advocate the employees and the company management to focus on continuous improvement, which is a critical culture to establish in any company. Furthermore, when a well-functioning gainsharing system is developed, the organizational, as well as the employees’ goals, are often aligned (Hietpas, 2008).
Demerits of the Gainsharing systems
Even though the gainsharing systems are often encouraged, they may be detrimental to the company, especially when the company profits have negatively been affected. Companies often make the necessary gainsharing even with the decrease in profits, which in the long may adversely affect the shareholders’ returns. Other significant issues with the gainsharing systems are that it disregards the merit of individuals given that they are often awarded based on the group performance. Therefore, if the group performs better, then the gainsharing strategies are put in place and vice versa. However, the success of the gainsharing systems best work in an environment which advocates for the use of collaboration and teamwork considering that the system advocates for the group systems form of remuneration. However, the system requires company management to be actively involved in the decision-making process and that they provide critical information to the employees in a timely manner. Furthermore, this creates an environment where the employees develop a feeling that they have financial interests in the company (Arthur & Huntley, 2005).
Future issues that may arise
In the demerits section above, I have identified the weaknesses of gainsharing. Two major issues stand out. There is the issue of disregarding the merit of individuals given that they are often awarded based on the group performance.Secondly, gainsharing may be detrimental to the company in the sense that companies still make the necessary gainsharing even with the decrease in profits, which in the long may adversely affect the shareholders’ returns. In my opinion, these two problems will be vital in determining the future issues or trends in gainsharing.
I am of the opinion that in the future, companies may focus on revamping the benefits of gainsharing but, at the same time giving credit to individual contributions. I think that this move will be crucial for practical reasons, in the sense that for any gainsharing program to be successful, there is a need for individual employees to commit themselves to the set goals. In as much as gainsharing programs are centered around the collectiveness of employees, it is vital to note that these groups of employees are made of individuals. If by any chance, two or three of these individuals are not contented, they can cripple the entire gainsharing program.
Also, there might be the possibility of companies making it difficult for employees to reach performance goals to cut down the costs that result from gainsharing. In some cases, gainsharing affects the companies’ returns because companies still make the necessary gainsharing even with the decrease in profits. Therefore, to combat this situation, companies may be forced to make it difficult for employees to reach performance goals. This may work out for the companies because most of the time, gainsharing programs are internal issues that are not exposed to the outside world where organizations like workers’ unions fight for the rights of the employees.
In addition, I think that companies will adopt a multi-faceted reward system to take care of individuals who do not support the collective approach for determining employee bonuses. The current gainsharing systems like Scanlon, Improshare, and Rucker use efficiency as the means of determining the employees’ bonuses. The multidimensional criteria may have minor categories like meeting deadlines, customer satisfaction, cooperating with other departments, quality, and innovation. These criteria tend to narrow down on specific employees in specific areas of the company and consequently rewarding them for their individual contribution in their respective sectors.
Gainsharing systems are group-oriented and may differ from one industry to another. The nature of organizational operations and the employees’ roles and responsibilities affect the type of gainsharing systems used. However, a gainsharing system is more effective in the environment where group work or teamwork is promoted. The success of any company, in this case, relies on the implementation process and the ability of the company to follow through with the gainsharing systems. Gainsharing systems are different from the profit-sharing systems in that gainsharing main focus is on the group-specific performance while the profit sharing focus on the overall profitability. However, they are both important in achieving employees’ motivation. The gainsharing systems help in encouraging employees’ participation and involvement, which in the process helps in improving their performances. Therefore, employees can benefit, given that they often receive their share from the profits that they have generated in the organization. On the other hand, gainsharing systems help in managing materials, energy, time, and in the process, improving the overall performance, given that this helps in encouraging them to perform better.
Wren, D. (2009). Joseph N. Scanlon: the man and the plan. Journal of Management History.
Arthur, J. B., & Huntley, C. L. (2005). Ramping up the organizational learning curve: Assessing the impact of deliberate learning on organizational performance under gainsharing. Academy of Management Journal, 48(6), 1159-1170.
Kim, D. O. (2005). The benefits and costs of employee suggestions under gainsharing. ILR Review, 58(4), 631-652.
Hietpas, P. C. (2008). Financial analysis of the implementation of a gainsharing plan in a construction firm.
Arthur, J. B., & Kim, D. O. (2005). Gainsharing and knowledge sharing: the effects of labor-management cooperation. The International Journal of Human Resource Management, 16(9), 1564-1582.
Collins, D. (2018). Gainsharing and power: Lessons from six Scanlon plans. Cornell University Press.
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