What is gainsharing?

Gainsharing is a strategy aimed at enhancing company profitability through increased employee participation and performance. It involves employees receiving a share of the company’s profits generated from performance improvements they help create. This approach encourages waste reduction, teamwork, and motivation among employees, resulting in financial gains for the organization.

How does gainsharing work?

Gainsharing operates on the principle of collective effort and shared rewards. Consider a laptop manufacturing company as an example. Initially, they produced 10,000 laptops in 5,000 working hours. Through collaborative efforts to improve efficiency, they reduced the production time to 4,000 hours the following month, resulting in $150,000 in savings. These gains are evenly distributed among the group.

Similarly, in a car manufacturing scenario, where $5,000 worth of waste was associated with each vehicle, a gainsharing initiative led to waste reduction, lowering the cost per car to $3,000. With 50 cars produced monthly, this saved $100,000, which was divided among the team members involved.

Gainsharing thrives on teamwork and innovation, driving both efficiency and cost-effectiveness.

Types of gainsharing plans

Gainsharing plans come in various forms, each tailored to different aspects of performance and productivity. These gainsharing plans cater to different organizational goals, from output and quality to teamwork and employee ownership, ensuring flexibility in rewarding performance and fostering a culture of continuous improvement. Here are some types of gainsharing plans:

The Scanlon Plan: 

Focusing on output, this plan divides savings between employees and the company. It calculates savings by subtracting the standard labor cost per unit from the actual labor cost per unit of production. For example, if an employee increases their daily air conditioner repairs from 15 to 20, the gains are the difference in production rates.

The Rucker Plan: 

Prioritizing product quality over quantity, the Rucker Plan is suitable for industries where consistent quality matters most. Metrics like waste-to-production ratios or the number of defective parts per production are used to calculate gains.

Improshare Plan: 

Similar to the Scanlon Plan, the Improshare Plan measures savings based on the number of production hours rather than labor costs. When productivity surpasses the baseline, the savings difference is shared among employees. This plan encourages team interaction and support to boost overall productivity.

Worker Ownership: 

In this unique approach, employees not only earn additional income through performance but also have the opportunity to own shares in the company. This fosters a strong sense of ownership and alignment of interests between employees and the organization.

The pros and cons of gainsharing

Gainsharing offers benefits like performance improvement and cost reduction but may lead to workplace friction and stress. It aligns efforts but can neglect individual merit and non-incentivized areas. Let’s take a look:

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