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Gainsharing vs Profit Sharing

Gain Sharing vs Profit Sharing

by

Chuck Hendee, a Silver Fox Advisor
chuckhendee.com/incentives

There is a huge difference between Gainsharing and Profit Sharing.

The profit sharing that I have found most business leaders employ is a way of sharing some of the bounty of a successful year. The employees are usually thankful but the questions that may be asked or that aren’t should be considered.

If you have seen the movie “Christmas Vacation” staring Chevy Chase, you will remember that he was expecting a substantial bonus and as it turned out he and others received the jelly of the month gift. Shouldn’t expectations be based upon employee performance that is in line with the company’s financial performance?

Is it reasonable to bonus a relatively new employee, no matter what position, the same as employees that have been contributing for years? Should a new star performer be bonused less because he or she has only been with the company a short time compared to long timers?

The solution is the concept of Gainsharing which is based upon the premise of sharing gains rather than total profits. Reasonably, the current team should benefit from their contribution to the increase in profits from the previous year or established base year.

It would be even better if the individual team members or work groups would be bonused based upon their specific contribution to the company’s financial improvement.

The challenge is that more sophisticated systems to calculate bonuses require an investment in the accounting of performance and value to the profitability of the company. However, wouldn’t bonuses be a better motivator if employees understood how their performance contributed to the company success?