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Gainsharing Programs

Organizations aim to make the best of their profits in terms of performance and luring the available market to their side. In order to get to that position of dominating the market or of a good performance, a company or an organization tries to deal first with the issue of performance from inside. Inside an organization there are employees who are responsible for the performance of the organization as a whole. To boost the performance of the employees of any particular organization, a mechanism or a program needs to be in place to cater for this. In this paper, the Gain sharing Program and its application in fostering good performance of employees of an organization is discussed.

Definition of the topic

Gain sharing programs are those programs aimed at returning cost saving to employees. The returns are in the form that can be equated with lump-sum bonus. In organizations and companies, Gainsharing Programs are used as productivity measures rather than profitability measures as opposed to profit sharing programs. There are 3 types of Gainsharing programs called Scanlon Plan, Rucker Plan, and Improshare Plan.

Scanlon plan

This program dates back to the 1930s and is lenient on committees to create ideas of cost sharing. The program’s aim is to minimize the amount of funds used by an organization as a cost of production but still maintaining the same level of firm’s activity. The incentives from this program are derived from the function of the ratio of labor cost and production cost.

Rucker plan

This program is similar to the Scanlon Plan since it uses committees but despite the simplicity of the committee, calculation of incentives is more complex. The complexity of this program consists in that it calculates a ration that expresses production value required for every dollar of total wage bill (Belcher 43).

Improshare plan

It is a short form for Improved Productivity through Sharing. In this plan a standard is developed that predicts the number of working hours expected to produce something while the saving between this standard and the actual production are split between the company and its workers.

Background and history of the topic

The stock market or the famously recognized Great Depression of the 1930s was responsible for collapse of many business enterprises and closure of many industries. As a matter of analysis, poor planning in terms of marketing and production plans by companies and industries respectively coursed the Great depression. As the Great Depression neared its end in 1941 companies had started to strategize on how to maximize profits by reaching out for more markets. However, given that there was poor planning in the line of productivity, very few workers in the industries and companies were motivated enough to work properly. As a result crafts unions were emerging to compete alongside the industrial unions. Due to the unfavorable treatment of workers by White owner of most of the industries and companies, most of the potential workmanship had shifted to the crafts unions. Having learnt their mistakes as time neared World War II, incentives aimed at luring workers to the industries and companies were put in place. Amongst these incentives  performance ranking within which a hard working employees was rewarded by earning more through rating his/her work (Berger 23).

As the World War II passed in 1945, very little could be remembered of an employee incentives in terms of rating their working and earning more. Towards the late 1960’s industrialization of major economies in the USA had reached a considerable ranking and trade was therefore going beyond borders. This phenomenon gave rise to the Gainsharing Programs in that companies and organization needed to produce more in order to cater for domestic and foreign markets. At the beginning of 1970’s 39% of North American companies and about 61% of Europe’s organizations adopted the Gainsharing Programs as a method to form workers` dedication to work. However, in spite of its use it was not labeled as Gainsharing Program but rather as a production model.

Relevance of the topic to wage and salary administration

Wage or salary is the expected amount of compensation one hopes to get after he/she has offered services to another person or an organization over a certain period of time within an agreed contract. Gainsharing Programs are relevant to wage and salary administration in that they offer the employees an opportunity to do more with a promise of earning more. Inspite of whether the organization profits or incurs losses, the standard salary stands but considering Scanlon, Rucker and Improshare plans; if the cost of labor is smaller than the actual cost of production, some form of compensation is calculated from the variables and then added to the salary of the employee.

Examples of companies using or that used Gainsharing programs

Yellow Bus Company (Later renamed to Stage Coach). Because of regular and unsustainable losses at the margin of tens of millions per week, the Yellow Bus Company sought to apply the Gainsharing Program in 1998. A recap on the cause of the losses was due to mismanagement of funds and increased labor cost. After the implementation of the Gainsharing Program, a considerable cut on the cost of service delivery was achieved therefore reversing the losses the Company had incurred. Barry Turley, the CEO at that time, assessed the effectiveness of the program and decided to apply it in all branches and in affiliated companies. As a result, the program helped to reduce the cost of labor while it boosted the output of individual employees. With minimum cost of labor and maximum production of services, Yellow Bus Company overturned the previous trend of incurring loses to accruing profits. Comparing the losses Yellow Bus Company was incurring and the value of over $100,000,000 at which it was sold for to Stagecoach, it is evident that Gainsharing Program was successful for the company (Black, Wright, & Davies 53).

Chelsea Sugar Ltd. In 1996, Chelsea Sugar Ltd. introduced Gainsharing program as a part of its strategic self-managed teams. The purpose for implementing this program was to support restructuring and means of rewarding employees for their commitment and dedication. The results of Gainsharing system was improvement of several key indicators for success. Considering that Chelsea Sugar Ltd was not as productive in terms of economies of scale, it was overshadowed by fluctuation of profits and alternating success and failure financial years; after the Gainsharing system implementation its employees were willing to work more for the benefits they were gaining and it led to a regular curve in terms of profit maximization.

Positive and negative effects of Gainsharing programs

Positive Effects

When the cost of labor has been cut to a certain degree, the cost of production goes down as well and given that there are no negative changes in terms of a firm’s activities the company records production savings.

When the efforts of individual employees are paid or compensated, high chances of improvements are recorded and therefore they are likely to work harder. Hard work by the workers promotes high production rate and in terms of services helps to save time and relocation of resources to the most deserving areas.

Unlike profitsharing programs, the results of productions are reviewed on monthly basis; this trend helps the management to assess the rate of growth regularly therefore dealing with negative areas before they escalate out of proportion.

Negative Effects

The initial implementation of the Gainsharing programs is mostly problematic in that many employees find it hard to operate effectively under controlled resources. For this, they tend to overwork in order to compensate for the extra part left by withdrawal of funds. Overworking leads to anxiety and at times promotes unproductive behavior like skiving of work and/or request for sick leaves (Friedlob & Plewa 117).

After implementation of the Gainsharing Programs, the aims that the programs are supposed to serve do not always come to fruition. As the cost of labor goes down the general output of employees seems to go down for some period because of reduction in firm’s activities.

Regulation aspects of the Gainsharing programs

Gainsharing Programs are simply programs that foster cost saving. However, in some sectors there are possibilities that cost saving may cause friction with the government in that services are delivered at low quality. In the USA. regulation for the Gainsharing programs is provided for Medicare and governing of the hospital-physician relationships. Considering bundled payments and Gainsharing hospital bills are either settled by the patients or their insurance companies. For this case under the Gainsharing, the hospitals compensate physicians for their services and products while they foster good relationships. On the other hand, insurers pay for services and drugs that are to be delivered with the specified period. When the settlement of the bill is done, the hospitals thrive to deliver services cost of which is less than the compensated amount. The reason is to balance the amount of compensation the physicians were allowed initially (Gomes-Mejia, Welbourne, & Wiseman 226).

The above case shows that there is a vector of unethical practice because insurers do not pay from their pockets but from the pockets of the patients. If so, the patient is supposed to be treated accordingly so that every cent counts. The regulations are introduced in order to stop this kind of undertakings under the anti-kickback statues, Stark Law, the Civil Monetary Penalty, and the anti-trust regulations. As much as the Gainsharing Programs are beneficial to employees like physicians under the Medicare sector, the undertaking of hospitals compensating themselves by cost saving on the patients’ money does not apply as a requirement or element of the program.

Ethical aspects of Gainsharing programs

Customers or clients pay for products and services so that they can be delivered and offered accordingly. There is a natural ratio between the amount of money paid and the product sold or service offered that should be observed at any given moment. As a matter of ethics, such considerations are made under the Gainsharing programs. For this case, a company or an organization that seeks cost-save should be in terms with the ethical considerations of delivery. The quality of the product should not decrease because a company thrives to make as much as possible by cutting the production cost. In terms of services like healthcare and Medicare, the Gainsharing system is harmful to the clients in that cutting down on costs of service production means using fewer resources to facilitate an undertaking. This practice has ethical disadvantages because the client does not get services proportional to what he/she pays for and the service delivered may not always meet the purpose it is supposed to serve hence it may bring complications to the client especially if it was a patient (Gray & Meek 87).

Social responsibility

For a company with social responsibility, the information about ethical considerations stated above should be used to clarify the grounds upon which the Gainsharing Programs should apply. The consideration that a product or a service delivered to the client should reflect the amount the client pays in the end should be an ethical undertaking for a company before implementing the program in those terms.

Recommendations to management

Concerning my knowledge on the Gainsharing programs, management should be keen in implementing the programs without the ethical considerations. In order to follow this, management is obligated to implement a policy that balances ethics. By this, if the company thrives to cut on production cost through cost of labor, its employees should be prepared to carry the burden of extra work so that they maintain the quality of products, services, margin of production as defined by Improshare Plan and maintain work record worthy compensation.

To implement a compensation program that takes care of the interests of the company, fulfills its obligations to the employees, and observes ethical issues a company is supposed to research on how worthwhile cutting labor cost may be to both the company and its employees’ ability to adopt the changes. Secondly, employees would be motivated to work more for compensation but an appraisal model should monitor their persistence with extra efforts (Ittner, Larcker, & Rajan 19).

Managers should:

  1. NOT overwork employees under the excuse of compensation for extra work;
  2. NOT put the interests of the company before the ethical obligation of the business and;
  3. NOT consider cost saving if the company or the organization runs on funding a different institution or government to compensate its employees further (Ray 70).

In case of Implementation:

The general image of the company in the corporate world would change in the way that the ethical obligation it observes closely would market and gain positive press for the company. The result would be increased sales, steady growth of the company, and the employees satisfaction .

Regulations that face the Gainsharing Programs at its present state would not hinder the smooth operations of the company. For this reason, most of the regulations that managers find unfavorable in business undertakings would not be a factor bothering the company anymore.

Employees would be motivated to do more work with the future of the company being their priority rather than their compensations. Duties that performed under an environment run in respect of ethics tend to be more interesting; in this case, employees would be interested in performing better rather than overworking themselves (Stewart & Bennett 113).

Customers who may have had a negative experience in other institutions or companies making use of compensation programs would be lured to the company and therefore get services equivalent to what they pay for (Young & O’byrne 115).


In conclusion, Gainsharing is an important program or system because it aims at managing the cost of production while at the same time it boosts the morale of the employee. When the two benefits link up, the company’s growth rate goes up therefore allowing more opportunities for existing employees and new employees.

When companies implement successful compensation, programs they benefit through increased volumes of production at a lower cost therefore assuming a steady growth rate. At the same time, if the programs address ethical issues, the company attracts more customers and builds a culture that other companies can emulate.

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