Ten years ago, about 500 U.S. companies had some form of gain-sharing plan -- a broad term that refers to programs that reward employees for improved output. Today, that figure is estimated at close to 2,500.
First started in the 1930s, gain sharing owes its renewed popularity to significant changes in both the domestic and international economy. Five years ago, companies could pass on mounting payroll expenses in the form of higher consumer prices. Unable to do that in the more deflationary '80s, managers are instead searching for creative ways to reduce labor costs. The pressure to improve productivity is further heightened by increased competition from abroad. "Companies are now looking at compensation in the context of a world economy," says Carla O'Dell, a consultant with the American Productivity Center in Houston.
Although gain-sharing plans are as different as the companies that use them, many plans start by dividing the company's net sales by the sum of the costs of materials, production, labor, and energy. If the resulting figure is below a target percentage, the difference is divided between employees and the company. While some profit-sharing plans pay annually, gain-sharing plans tend to pay as often as monthly, so that employees consistently see a relationship between the bonuses and their performances.
In addition, gain-sharing proponents say the most successful plans hinge on two important criteria: First, a management-employee team approach is used to explore options already tried at other companies. "Employees will be more willing to accept the plan if they know their peers were involved in the design of it," O'Dell says. Second, management reveals confidential financial information to employees on a routine, consistent basis, a "major stumbling block" for some companies, she notes.
Chris Pierce, president of $5.7-million Dingley Press, of Freeport, Maine, had no trouble accepting the importance of educating his 90 employees. "I knew we needed a way to increase our gross profit margin, and to do that, employees had to learn the impact of their actions in the plant -- what it could mean to them if we used less paper to produce a million catalogs." Several weeks after the end of each gain-sharing cycle, Pierce issues a detailed report to employees covering net sales and costs, as well as a brief explanation of why the plan paid out a bonus or didn't. (Initiated in the fall of 1983, the plan paid a bonus five times in its first 14 months.The employees' checks have ranged from $10 to $100.) Pierce looks at his gain-sharing program as "shared-responsibility management. . . . It shows employees they have control over raw materials, and that if they do a job [well], they will be rewarded."