Gain-sharing is an idea that first took hold in manufacturing companies, where it was used to reward employees for increased productivity. In recent years, however, it has proved effective in a variety of service firms as well, ranging from restaurants and doctors' offices to electrical contractors and advertising agencies -- any company in which managers can accurately measure their costs of production.

According to Bill Jackson, a Marion, Ind., gain-sharing consultant, service companies generally base their gain-sharing programs on labor costs as a percentage of sales, because "it's the easiest method for employees to understand." Whenever employees bring labor costs in below a target percentage, the savings are divided among them at predetermined time intervals, usually monthly. The effects on a company, says Jackson, can be startling.

Jackson's son Clif, for example, put in a gain-sharing plan at his Marion restaurant/cocktail lounge in March 1984. Eighteen months later, the company was operating with fewer employees, yet showing increased sales. In fiscal 1984, the plan paid out $8,435 in bonus money to its 18 employees -- the equivalent in some cases of a 10.6% pay raise. "We have a high school girl who wants to come in part-time and bus tables. I've asked my employees to tell me when to hire her," Clif Jackson says. So far, he hasn't gotten the go-ahead.

At Administrative Concepts Inc., in Kansas City, Mo., labor costs have dropped more than 10% since a gain-sharing plan was instituted in December 1984. According to James Brenneman, chief executive officer of the $30-million employee-benefits consulting firm, his 60 employees are already taking a keener interest in company operations, looking out for ways to cut other costs besides labor. The same is true at Creative Professional Services Inc. (CPS) in Woburn, Mass., a $4-million direct-mail advertising services firm. In the first nine months of fiscal 1985 alone, CPS paid out $40,000 to its 75 full- and part-time staff. "Our employees were skeptical in the beginning because the plan didn't pay for the first few months," says president John Bell. "But now our people are intimately involved with this company. They give us feedback that helps us provide more service more profitably. And if we screw something up, they want to know why."