Sai,
The first thing you have to do is identify the steps of the production process, from receipt of material to shipment of the finished product. Each step should be described by the employee performing the tasks and verified by the supervisor.
Next, assess the capability of the workforce, their skills, knowledge, and experience. Provide training and upgrades where necessary. Ask employees and verify with the supervisor.
Do the same assessment with the tools and equipment used in the production process. Are they adequate for the job? Do they need maintenance? Should they be replaced with newer, more efficient models? Again, upgrade where necessary.
When you have completed the above "workplace survey," your next step is to establish a "baseline" for each step in the production process, from the cost of materials, internal transportation, machine time, rework, waste, utilities, etc.
In a Gainsharing system, the "savings" (the amount of the baseline versus actual costs for the month) realized by the employees' efforts, both regarding suggestions, modifications, bending work rules (but not safety), will be shared between the Company and employees on a 50-50 basis (actually 40-40, since 20% will go into a "contingency account to maintain payouts in those months when there is no gain). In the case of suggestions, the employee making the suggestion will receive 20% of the employee's 40%, with the remainder equally divided among the rest of the employees.
Assuming it costs $10 to make a widget, and the employees reduce costs by 5% ($0.05). The monthly production is 50,000 widgets by the 10 employees in the plant. The Company has $25,000 in "gainsharing money," $10,000 to be distributed to the employees. The employees' share will be distributed based on various factors - absenteeism, tardiness, leaving early, accidents, and the like. An employee who has worked or been off for legitimate reasons - vacation, paid leave, etc., for the full month will be entitled to a full share. Employees who are not eligible for a full share will have their distribution pro-rated based on the number of "incidents" in the month.
For example: Employee A makes a suggestion that saves the company $25,000 a month. The "employee" portion is $10,000 (40% of savings). The employee who submitted the suggestion gets 20% of the 40% ($2,000), and the remainder ($8,000) is available for distribution to the other 9 employees.
2 of the 9 were sick or absent for 2 (employee B) and 5 (employee C) days, respectively. Therefore, employee B will receive a pro-rata distribution of 28/30 (approximately $828.62), and employee C will receive (approximately $740.73) or a 5/6 share.
The balance ($6,430) divided among the 7 remaining employees provides approximately $918.57 as a "gainsharing bonus."
Be aware that initially the payouts may be high, but as the baseline is adjusted (recommended annually), there are "diminishing returns" to the employees, thus the reason for the "hold back." When the need to distribute the "hold back" (3-5 years after the initiation of the program) arises, it is a signal that a new incentive plan must be devised.
Hope this helps,
PALADIN