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Hi there everyone! I am new to this forum, in fact this is my 1st forum. I am currently working as a Secretary cum HR Assistant and am pursuing Diploma in Strategic Human Resources Management. I need help on an assignment Q "What are incentives and gainsharing? Why are they gaining popularity?"
My lecture notes are too basic. Would appreciate the assistance.
Thank you.

From Malaysia, Kajang

Basic mechanics--how gainsharing works

The basic idea behind gainsharing is to offer an incentive to the entire workforce to improve the performance of the business and to reward them immediately when they do. As the old saying goes, "What gets measured gets done. The measurement system must be directed towards the activities that are most important to the company."

Gainsharing bonuses can be based on a variety of criteria through a measurement that is either financial or goal-based.

With a financial based formula, rewards are based strictly on factors related to revenues, value added, and/or costs.

Table 1: Sample financial based report

*Revenues from shipped jobs$200,000

-Less: Credits to customers$5,000

-Less: Cost of material/supplies$55,000

-Value added by people$140,000

-Targeted team cost: 30%$42,000

-Actual team cost$40,000

***Gainsharing pool$2,000


A second, goal based, approach would base employee bonuses on a combination of financial results and other ratios. Possible measures include

customer retention rate,

new customers,

customer satisfaction index,

on-time delivery,

inventory turns,

project cycle time,

employee suggestions,

orders processed, and

credits received.

The formula may still include a financial measure, but that would be just one piece of the overall formula.

Table 2: Sample goal based report

Baseline to beatPeriod results

Gain FormulaPool

Gross margin (allocated billing--direct costs)40.0%41.6%$6000/1%$8400Average response times (hours to address requests12 hrs.13.6 hrs.$2500/hr.(4000)Absenteeism rate (unexcused absences)3%2.65%$2500/1%1000

Performance reward pool$5400

Using either method, the measurement system works because it is simple, straightforward, and goal-oriented. Unlike profit sharing, all criteria are achievable and controllable. The bottom line: If group performance is effective enough and a bonus is deserved, then a separate check will be passed out to each employee as an immediate reward.

So what are some of the specific benefits a gainsharing plan offers?

Better teamwork and communication among employees

Improved attention to quality from employees

Improved employee involvement

Greater profits


What are the basic requirements for making gain-sharing a success? experience indicates that the following are crucial:

1. Expert design and implementation of the basic gainsharing plan, with emphasis on the correctness of the standards and the realistic targets to be achieved.

2. Employee education. Middle managers, supervisors, and hourly employees must be educated about their respective responsibilities and rewards. This too requires expert guidance from experienced mentors. After that, the company can take over.

3. Management commitment. Top managers must serve as perpetual cheerleaders, complimenting improvement and achievement of target goals.

4. Middle management cooperation. What is needed is quick evaluation of suggestions coming from below on newer, better, shorter, smarter ways of achieving the target goals. Obviously, not all such suggestions are sound or even make sense ("Let's have some spittoons here"). But the cumulative effect of many small improvements is often quite large.

5. Financial rewards. Targets looking for a 50 percent gain in productivity immediately, or a zero defect record achieved overnight, or other large improvements gained practically instantly, are doomed to failure. A gradually rising level of achievement, with gradually rising financial rewards, consistent month by month, seems to work best.


Reasons for the lack of success included:

* Lack of top management support ("Gainsharing involves the hourly workers and supervisors. We can't be bothered with it.")

* Inadequate middle management involvement ("Gainsharing is not our responsibility. Let the hourly workers and foremen make it work. We don't have time to devote to it."

* Lack of training for first-level supervisors ("I'm supposed to manage my people differently. Nobody told me how to do that."

* Inadequate assessment of suggestions ("We get tired of making suggestions for improving this or that. We never seem to get any response or reaction. The engineers who are supposed to evaluate our suggestions can't be bothered with talking to us because we don't have a college education and won't understand them, they say. So what's the use of suggesting better ways of doing things if nobody seems to pay attention?")

* Failure to use some expert guidance ("Our controller believed he could put a gainsharing plan together." Or: "We explained to our work force how the plan worked and we expected them to follow through. Unfortunately, it didn't turn out that way.")




-in achieving targeted performance

-rewarding achievements

-providing recognitions

-lifting morale

-gain cash

-educational grants

-travel packages for family

etc etc







hope this is useful to you



From India, Mumbai
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