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A win-win solution for production workers through gainshare pay.

By paying employees for meeting and exceeding performance targets, the whole company can

Many companies have found that extra pay for improved performance can be used to motivate senior executives, salespeople and other employees. Can this kind of program also work for hourly-paid production workers? Experience across a wide range of organizations demonstrates clearly that it can; and, tile result can be a win-win for all concerned. However, there can also be serious and unintended risks of creating a dysfunctional work environment, if the program is poorly conceived and implemented.

As a starting point, it is important to have a clear understanding of what these programs involve. Gainshare (sometimes called group incentive, bonus, profit share, and piecework) means paying employees for meeting or exceeding performance targets. Compensation is paid on top of benefits programs, shift premiums, overtime pay and the like, and is typically outside of collective agreements.

Gainshare recognizes gains, generally cost savings, which are over and above the company's budget. These programs can also consider factors such as product quality, customer delivery, work safety, machine efficiency, and wastage. In essence, the primary focus should be on "shop floor performance improvements" that align to the company's core business objectives. Strong performance results mean a larger amount of funds in the incentive pool for distribution to the workforce. Payout is based on the results for the group, and is distributed relative to wage scales, hours worked and/or other factors. Gainshare plans are particularly attractive in their being self-funding - rewards are made only if performance improvements are achieved. In theory, and depending on the funding approach, award opportunities may be unlimited, a powerful incentive for improving performance.

However, gainshare programs can also require considerable time, effort and resources to design and implement. Rewards must be aligned to a performance improvement process and the organizational culture must be supportive.

Keys to Designing an Effective Gainshare Program

Do not pit employees against one another. Resistance will be great if gainshare programs are seen as potentially divisive. Designing a plant-wide gainshare program may put to rest any concerns of pitting member against member.

Do not impact on the current wage structure. The focus of gainshare is to offer additional pay opportunities for exceeding budgeted targets, not on reducing base wages.

Do not impose the plan without union or employee input. A common error is to first introduce performance-incentive plans after they have been designed. This can result in almost reflexive resistance from employees and/or, the union. Gainshare programs frequently involve improvements to work processes and this demands employee and union involvement.

Performance expectations must be achievable. To help employees reach the higher levels of performance that result in gainshare payouts, they may need help. This can come in the form of process improvement training in things like teamwork and communications.

Employees must have significant control over the established performance targets. Employees and the union may be frustrated over incentive programs in which they lack control over the performance targets they are expected to achieve. Employees will not be motivated to work either smarter or harder if they do not see their performance affecting the calculations of the bonus payouts.

The gainshare and management bonus plans should be supportive of each other. It may not be possible to achieve exact congruence - for example, while the gainshare plan may be based on cost ratios, the management plan may be based on profits. However, the objectives of all the various plans should support the overall goals of the organization.

Do not create a less-safe working environment. In any plan that attempts to increase production, there may be an unintentional impact in safety. To deal with this, it is important to have well-established and enforced safety programs in place. It is also possible to include safety-oriented metrics in the design of the gainshare program, which can be done, in part, through including product quality in the plan's measurements - and, in our experience, quality ensures worker attention, and attention in turn ensures safety.


The impact of a properly-designed gainshare plan should include improved financial performance, enhanced product quality and on-time delivery, as well as higher levels of overall pay and more job security. There should not be any promises, however, about any of these expected outcomes, but with everyone focused on process improvements, there is no reason these expectations should not be achievable.

Karl Aboud is Canadian director of variable pay for The Hay Group, Toronto, ON. He can be reached at Tel: 416-815-6410 or by E-mail: A more complete version of this paper is available from The Hay Group.
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Comment:A win-win solution for production workers through gainshare pay.
Author:Aboud, Karl
Publication:Canadian Chemical News
Geographic Code:1CANA
Date:May 1, 1999
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