gainshairng vs profit sharing
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7/30/2019 Gainshairng vs Profit Sharing
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Many people who confuse Profit Sharing and Gainsharing view them as being one in the same.Employees have an opportunity to earn a bonus under both approaches, but that is where thesimilarity ends. There are always exceptions, but the following provides a general outline of the majordifferences.
Gainsharing Profit Sharing
Purpose To drive performance of an
organization by promoting
awareness, alignment, teamwork,
communication and involvement.
To share the financial success of the
total organization and encourage
employee identity with company
success.
Application The plan commonly applies to a
single facility, site, or stand-alone
organization.
The plan typically applies
organization-wide; companies with
multiple sites typically measure
organization-wide profitability rather
than the performance of a single site.
Measurement Payout is based on operational
measures (productivity, quality,
spending, service), measures that
improve the line of site in terms of
what employees do and how they are
compensated.
Payout is based on a broad financial
measure ofthe organizationsprofitability.
Funding Gains and resulting payouts are self-
funded based on savings generated
by improved performance.
Payouts are funded through company
profits.
Payment Target Payouts are made only when
performance has improved over a
historical standard or target.
Payouts are typically made when
there are profits; performance doesnt
necessary have to show an
improvement.
EmployeeEligibility
Typically all employees at a site are
eligible for plan payments.
Some employee groups may be
excluded, such as hourly or union
employees.
PayoutFrequency
Payout is often monthly or quarterly.
Many plans have a year-end reserve
fund to account for deficit periods.
Payout is typically annual.
Form of Payment Payment is cash rather than deferred
compensation. Many organizationspay via separate check to increase
visibility.
Historically profit plans were
primarily deferred compensationplans; organization used profit
sharing as a pension plan. Today we
see many more cash plans.
Method ofDistribution
Typically employees receive the
same % payout or cents per hour
bonus.
The bonus may be a larger % of
compensation for higher-level
employees. The % bonus may be less
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for lower level employees.
Plan Design &Development
Employees often are involved with
the design and implementation
process.
There is no employee involvement in
the design process.
Communication A supporting employee involvementand communication system is an
integral element of Gainsharing and
helps drive improvement initiatives.
Since there is little linkage betweenwhat employees do and the
bonus, there is an absence of
accompanying employee
involvement initiatives.
Pay forPerformancePlan versusEntitlement
Gains are generated only by
improved performance over a
predetermined base level of
performance. Therefore, Gainsharing
is viewed as a pay-for-performance
initiative.
Profit sharing often is viewed as a
entitlement or employee benefit.
Impact onBehaviors
Gainsharing reinforces behaviors that
promote improved performance.
Used as a tool to drive cultural and
organization change.
Little impact on behaviors since
employees have difficulty linking
what they do and their bonus.
Many variables outside of the typical
employees control determine
profitability and the bonus amount.
Impact onAttitudes
Heightens the level of employee
awareness, helps develop the feeling
of self worth, builds a senses of
ownership and identity to theorganization.
Influences the sense of employee
identity to the organization,
particularly for smaller organizations.