Types of Employee Gainsharing Plans

by Diane Chinn; Updated September 26, 2017
Employers who share savings gains with workers improve productivity and build employee loyalty.

In gain sharing, gain means savings. An employee or team shares in the amount saved by a business as a result of a suggestion he made. Gain sharing is based on the idea that the people doing the work know what is needed to improve the product, service or process. Historical data is compared with actual costs generated by an implemented suggestion. If there is a cost savings, those who made the suggestion receive a percentage of the gain.

Plan Fundamentals

Businesses use gain-sharing plans to improve productivity, customer service and quality. Gain sharing is a way for employers to increase employee engagement and commitment to the organization by giving them a voice in how things are done. Gain sharing is not profit sharing. Gain sharing rewards workers for increasing productivity and saving money, while profit sharing focuses on overall organizational profitability. Savings are calculated as a ratio of inputs to outputs. Input metrics include material, inventory, labor, goods, services and total costs. Output metrics may include sales, net sales, orders, inventory changes, total cost and value added.

Scanlon Plan

The Scanlon Plan is the most common gain-sharing plan. First used in the 1930s, it relies on department-level employee/management committees to develop cost-savings activities. Scanlon Plans focus on the cost of labor and encourage cooperation among employees. Savings are calculated by comparing the sales value of production with employee costs. They are often used in service industries where customer service focus is essential to success.

Rucker Plans

Rucker Plans also use a committee system; the savings gain is based on value added, the increased value of goods at each stage of production, and calculated by comparing labor costs with sales minus the cost of goods sold. These plans are used in manufacturing where costs are relatively stable over time and where the business wants to reduce other costs in addition to labor, such as the cost of energy and production waste materials.

Improshare Plans

An Improved Productivity Through Sharing (Improshare) Plan involves developing standards for product or service-delivery time based on historical data. These standards form the operational baseline against which suggested improvements are compared. Savings are an indication of the amount of change in the relationship of labor (inputs) to outputs – the final product or service. Because the plan is based on performance standards, changes in sales volumes, technology and equipment have minimal impact on the plan.

Custom Plans

For many organizations, a custom plan must be designed to meet their unique needs. In addition, the growing use of self-directed and cross-functional work teams requires different approaches to gain sharing. A properly designed custom plan incorporates employee involvement, implementation and evaluation. The plan should be easy to understand and should include a savings calculation system that reflects current market conditions.

About the Author

Diane Chinn is a freelance writer with more than 15 years experience in many areas, including business and technical communications. She has a Bachelor of Arts in psychology from California State University and a Master of Arts in human resources and industrial relations from the University of Minnesota. She is a Six Sigma Green Belt .

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