Gainsharing Overview
By Ryan Lowry
Incentives in the working world are meant to encourage and motivate employees to go
the extra mile to achieve and exceed goals. Incentives can take many forms, including
the common bonuses and reward programs, but a unique form is gainsharing.
Gainsharing is a structured program to increase productivity and decrease costs. A
gainsharing program is setup so employees who reduce cost or increase profits, receive
regular cash bonuses. Gainsharing differs from profit sharing in that employees know
exactly the goals they have to achieve in order to receive the bonuses, more feedback is
needed and payouts are more frequent.
There are two main forms of gainsharing programs: Scanlon and Rucker plan. Under the
Scanlon plan, which is the oldest and most widely used gainsharing program, employees
receive bonuses based on how much costs are cut. These bonuses are based on a ratio
determined by the committee who organizes the gainsharing program. 1 For example, the
ratio could be Total Labor cost divided by sales value production. 2 In contrast under the
Rucker plan, more of an emphasis is put on adding standards that can increase company
productivity. 3 The Scanlon method focuses on equal production with less input and the
Rucker method focuses on greater production with less input.
In Baltimore County, a gainsharing program was implemented in the late 90’s and
resulted in the county saving over $200,000 in its first year. 4 Employees in both the
Dietary Division and Recreation and Park Services Department proposed plans that saved
over $150,000 in their respective departments. 5
Miami-Dade County, Florida
One jurisdiction that still has an active gainsharing program is Miami-Dade County.
Since the program was put in place in 1998, more than $26 million has been saved by the
county and over $6 million in gainsharing bonuses were given to employees. 6 How does
their program work?
There is a memorandum of understanding (MOU) outlining each gainsharing program
that specifies the program’s goals, terms, employee eligibility, and conditions for
providing service. As a result, the MOU helps determine the formula for awarding
gainsharing bonuses. MOUs also have performance or technical requirements, in
addition to financial targets. The County Manager and/or the Board of County
1
Bureau of National Affairs, Inc. (BNA, Inc), Human Resources Library, October 2005.
Bureau of National Affairs, Inc. (BNA, Inc), Human Resources Library, October 2005.
3
Bureau of National Affairs, Inc. (BNA, Inc), Human Resources Library, October 2005.
4
Fox, James,. Lawson, Bruce. Gainsharing program lifts Baltimore employees morale. American City and
County, 1997.
5
Fox, James,. Lawson, Bruce. Gainsharing program lifts Baltimore employees morale. American City and
County, 1997.
6
Gainsharing. Miami-Dade County. http://www.miamidade.gov/opi/gainsharing.asp, 2006
2
Commissioners, department managers, employees and sometimes union representatives
then approve the terms to put the plan into action. 7
Gainsharing agreements are usually set by departments or specific work units as opposed
to organizations as a whole. Once the gainsharing program goals have been set, a time
limit is determined. If the department reaches their objectives with the time parameters
(multi-year periods), then the employees involved receive gainsharing bonuses.
General Scanlon and Rucker Gainsharing Programs
How do employees earn their gainsharing bonuses? Employees must create proposals
and ideas, based on actual figures, on ways for the department to save money. Once the
proposal is complete and concrete, it is presented to the board for consideration.
After each year, within the multi-year time parameter, the committee evaluates whether
participants have met their objectives and goals mapped out by the MOU. The
committee then calculates to the amount of money available to be awarded to the
employees who participated in the program. The amount of money that is generated from
savings must be distributed to the employees and the agency. A percentage cap is put on
how much money can be awarded to employees while the remainder goes to the specific
department and overall agency. 8
Are all employees eligible to participate in a gainsharing program? Some agencies
require employees to be with the agency for at least six months, and be in good standing
with rules and regulations. To be eligible to receive gainsharing monetary awards, in
Miami-Dade County, the employee has to have participated in the gainsharing program
for at least six pay periods. 9 Individual payout amounts are determined by the MOU
terms.
Another agency that practices gainsharing is the City of Charlotte. Their method of
implementing the program is more competition based than Miami-Dade County’s. Their
gainsharing program is self-funded from savings through competitive bids or
optimization projects. If the group or department completes the proposal or plan for less
than the bid amount, then the employees involved are awarded money in an amount not
exceeding 25% of their base pay rate for that period. Employees who participate and are
successful in this program can earn anywhere from $185 to $6,000 annually.
Gainsharing programs are implemented to motivate employees, save jobs that are in
danger of disappearing, and to avoid outsourcing. Agencies that try to adopt a
gainsharing program must have clear organizational goals, excellent managerial support,
and a participatory work environment. 10 If the program has the necessary support and
7
Gainsharing. Miami-Dade County. http://www.miamidade.gov/opi/gainsharing.asp, 2006
Gainsharing. Miami-Dade County. http://www.miamidade.gov/opi/gainsharing.asp, 2006.
9
Gainsharing. Miami-Dade County. http://www.miamidade.gov/opi/gainsharing.asp, 2006.
10
Bureau of National Affairs, Inc. (BNA, Inc), Human Resources Library, October 2005.
8
proper implementation, gainsharing can lead to improved employee morale, worker
involvement, and increased organizational commitment.
However, gainsharing programs can have some disadvantages. Agencies who adopt a
gainsharing program must recalculate the “regular pay rates” to be in compliance with the
Fair Labor Standards Act (FLSA). 11 Employees who participate in the program might
accumulate more money over time, creating problems for those that work in payroll.
Second, the formulas created by the organizing committee to determine the amount
employees will receive can be confusing.
Gainsharing programs have a tremendous upside, yet they still can fade and have lackluster outcomes without proper support. Baltimore County’s once nationally recognized
gainsharing program is no longer in practice due to changes in county administration and
other problems. Employees who participated in the Baltimore program over an extended
amount of time began to feel a sense of entitlement. Participants became solely focused
on gaining the extra pay instead doing their job. The City of Virginia Beach also shelved
their gainsharing programs to save the jobs of employees, because the program was
costing too much money.
If agencies opt to engage in gainsharing programs, the program must be given a chance to
succeed in its structure. The program structure should be designed with attainable goals,
measurable goals, and employees’ input.
11
Bureau of National Affairs, Inc. (BNA, Inc), Human Resources Library, October 2005.