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AICG WORKING PAPER
2003-9
Gainsharing:
A Literature Review and Future Research Issues
Dong-One Kim, Ph.D.
Associate Professor of Industrial Relations
College of Business Administration
Korea University
5-1 Anam-dong, Sungbuk-gu
Seoul, 136-701, Korea
Tel: 82-2-3290-1949; Fax 82-2-3290-2526
E-mail; dokim@korea.ac.kr dokim64@hotmail.com
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Gainsharing:
A Literature Review and Future Research Issues
August 2002
.
The author wishes to thank Kenneth Mericle for his invaluable input and comments
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Abstract
Since the mid-1990s, as practical interest in gainsharing, such as the Scanlon plan,
the Rucker plan, and the Improshare plan, has grown, academic literature on gainsharing has
greatly expanded. The present study reviews and synthesizes empirical and theoretical literature
on gainsharing by classifying studies into four groups: 1) studies investigating the impacts of
gainsharing; 2) studies investigating factors influencing the performance of gainsharing; 3)
studies formulating a theoretical framework of gainsharing; and 4) studies addressing issues
related to gainsharing. Future research agendas are discussed.
Keywords
Gainsharing; Scanlon plan; Rucker plan; Improshare plan; literature review
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Introduction
Gainsharing, such as the Scanlon plan, the Rucker plan, and the Improshare plan, has gained
renewed interest from academicians and practitioners. Gainsharing is believed to fit better with
the current trend of organizational restructuring and flatter organizations. Intensified global
competition has led organizations to move toward a flatter organizational structure, a wider span
of control, the flexible utilization of human resources, and decreased job security. Organizations
transform themselves by moving in this direction in the hope that they can operate more
efficiently and respond more quickly to rapidly changing environmental conditions.
Because typical organizations have been moving away from long-term, bureaucratic
relationships with their employees, it has become more difficult for them to motivate employees
through promotion. Also, organizations that have short job tenures and flat structures need to
replace career ladders with other reward mechanisms, and need tools to substitute for the reduced
ability of supervisors to directly monitor employee behavior due to the wider span of control.
Responding to these challenges, organizations rely increasingly on output-control systems such
as performance-based pay as an alternative reward system, because it is easier for supervisors to
monitor outputs (rather than supervising inputs and effort expended during each task process) of
a larger number of subordinates (Mangel and Useem, 2000).
Among various performance-based pay systems, group-level performance-based pay,
such as gainsharing, is most promising, because individual-level performance-based pay entails
many problems under current organizational environments. For example, it is becoming
increasingly difficult to measure individual performance, because most jobs are rarely
independent under the highly inter-connected business environments. Thus, gainsharing is
expected to become an essential component of compensation systems in future organizations. In
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particular, gainsharing can be more useful in the emerging business sector such as venture
enterprises that are characterized by fluid employment relations, a flatter hierarchy, and an
emphasis on performance-based control rather than bureaucratic control.
The purpose of the present study is to review and synthesize the existing empirical and
theoretical literature on gainsharing. Since the mid-1990s, as practical interest in gainsharing has
grown, academic literature on gainsharing has greatly expanded. Although there are some earlier
review articles on gainsharing (Schuster, 1983b; Lawler, 1988; Gowen, 1991; Welbourne and
Gomez-Mejia, 1995), they were all conducted before the mid-1990s and consequently did not
cover the new developments in gainsharing literature. The present study is intended to
summarize and synthesize the current developments in gainsharing research and identify future
research agendas for researchers. For practitioners, the present study attempts to provide
summaries of accumulated research findings that can be applied to real world practices. In the
following, I will give, in turn, an overview of gainsharing, a detailed literature review by subject,
and future research agendas.
Overview of Gainsharing
Gainsharing programs, such as the Scanlon, Modified Scanlon, Rucker, Improshare, and
Goalsharing plans, are defined as contingent compensation schemes that are often combined with
an employee involvement component. Under gainsharing programs, each member of a
gainsharing group receives a bonus based on the output of the group as a whole, instead of one
based on the employee's individual output. While profit sharing provides employees with a
company-wide bonus based on some percentage of company profits or profits beyond some fixed
minimum, gainsharing is implemented on a company, establishment, or departmental basis and
employees are generally paid a portion of the gains generated when group performance exceeds a
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predetermined level.
Bullock and Lawler (1984: 23-24) define a gainsharing plan as "an organizational
system of employee involvement with a financial formula for distributing organization-wide (or
department-wide) gains." The essence of gainsharing plans is to share the responsibility and
rewards for organizational improvement. Thus, gainsharing plans typically involve all employees
in solving problems related to costs, quality, and productivity, and the resulting gains are shared
with organizational members. Bullock and Lawler argue that the basic principle of gainsharing is
to establish effective structures and processes of employee involvement, and a fair means of
rewarding systemwide performance improvements (1984).
Graham-Moore and Ross (1990: 3-4) add an attitudinal element – the philosophy of
cooperation – to the above two structural elements (employee involvement and financial
rewards). According to these authors, gainsharing comprises three components: the philosophy
of cooperation, the employee involvement system, and the financial bonus. Graham-Moore and
Ross argue that these three components mutually reinforce each other. That is, a higher level of
cooperation leads to information sharing, which in turn leads to employee involvement. This
employee involvement system, e.g., the employee suggestion system, improves organizational
productivity. This increase in productivity then results in a financial bonus that rewards or
reinforces the philosophy of cooperation.
Although interest in gainsharing has increased since the 1980s, the concept has existed in
North America for nearly 100 years in a variety of forms. While Henry Towne coined the term
"gainsharing" in 1896 to describe his firm's group incentive plan, which was similar to modern
gainsharing programs and quite distinct from profit sharing plans, it was in the 1930s that the
Scanlon plan, the most well-known gainsharing program, was developed in the steel industry
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(Zalusky, 1986). The Scanlon plan, developed by Joe Scanlon, was initiated in 1938 as a cost
saving employee suggestion system at the Empire Steel and Tin Plate Company of Cleveland.
The eminent success of the Scanlon plan at Empire Steel led to its widespread implementation at
other corporations (Graham-Moore, 1990: 19; Gowen, 1991: 77-78). After the Scanlon plan had
gained substantial attention, the Rucker plan, a variant of the Scanlon plan, was devised in the
late 1940s. The Rucker plan, which uses a different productivity measure from that of the
Scanlon plan, was developed by Allan W. Rucker of the Eddy-Rucker-Nickels Company in
Cambridge, Massachusetts, near the end of World War II (Fein, 1982: 9; Zalusky, 1986).
Gainsharing programs, increasingly adopted by larger corporations, expanded in scope
and application from 1950 to 1970. Their growth is demonstrated by the fact that approximately
180 Scanlon plans existed, and from 300 to 500 plants were using some version of the plan in
1968 (Lesieur and Puckett, 1968). In 1973, Improshare, one of the newest forms of gainsharing,
was developed by Mitchell Fein (Graham-Moore, 1990: 19; Fein, 1976 and 1982).
The 1980s witnessed an advent of goalsharing, a newer type of gainsharing. Whereas
gainsharing rewards are based on a group's financial performance such as labor costs, valueadded, and operating costs of belt-tightening measures taken by employees, goalsharing takes a
customized approach that focuses on a variety of non-financial goals such as quality, delivery
records, customer satisfaction, and safety records within a unit of an organization (Garvey, 2000).
As the positive effect of gainsharing has been documented, gainsharing programs have
been adopted at an accelerating rate by U.S. corporations in the last decade. There is little doubt
that more programs exist than ever before. It is estimated that at least 13% of average U.S. firms
are currently operating some form of gainsharing plan. For example, a survey of more than 1,600
organizations from the membership list of the Society for Human Resource Management
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(SHRM) found that gainsharing was being used by approximately 13.4% of those organizations
(219 out of 1,639 SHRM member organizations) (Markham et al., 1992). Also, Osterman (1994),
using telephone survey data from 694 U.S. manufacturing establishments that were considered to
be representative of U.S. establishments, found that 13.7% of the establishments in his sample
were using gainsharing programs.
The adoption rate was much higher among large firms, however, and gainsharing has
been adopted at an accelerating rate in the last decade. For example, surveys by Lawler,
Mohrman, and Ledford (1992) in 1987 and 1990 showed that the proportion of Fortune 1000
firms reporting the use of gainsharing increased from 26% (of 476 respondents) in 1987 to 39%
(of 313 respondents) in 1990. In addition, two Towers Perrin surveys in 1990 and 1991, which
obtained responses from the same 287 firms at both points in time, indicated that while 12% of
the firms were using gainsharing in March 1990, 21% were using it in October 1991 (Towers
Perrin, 1992).
Recent evidence has shown that gainsharing programs have spread from manufacturing
corporations to service organizations (e.g., insurance, banking, airlines, the health care industry,
and national restaurant chains) (Droste, 1987; Forbes, 1985; Kazemek and Candrilli, 1988;
Lewis, 1987; Jewell and Jewell, 1987; Markham et al., 1992) and the public sector (Miller and
Schuster, 1995; Ray and Altmansberger, 1999). There have been indications that the concept of
gainsharing has spread to countries on other continents such as Norway (European Industrial
Relations Review, 1996), New Zealand (Gibson, 1995), and Canada (Kim, 1996).
Review of Literature
This review covers only studies published in major academic journals, because articles in these
journals are most likely to contain original contributions to the field. Thus, popular magazine
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articles are largely excluded in this review. The review limits its coverage to studies conducted
after 1970, because systematic studies on gainsharing generally began to appear in the early
1970s.
------------------------------------Put Table 1 around Here
------------------------------------Since the early 1970s, 40 studies on gainsharing were found. Table 1 shows the
distribution of gainsharing studies by period and by research type. The number of studies on
gainsharing has dramatically increased since 1990. While there were only six and nine studies in
the 1970s and 1980s, respectively, the period 1990-2001 witnessed an influx of gainsharing
research – a total of 25 studies, approximately three times more than the number in the 1970s and
in the 1980s. This explosion of academic interest reflected the sharp increase in practitioners'
interest in gainsharing in the 1990s. One significant characteristic of gainsharing research in the
1990s was its heavy emphasis on empirical studies. The share of empirical studies has risen from
50% in the 1970s and 55.6% in the 1980s to 80.0% in the 1990s and after. Another notable
research trend in the period 1990-2001 was the usage of diverse research methodologies. While
in the 1970s and 1980s, researchers mainly relied on traditional methodologies such as case
analyses, cross-sectional surveys, or longitudinal data analyses, researchers in the 1990s utilized
different research methods such as experimental and quasi-experimental designs as well as
traditional methodologies.
Table 1 also summarizes the research subjects of gainsharing studies by period. While
studies in the 1970s and 1980s mainly investigated the impacts of gainsharing on individual
outcomes (i.e., turnover, grievances) or organizational outcomes (i.e., productivity, quality,
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employment), those in the 1990s greatly expanded their research coverage. While the
investigation of gainsharing impacts and their facilitating factors remained important research
subjects in the 1990s, a majority of studies in the 1990s (15 out of 25 studies in the decade)
attempted to formulate theoretical frameworks of gainsharing or addressed related issues of
gainsharing such as union issues, survival of gainsharing, pay satisfaction, implementation
decisions, suggestion behaviors, and the role of procedural and distributive justice in gainsharing.
Although researchers lamented the lack of a theoretical framework and well-designed
empirical studies of gainsharing until the early 1990s (Bullock and Lawler, 1984: 34-36; Gowen,
1991: 92; Mitchell et al., 1990: 68-69; White, 1979: 293), the influx of gainsharing studies in the
1990s seems to help overcome some of the deficiencies in gainsharing literature. Indeed, the
1990s may represent the heyday of gainsharing research in terms of the number of studies, the
sophistication of research methodology, the breadth of research subjects, and its theoretical
contributions.
The previous literature on gainsharing can be classified into four groups: 1) studies
investigating the impacts of gainsharing; 2) studies investigating factors influencing the
performance of gainsharing; 3) studies formulating a theoretical framework of gainsharing; and
4) studies addressing issues related to gainsharing. The next section will review each group of
research in turn.
Studies investigating the impacts of gainsharing
This group of studies investigated whether gainsharing programs resulted in desirable
outcomes. As shown in Table II, eight studies classified into this group dealt with various
organizational and individual outcomes. Most studies addressed the objective indicators of
gainsharing outcomes such as productivity, quality, employment, turnover, labor costs, supply
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costs, safety, attendance, absenteeism, and employee grievances (Arthur and Jelf, 1999;
Bowie-McCoy et al., 1993; Doherty et al., 1989; Kaufman, 1992; Schuster, 1983a and 1984;
Wagner et al., 1988). A minority of studies examined the impact of gainsharing on subjective
outcomes such as perceptions of teamwork, concern of performance, moral commitment,
prosocial behavior, and intention to leave (Hanlon and Meyer, 1994; Hatcher and Ross, 1991). In
terms of methodology, five studies utilized longitudinal designs (Arthur and Jelf, 1999; BowieMcCoy et al., 1993; Schuster, 1983a and 1984; Wagner et al., 1988), two studies applied survey
data sets either at the individual level (Hatcher and Ross, 1991) or at the organizational level
(Kaufman, 1992), one study relied on a quasi-experimental design (Hanlon and Meyer, 1994),
and one study employed a qualitative, multiple-case study (Doherty et al., 1989).
------------------------------------Put Table II around Here
------------------------------------Schuster conducted the first two studies of this group. Schuster (1983a) examined the
effects of gainsharing programs on productivity and employment. The author collected
productivity and employment data for each of six manufacturing plants (four plants operating
Scanlon plans, and two plants operating Rucker plans) at monthly time intervals over a period of
four to five years – from two years before to at least two years after the introduction of the
programs. The regression results showed that after the introduction of the gainsharing programs,
productivity increased in five of the six plants and employment remained stable in all plants
where it could be measured. Using qualitative analyses, including interviews and examinations
of records, the author argued that the commitment of top management to employee involvement,
active functioning of the screening and production committee, a strong union and company
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commitment to the program, employees' identification with the company, and internal union
politics were all important factors influencing program success.
Schuster (1984) described and examined the operation and effectiveness of a very
successful Scanlon plan in a large manufacturing plant. Combining a case-study approach with
an interrupted time-series design, the research assessed productivity (measured as output per
hour), level of employment, and voluntary turnover on a monthly basis during a seven-and-onehalf to nine-year period. The results of the regression analysis indicated an abrupt positive
change in productivity and stable employment and turnover trends, in contrast to wider shifts for
the industry. The Scanlon plan was found to pay consistent bonuses, and the production
committees generated approximately 2,500 suggestions, of which 70% were implemented.
Wagner et al. (1988) examined the long-term effects of gainsharing. Utilizing an
interrupted time-series design, the authors examined changes in the magnitude and trend of
productivity following the introduction of a gainsharing plan. An analysis of data covering 114
months (from February 1975 to July 1984) from a unionized iron foundry revealed a steady
increase in productivity without a corresponding increase in labor costs or employee grievances.
These findings showed that wage incentives might stimulate employees to learn efficacious task
behaviors, and suggested that incentive payments' long-term productive effect might be greater
than many of the short-term gains reported in prior research. The authors argued that gainsharing
researchers should be aware that choices of a short duration might have an artificial influence on
the magnitude of the effect observed.
Doherty et al. (1989), utilizing a multiple-case analysis, examined the factors influencing
program effectiveness by analyzing the results of four gainsharing programs (at two
manufacturing and two service companies) installed by one consulting firm. The quantitative
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data derived from program measures and archival records indicated that gainsharing led to
improved productivity, quality, supply costs, safety, attendance, and development of cost-saving
ideas. The qualitative data derived from interviews and archival records suggested that the
programs also enhanced employees' awareness of organizational goals, personal growth and
development, and lateral and vertical communication. More importantly, the qualitative research
revealed the importance of process variables to the programs' successful implementation. That is,
active participation and high levels of employee involvement, strong support and commitment to
intervention by the CEO and management, and follow-up work by the consultant all played
significant roles in producing positive outcomes. Also, competing priorities within an
organization, participants' distrust of the program, a complicated rule structure, uncoordinated
motivation and training components, insufficient training, and excessive program demands
appeared to have compromised the programs' success.
Hatcher and Ross (1991) attempted to explain gainsharing success within the framework
of Deutsch's (1949 and 1980) theory of cooperation and competition. Deutsch's theory proposed
two basic forms of goal interdependence: 1) promotive interdependence involves positive
correlations between the goals of two or more parties; that is, as one party achieves its goals, so
does the other; 2) contrient interdependence, on the other hand, indicates a negative correlation;
that is, as one party attains its objectives, the probability of attainment for the other party
decreases. Deutsch argued that under the proper circumstances, promotive interdependence is
better at producing effective communication, interpersonal attraction, friendliness, helpfulness,
coordination of effort, orientation to task achievement, and productivity.
Hatcher and Ross saw the gainsharing program as one attempt to change employee
behavior with promotively interdependent reward structures. To test their model, along with the
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examination of archival records, survey data assessing employee attitudes and perceptions
were obtained from 260 employees at a manufacturing organization, which terminated a
piecework plan and subsequently began a high-involvement gainsharing plan. Survey responses
obtained two months before the transition from individual incentives to an organization-wide
gainsharing plan and 15 months later revealed improvements in perceptions of teamwork and
concern for performance (subjective criterion). An interrupted time-series analysis of over four
years of archival data showed a significant decrease in grievances and significant increases in
product quality (objective criterion). The authors argued that these results supported Deutsch's
theory of cooperation as a useful tool to explain employee behavior under gainsharing programs.
Whereas most studies in this group examined the impact of Scanlon-type plans, Kaufman
(1992) focused on Improshare, one of the new gainsharing plans. Analyzing 112 responses to a
questionnaire sent to all known uses of Improshare, Kaufman (1992) estimated the effects on
productivity of the Improshare program and examined the effects of three institutional variables
(number of workers, presence of a union, and whether the product was produced via mass
production or job lot) on the Improshare program's success (productivity increase). He found that
Improshare led to significant increases in productivity, and that firm size was inversely related to
productivity gains. This finding stands in contrast to White's (1979) finding of greater
productivity effects in larger plants. While types of production systems showed only
insignificant effects on the Improshare program's success, there was weak evidence that
Improshare might be more successful in unionized plants than in nonunion plants (regression
coefficients on the union dummy variable were statistically significant in the first three-month
productivity change regression, but insignificant in the first-year productivity change regression).
The low R-Squares in the regression equations (ranging from 0.05 to 0.10) indicated that the
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above institutional variables explained a small portion of overall plan performance.
Bowie-McCoy et al. (1993), utilizing a 10-year longitudinal data set from a public
accounting firm, examined whether a gainsharing program can increase productivity and, if so,
the reasons for the increase. The analysis of monthly data and a comparison of 25 similar
accounting firms (without gainsharing) indicated that productivity was significantly increased
after the implementation of a gainsharing program, and productivity gains were due to the effect
of gainsharing itself, rather than to the Hawthorne effect. In addition, the authors found that
employees worked smarter by devising more efficient work practices through the suggestion
system after gainsharing.
Hanlon and Meyer (1994) tested the consequences of a gainsharing plan both during its
operation and after the group bonus was eliminated. The authors hypothesized that if changes in
employees' work-related cognitions and behaviors are so significant and so positively reinforced
during the gainsharing program, the behaviors and attitudes related to changed cognitions will
continue during the life of a gainsharing program and even after a gainsharing bonus is
withdrawn. This study utilized a rigorous research design. Using a longitudinal and experimental
research design (i.e., pre- and post-measures with and without a control group design), changes
in employees' attitudes, behaviors, and cognitions were measured. By this technique, employees
were divided into two groups: the experimental group who worked under gainsharing, and the
control group who worked in matched organizations without gainsharing. Both groups were
studied during two periods: during the operation of gainsharing and after the discontinuation of
gainsharing by the experimental group. The data were collected from 204 employees (117 for the
experimental group and 87 for the control group) in two hubs of a Fortune Service 500 company
in the package-delivery industry. Five dependent variables were examined across time to assess
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between- and within-group changes over time. This allowed the authors to test how attitudes
changed in the experimental group after the discontinuation of gainsharing. The main finding of
the study was that three months after elimination of the group bonus, higher levels of moral
commitment and prosocial behavior, and less intention to leave were observed in the
experimental group than the control group. They argued that a full gainsharing program can have
lagged or residual effects on employee behavior and attitudes.
Finally, Arthur and Jelf (1999) examined the long-term effect of gainsharing by
analyzing longitudinal changes in two indicators of workplace union-management relations:
grievance rates and employee absenteeism. Using a seven-and-one-half-year monthly
longitudinal data set from a single auto-parts plant, an interrupted time-series analysis was
conducted. The authors found that the introduction of a Scanlon plan was followed by a gradual
and permanent decline in both of these indicators. The authors believed these results to be strong
quantitative evidence of the ability of gainsharing to transform existing labor-management
relations.
In sum, all of these studies, utilizing a variety of different samples and methodologies,
found positive impacts of gainsharing on individual and organizational outcomes, and short- and
long-term outcomes based upon objective and subjective criteria. The most optimistic findings
may be the studies conducted by Hanlon and Meyer (1994) and Arthur and Jelf (1999), because
the former found strong lagging effects on behavioral patterns of participants even after the
discontinuation of gainsharing, and the latter stressed the ability of gainsharing to lead to a
permanent and transformational change in existing labor-management relations. Although no
study reported negative outcomes, one should keep in mind the possibility of selection bias. Due
to the possibility of underreporting of unsuccessful cases, the reported outcomes of these studies
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can be biased upward, and the average effects of gainsharing might be weaker than the typical
results reported here.
Studies investigating factors influencing the performance of gainsharing
As shown in Table III, a total of 12 studies can be classified into this group. During the
past 30 years, two waves of research on the determinants of gainsharing performance can be
identified: 1) debates about the relative importance of employee participation and money in
motivating employees in the context of gainsharing (Fein, 1982; Frost et al., 1974; Geare, 1976;
Rosenberg and Rosenstein, 1980; Ruh et al., 1973); and 2) attempts to identify the factors
influencing gainsharing performance (Bullock and Lawler, 1984; Gowen and Jennings, 1991;
Graham-Moore and Ross, 1990; Kim, 1996; Mawhinney and Gowen, 1990; Miller and Schuster,
1995; White, 1979). The first wave originated with the pioneering works of Ruh et al. (1973) and
Frost et al. (1974), which were considered the first theoretical research on gainsharing.
Following these, theoretical explanations of gainsharing began from a debate on the relative
importance of work participation and bonus payments.
------------------------------------Put Table III around Here
------------------------------------The work carried out by Ruh et al. (1973) investigated the relationship between
management leadership attitudes and retention of a Scanlon plan using attitudinal data for 205
managers from 18 organizations that had attempted to implement such a plan. Their analysis
relied on t-tests of mean differences between two groups: managers in organizations that had
abandoned the Scanlon plan and managers in organizations that had retained the plan. The
authors calculated the average score on each attitudinal question for the two groups, and used the
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t-test to determine if the differences in average responses were large enough to be statistically
significant. They found that the abandoning group held attitudes less favorable toward the traits
and abilities of employees and toward participative decision-making than did the retaining group.
As the authors indicated, one caveat in interpreting the results is that management attitudes may
not have caused the abandonment of the Scanlon plan, but rather the abandonment of the Scanlon
plan (or factors associated with such abandonment) may have caused the observed differences in
managerial attitudes.
Following the work of Ruh et al. (1973), an interesting debate occurred over the relative
importance of participation versus money as a motivational factor in gainsharing. Frost et al.
(1974) attempted to explain increased worker effort by the presumed intrinsic value of
participation, which was reinforced by bonus payments and workers' perceptions of being
equally rewarded for extra effort. The authors identified identity, participation, and equity as "the
three conditions for Scanlon Plan Success." In their model, identity means that organizational
goals and intended organizational achievements should meld with the personal goals that each
employee would like to achieve through his/her role in the organization. Participation is defined
as the opportunity provided to the employee to be involved while exercising responsibility. It
was argued that increased participation reinforces individual commitment to and identification
with the firm. Finally, equity implies that the investment of employees in identity and
participation is enhanced by a fair method for sharing the value of increases in productivity. The
model placed less importance on the function of money as a motivator than on the employee
involvement component of gainsharing.
In contrast to Frost et al. (1974), Geare (1976) argued that the economic motivation of the
Scanlon plan, rather than its participative aspect, should be regarded as the main source of the
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plan's success. He criticized Frost et al. (1974) and asserted that the assumption of
psychologists that most workers desire participation in decision-making and that the satisfaction
of the self-actualization need produces the productivity improvement (participation Æ selfactualization Æ productivity improvement approach) was based on weak evidence. His main
argument was that employees exert greater effort to improve firm performance because they are
paid for it, and participation has only an auxiliary effect because it is not closely related to the
immediate concerns of most workers.
Fein (1982) also took the position that it is money and not participation that usually
produces better performance. He argued that worker involvement programs, which offer only job
satisfaction (via fulfillment of the self-actualization need) as the prime reward for involvement,
would be supported by only a small proportion of the work force and tap just a fraction of the
potential for improvement in the organization. According to Fein, worker involvement programs,
which offer financial rewards by sharing productivity improvement with employees through
formal productivity sharing plans, will create high levels of involvement, produce results very
quickly, and raise productivity to much higher levels than are attained by non-financial reward
programs only.
Following the debate about the relative importance of employee participation and money
in motivating employees (Frost et al., 1974; Geare, 1976) in the previous period, Rosenberg and
Rosenstein (1980) attempted to empirically test the relative importance of the two components of
gainsharing. Using data from a unionized foundry where a gainsharing program had been carried
on for a number of years, the authors analyzed detailed records of 262 meetings of workers,
supervisors, and managers that were held from 1969 to 1975 to discuss means of increasing
productivity. An index of participative activity, measuring factors such as the frequency of
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meetings, the relevance of the subjects discussed, and the number of interchanges in a meeting,
was compared with an index of productivity through hierarchical multiple regression analysis.
Specifically, they measured the relationship between independent variables (participation activity,
monetary rewards) and a dependent variable (productivity) to determine what percentage of the
changes (variance) in productivity was associated with variation in the independent variables.
The hierarchical regression in this study introduced the independent variables sequentially so that
the incremental impact of each on the dependent variable could be assessed. The authors
concluded that an increase in the level of participative activity was associated with an increase in
productivity, and employee participation was more important in improving productivity than
group bonus tied to productivity.
Although the authors used five measures of participation activity and only one measure
for monetary rewards, the hierarchical multiple regression analysis still showed that bonus
payments added 23% of the total R-Square (from 37% without the bonus payment variable to
60% with the bonus payment variable). Thus, their conclusion that monetary rewards had a less
significant effect on productivity than participation activity is not convincing enough to persuade
suspicious readers. Despite these problems, this study developed a sophisticated index of
participative activity utilizing a rich data set, and showed the importance of the employee
participation activity in determining productivity levels.
In sum, whereas some authors emphasized the beneficial effects of employee
participation on the performance of gainsharing (Frost et al., 1974; Rosenberg and Rosenstein,
1980; Ruh et al., 1973), others stressed the power of monetary motivation (Fein, 1982; Geare,
1976). Although it is hard to determine the relative importance of these factors, it seems that both
factors and their interactions constitute indispensable components of a successful gainsharing
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program.
The second wave moved beyond the motivational discussion of the previous stage and
involved a series of systematic studies to identify the factors enhancing program effectiveness
(Bullock and Lawler, 1984; Graham-Moore and Ross, 1990; Kim, 1996; Mawhinney and Gowen,
1990; Miller and Schuster, 1995; White, 1979). It can be said that the theoretical concern in this
field has moved from "which components of the gainsharing make for successful programs" in
the previous stage to "how to design and implement a gainsharing program in order to make it a
successful plan" in more recent years.
First, two theoretical discussions (Bullock and Lawler, 1984; Graham-Moore and Ross,
1990) deserve special mention, because they attempted to classify various conditions and
variables affecting the success of gainsharing in a systematic way. Although their models are
more heuristic devices for cataloging existing information and were not intended as theorybuilding attempts, these models generated a number of interesting hypotheses which can be
tested in future research.
Bullock and Lawler (1984) formulated a heuristic model of gainsharing in which three
sets of factors were hypothesized to affect the success of gainsharing: 1) structural factors,
representing specific decisions about how to design the gainsharing effort (e.g., involvement
structure, financial formula, payout percentage); 2) implementation factors, representing specific
decisions about how to install gainsharing in the implementation process (e.g., use of consultants,
employee involvement); and 3) situational factors, which are the characteristics of the situations
affecting gainsharing outcomes (e.g., plant size, union status, management style, technology).
Graham-Moore and Ross (1990: 7-9) listed four broad categories of conditions and
factors which affect the success of gainsharing: 1) organizational factors (e.g., plant size,
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organizational climate, communication); 2) technological factors (e.g., type of technology,
technological uncertainty, work flow/cycle); 3) financial/market factors (e.g., financial measures,
market for output, product stability, seasonal nature, capital investment); and 4) labor force
factors (e.g., work force characteristics, union relations, supportive services, overtime history).
Empirical studies in this group utilized various research designs. White (1979) and Kim
(1996) relied on organizational-level, cross-sectional survey data, Bullock and Tubbs (1990)
conducted a case-meta analysis, Gowen and Jennings (1991) employed a longitudinal design,
and Miller and Schuster (1995) conducted a qualitative, single-case study.
White (1979) tested a number of hypotheses using correlation analysis. The author
examined factors that account for the success of Scanlon plans, using data from 23 companies.
His correlation analysis indicated that Scanlon plan success (measured by retention of the plan
and ratings of the organization's total effectiveness by three judges) was positively related to the
average level of participation in decision-making reported by employees, managerial attitudes,
chief executive officers' attitudes, expected level of success, and company size. The rating of the
plan's total effectiveness showed a positive correlation with the number of years a company had
been executing the plan. Despite the small sample size (N=23), the problem of missing data (the
number of companies on which data were available for each of the variables ranged from 2 to
23), and simple statistical treatment, the author identified and examined a substantial number of
important factors related to the success of the Scanlon plan.
Bullock and Tubbs (1990) conducted a meta-analysis of 33 case studies of gainsharing.
That is, the authors summarized and synthesized the findings obtained in 33 previous individual
case studies. They developed and tested a model of gainsharing performance composed of three
sets of factors: structural, implementation, and situational factors. The authors found that
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gainsharing success was robust across organizational size, union status, technology, and
environment. Specifically, several structural features and implementation practices were
significantly correlated with gainsharing success: employee involvement in program design, use
of outside consultants, formal employment structures, and employee favorability toward the plan.
With the exception of participative management style, however, situational conditions were
found to be uncorrelated with gainsharing success.
Gowen and Jennings (1991) examined the effect of changes in participation and group
size on gainsharing success using data from 179 direct production employees in the six
departments of a unionized manufacturing plant where gainsharing was implemented. The
longitudinal time-series analysis of the first 29 months of the gainsharing program utilized
hierarchical regression analysis to assess changes in productivity and scrap rate gain as the
program was changed from six independent departmental plans to a single plantwide plan.
Gowen and Jennings also examined changes in productivity and scrap rate gains when the plan
was changed from nonparticipative (financial incentive only) to participative (employee
participation in addition to financial incentive). The results suggested that employee participation
in decision-making was a significant factor in productivity improvement, but changes from six
independent departmental plans to a single plantwide plan did not play a critical role in program
success.
Kim (1996), utilizing a database on details of gainsharing plans, examined the factors
influencing organizational performance in gainsharing programs. Employing a cross-sectional
survey data set from human resource management/industrial relations managers at 269
establishments in the U.S. and Canada, the study measured the performance of gainsharing in
five dimensions as perceived by respondents: improved quality, improved labor productivity,
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cost reduction, improved production process, and bonus payouts. He examined the relationship
between these dependent variables and 19 independent variables. A majority of respondents were
found to believe that their gainsharing programs helped improve organizational performance.
The author found that the following factors have a significant positive influence on the
performance of gainsharing: employee involvement, frequent bonus payouts, small bonus group
size, consultant involvement, employee votes in adopting gainsharing, labor intensity, growing
product market, establishments' healthy financial condition, higher level of employee seniority,
nonunion status, and union support in unionized establishments.
Finally, Miller and Schuster (1995) conducted an unusual empirical study on a public
sector gainsharing program. Although private sector gainsharing has been the subject of
extensive research, systematic research on public sector gainsharing has been rare. It is
noteworthy that they analyzed and reported a failed case of gainsharing. This study reported a
longitudinal field study of the design, implementation, and impact of a 15-month gainsharing
pilot program in a federally owned and operated industrial facility. In this study, the authors
identified two main reasons for the failure: 1) the inadequate plan formula that did not provide
the accuracy or reliability of performance measurement; and 2) poor training of employees and
supervisors on the program. The authors stressed that the failure of the formula to link
performance and rewards could be attributable to the bureaucratic design of the plan executed
without the involvement of line managers or personnel most familiar with shop floor operations.
------------------------------------Put Table IV around Here
------------------------------------In sum, these studies identified a number of variables that potentially influence the
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performance of gainsharing programs. Table IV classifies these variables into several
categories: environmental conditions, organizational (internal) conditions, implementational
conditions, design features, and factors related to the failure of gainsharing. Although the alleged
effects of some variables certainly require more rigorous scrutiny, this list of factors that
facilitate and inhibit the success of gainsharing has practical implications for gainsharing
practitioners. Specifically, these findings may help management and labor, not only make
informed implementation decisions at specific organizations, but also obtain desirable outcomes.
Studies formulating a theoretical framework of gainsharing
The third group of gainsharing studies includes research attempting primarily to
formulate theories of gainsharing, which applied existing theories from various disciplines. As
shown in Table V, these studies investigated the research questions of why and how gainsharing
programs work. These studies attempted either to identify a number of motivational features of
the plan (Cummings and Molloy, 1977), to stress the inherent problem of gainsharing (Cooper et
al., 1992), to explain how mechanisms of gainsharing work (Gomez-Mejia et al., 2000;
Goodman and Moore, 1976; Welbourne et al., 1995), to predict the adoption or survival of
gainsharing programs utilizing various behavioral theories (Kim, 1999; Mawhinney and Gowen,
1990), or to explain the changing pattern of employee suggestion behavior using the learning
organization perspective (Arthur and Aiman-Smith, 2001).
------------------------------------Put Table V around Here
------------------------------------Let us first mention three theoretical discussions in this group: Cummings and Molloy
(1977), Gomez-Mejia et al. (2000), and Mawhinney and Gowen (1990). Cummings and Molloy
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(1977) argued that an examination of the philosophy and of various applications of the Scanlon
plan reveals consistencies with several widely accepted propositions of motivational theory. The
authors listed seven motivational aspects of the Scanlon plan: 1) a genuine sense of participation
which results from the workers being permitted to apply more of their talents to the job and
experience more control over their work; 2) the ability to see the outcomes of work in monetary
terms; 3) the plan's emphasis on group rewards, which leads to greater group cohesion; 4) the
expansion of the workers' role in the organization, thus permitting some degree of selfactualization; 5) the direct association between monetary rewards and specific achievements in
line with recommendations from organization behavior modification proponents; 6) expanded
communication, leading to greater trust between employees and employer, and 7) fair
distribution of benefits from the program in order to ensure equity.
One attempt that deserves special mention is the work of Mawhinney and Gowen (1990).
They tried to formulate a theory of gainsharing using reinforcement theory. In building a model
to predict gainsharing program adoption and effectiveness, they utilized the law of effect, a basic
concept in operant conditioning: if our actions have pleasant effects, then we are more likely to
repeat them in the future; if, however, our actions have unpleasant effects, we are less likely to
repeat them in the future. The authors drew several generalizations from their analysis: 1) the
most effective programs will be those in which monetary rewards follow performances with
minimal delays, and social reinforcements within the group are contingent upon high rates of
task performance; 2) social contingencies of intragroup behavior (performance norms) will
determine relative program effectiveness such that programs applied to groups with supportive
group norms will appear more effective than those applied to groups which adopt norms of
program opposition; and 3) the negative effects of delay between performances and receipt of
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rewards on program effectiveness should be mitigated by any system component which serves
to provide feedback concerning current performances and their probable effects, because this
feedback will mitigate the effects of delays.
Gomez-Mejia et al. (2000) lamented a lack of a theoretical foundation upon which to
build empirically testable models. The authors used a risk-sharing framework to develop a model
of gainsharing, and developed propositions that highlight the differences between group-wide
and individual incentive arrangements. The study utilized various concepts of the risk-sharing
framework in formulating a theory of gainsharing such as free-riding, mutual monitoring,
framing of gains, reward uncertainty, procedural justice, employment risk, group risk preferences,
hedging, committee membership, and differential contributions. The study generated 11 testable
hypotheses that could guide future empirical research on gainsharing design and its effectiveness.
Empirical studies in this group utilized various research designs. Goodman and Moore
(1976) and Kim (1999) relied on cross-sectional survey data at the individual and organizational
levels, respectively; Welbourne et al. (1995) conducted a quasi-experimental analysis; and
Cooper et al. (1992) employed two experiments.
The work of Goodman and Moore (1976) attempted to formulate an expectancy model to
examine the relationships between individual, organizational, and interpersonal variables, and
the acquisition of beliefs about a newly implemented Scanlon plan. According to these authors,
learned behavior, which leads to desired conduct by employees under the plan, is a function of
two types of beliefs: 1) the belief that suggestion-making behavior leads to a reward (systemexpectancy; in other words, instrumentality); and 2) the belief that, if an effort is made, the
individual can make productivity-related suggestions (self-expectancy). The authors argued that
the learning process is influenced by individual variables (e.g., education, internal/external
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control), organizational variables (e.g., technology, organizational climate), and interpersonal
variables (e.g., work group attitudes toward the plan, past acceptance of suggestion-making).
In their empirical analysis, data were collected from 145 employees at a small-batchprocessing manufacturing plant before the plan was introduced, immediately after it was
introduced by a consultant, and six months after it had been in operation. Although empirical
results did not fully support their propositions, the major findings can be summarized as follows:
1) After the introduction of the Scanlon plan, managers' beliefs about the plan were more
affected by individual level variables (e.g., education level), while the beliefs of blue-collar
workers were more affected by organizational (e.g., nature of task) or interpersonal variables. 2)
A measurement carried out six months after the Scanlon plan had been in operation indicated
that the beliefs remained relatively stable. 3) Despite frequent bonuses from and participation in
the Scanlon plan, however, there was a tendency for some participants to be more skeptical about
future payoffs from the plan.
Cooper et al. (1993) identified problems that may limit potential gains from gainsharing.
This study revealed the most pessimistic view on the potentials of gainsharing. The basic view of
this paper is that gainsharing is fundamentally deficient because it generates a social dilemma in
which only some members of the group contribute to positive group outcomes, while all
members (contributors and free-riders) receive benefits. According to the authors, the problem is
exacerbated by limited worker participation in the development of the plans. They suggested that
how employees respond to gainsharing is particularly sensitive to the perceived fairness of
procedures, because individual contributions are not assessed and rewards cannot be privatized.
Utilizing two experiments employing 13 groups of five University of Maryland students, the
study tested hypotheses regarding the impact on productivity of a fair distribution rule and
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workers' participation in gainsharing programs. The experiments indicated that fair distribution
rules that are participatively developed could ameliorate the social dilemma inherent in
gainsharing plans.
Welbourne et al. (1995) examined the behavioral consequences of gainsharing using a
theoretical framework that included elements of both agency and organizational justice (fairness)
theories. Agency theory is concerned with the problem of delegation, the situation in which a
principal engages another individual (i.e., agent) to perform tasks on behalf of the principal. On
the other hand, the organizational justice framework suggests that the perceived fairness of
outcomes and procedures influences how employees react to various aspects of organizational
life such as a pay system. The study hypothesized that when gainsharing is used as a collective
form of incentive alignment, mutual monitoring among employees is a direct function of
procedural and distributive fairness. The hypothesis was supported in a quasi-experimental field
study of 221 employees working for two firms in the western U.S. That is, when employees
perceive procedural and distributive justice as present, they engage in mutual monitoring, and
thus the agency costs borne by the principal are likely to be lower. In addition, the results
suggested that the perceived fairness of procedures might be more important to agents than the
perceived fairness of outcomes. The authors discussed the implications of this study for future
extensions of agency theory to intraorganizational phenomena.
Utilizing survey data from 211 organizations with gainsharing experience, Kim (1999)
examined determinants of the survival of gainsharing (i.e., factors influencing the retention or
discontinuation of a gainsharing program) based upon the institutionalization framework of
organization theory. An integrated model that considers both the direct effect of determining
factors on program survival and the mediating effect of program performance on program
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survival was formulated. He tested a theoretical model hypothesizing five sets of factors
determining the survival of gainsharing programs: initial commitment, diffusion and
reinforcement, structure of gainsharing, situational contingencies, and performance of
gainsharing. The integrated model assumes that there are two mechanisms whereby the various
factors influence program survival. First, the five sets of factors directly influence program
survival (direct effects). Second, some variables affect program survival via their influence on
program performance (indirect effects). Statistical analyses showed that the following factors are
significantly associated with program survival: employee approval of gainsharing adoption in a
vote, union support and participation in program administration, less dependence on outside
consultants, re-training, new employee training, small bonus group, labor intensity, financial
performance, major capital investment, and program performance. However, the impact of
program performance on program survival was significantly weaker for young programs, which
implied that program performance was less important in predicting the survival of younger
programs than of mature programs. Variables such as re-training, new employee training, small
bonus group, and financial performance were found to affect program survival via their influence
on program performance.
Finally, Arthur and Aiman-Smith (2001) conducted the first gainsharing study applying
the concept of the learning organization. The authors analyzed the changing content of employee
suggestions by proposing a model of gainsharing as an organizational learning system. The
authors analyzed employee suggestions submitted over the four years of a gainsharing plan at
one plant and found that changes in the content of those suggestions were consistent with an
organizational learning process. Suggestions indicating first-order learning were initially high
but declined over time as a percentage of total suggestions, while suggestions congruent with
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second-order learning became a larger portion of the total suggestions over time.
These studies applied various theories and frameworks such as the expectancy model
(Goodman and Moore, 1976), reinforcement theory (Mawhinney and Gowen, 1990), the social
dilemma framework (Cooper et al., 1992), organizational justice theory (Welbourne et al., 1995),
institutionalization theory (Kim, 1999), the agency and risk-sharing framework (Gomez-Mejia et
al., 2000), and learning organization theory (Arthur and Aiman-Smith, 2001). It is noteworthy
that most of these studies (five out of seven) appeared in the 1990s, which indicates the recent
surge of theoretical interest in gainsharing.
Studies addressing issues related to gainsharing
As shown in Table IV, the last group is composed of studies dealing with various issues
related to gainsharing: reviews of gainsharing literature (Schuster, 1983b; Lawler, 1988; Gowen,
1991; Welbourne and Gomez-Mejia, 1995); suggestion-making behavior (Hatcher et al., 1989);
union issues (Kim and Voos, 1997); pay satisfaction (Welbourne and Cable, 1995);
implementation decisions (Collins et al., 1993); role of procedural and distributive justice in
gainsharing (Welbourne, 1998); comparison of gainsharing with other group incentives
(Nalbantian and Schotter, 1997); and firms' control mechanism and gainsharing adoption
(Mangel and Useem, 2000).
------------------------------------Put Table VI around Here
------------------------------------The first four theoretical discussions in this group conducted extensive reviews of
gainsharing literature. First, Schuster (1983b) conducted the first systematic literature review on
gainsharing research including both descriptive and empirical literature over 40 years. He
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described the philosophy, the design of the Scanlon plan, and the impact of the Scanlon plan
on the organization and the union. The study identified problems and factors influencing
outcomes of the Scanlon plan such as company size, financial condition of the employer,
managerial and supervisory acceptance, technology, and consultants and internal catalysts. The
study also reviewed studies on employee attitudes toward Scanlon plans and factors influencing
employee perceptions of the plan. In conclusion, the study suggested several future research
agendas. Notably, he did not deal with other types of gainsharing such as the Rucker and
Improshare plans
Seven years later, Gowen (1991) conducted another literature review on gainsharing. The
author examined several definitions and types of gainsharing, explained its history, and described
the results of 13 surveys and 29 case studies of gainsharing programs. In addition, an operant
theory based upon the law of effect was suggested to provide a theoretical framework of the
effectiveness of gainsharing.
Third, Lawler (1988) summarized previous gainsharing research. Based upon previous
findings, the author described the positive results of gainsharing, conditions favoring gainsharing
plans, and frequent problems with gainsharing plans, and identified key research needs in this
area. In particular, he proposed the congruence and phase approaches to explain why gainsharing
programs work, and what works best in terms of bonus formulas and processes.
Finally, Welbourne and Gomez-Mejia (1995) provided a critical review of gainsharing
literature up until the early 1990s. The authors examined the reasons for the fast growth of
gainsharing in recent years and the major perspectives used in the past. The review discussed
different theoretical formulations (i.e., socio-psychological, organizational, and economic
perspectives), making predictions about the behavioral consequences and conditions mediating
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the success of these problems; examined the supporting empirical evidence; and proposed
future research agendas. In addition, case studies and practitioner reports were summarized.
The empirical studies in this group utilized various methodologies: cross-sectional
interview analysis (Hatcher et al., 1989), survey analysis (Collins et al., 1993; Kim and Voos,
1997; Mangel and Useem, 2000), a quasi-experimental design (Welbourne, 1998; Welbourne
and Cable, 1995); and an experimental design (Nalbantian and Schotter, 1997).
First, Hatcher et al. (1989) attempted to explain why individuals differ in their
willingness to become involved in the suggestion-making process. Interviews were conducted
with 149 supervisors and nonmanagerial employees in five gainsharing companies. The main
results of the study were as follows: 1) Suggestion contributors as well as their supervisors
mentioned that the desire to improve performance, make the work easier, and become involved
in work decisions were important determinants of an employee's decision to contribute
suggestions. 2) Both groups viewed the desire for influence as being more influential than the
desire for bonuses. 3) Noncontributors and their supervisors indicated that apathy and negative
attitudes toward the plan, management, and the company were important determinants of an
employee's decision not to contribute suggestions.
Collins et al. (1993) empirically examined several factors that may predict management
decisions to implement gainsharing plans. The study addressed the following research question:
Why does one facility that considers implementing a gainsharing plan decide to do so, while
another facility does not? In this study, in 59 facilities (32 nonunion and 27 union) considering
the implementation of a gainsharing plan, 485 upper-level managers evaluated the work climate
in their own facility (participation, identity, cooperation, and expected plan support) and rated
the anticipated outcomes of the intervention. Union status was not found to have a direct
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relationship with the implementation decision. The implementation was positively related to
participation and expected outcomes in the nonunion facilities, but was unrelated to these
variables in the unionized facilities.
Utilizing survey data from 217 establishments in the U.S. and Canada, Kim and Voos
(1997) empirically examined the relationships between union status, union involvement, and the
performance of gainsharing programs. This study evaluated the predictions of various competing
theoretical perspectives: the agency/transaction cost approach, the monopoly model, the
institutional voice model, and a "two faces" model of labor organization. Most
agency/transaction theorists tend to predict that gainsharing programs are inherently ineffective
because of the free-riding and increased agency/transaction costs, and that having more parties
involved (with unionism) would cause even greater problems. The monopoly model views
unions as a monopoly, and claims unions hamper organizational performance by forcing firms to
use more labor than they otherwise would. An extension of the monopoly view suggests that
unions might hinder the performance of gainsharing programs by impeding the optimal design
and efficient operation of gainsharing programs. The institutional voice proponents argue that
gainsharing programs have a greater potential when implemented in a unionized workplace,
conditional on union support and participation, than in a nonunion workplace. Finally, according
to the two faces model, unions have two faces, both a "monopoly" face that relies on the use of
bargaining power to raise wages and achieve other worker goals, and a "voice" face that involves
the simultaneous provision of a collective voice to the employees of the firm. Thus, gainsharing
might be globally more (or less) successful in union establishments in this model depending on
whether the collective voice (or monopoly) aspect of unionism predominates.
The regression results showed that gainsharing programs with union involvement in
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program administration resulted in better-perceived performance than average programs in the
nonunion sector. However, gainsharing programs in the union sector without union involvement
had worse outcomes than those in the nonunion sector. These two divergent situations resulted in
union status itself having an insignificant relationship with program performance. The authors
interpreted that these results are most compatible with the two faces model.
Utilizing the fit concept from a strategic human resource management (HRM)
perspective, Mangel and Useem (2000) examined the role gainsharing plays within the
organization. The fit concept suggests that in order for an HRM system to be successful, there
must be a substantial degree of internal consistency within a given set of HRM practices. The
underlying assumption is that there is no one best way to manage human resources, but that
HRM practices must be mutually consistent and supportive in order to be effective and efficient.
The authors utilized a survey data set from 802 organizations collected by Towers Perrin in 1990.
Their discussion suggested that gainsharing is more important now than in the past, because
recent movements towards flatter organizations, wider spans of control, and decreased job
security led organizations to rely more on output-control systems (in contrast to input-control
systems) such as gainsharing. Their analysis showed that gainsharing plans were more likely to
be used in organizations that employ market-based control methods, which measure and reward
primarily individual performance, group performance, or both. Organizations that use
bureaucratic control (that reward desirable behaviors) or clan control (that reward inputs such as
knowledge, skills, and abilities) were found to be less likely to adopt gainsharing, and were more
likely to use participation initiatives that did not involve a group bonus.
Welbourne and Cable (1995) developed a conceptual model to specify the relationship
between group incentives and pay satisfaction. The authors argued that pay satisfaction, as
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traditionally measured, did not include items that directly measure group-based rewards;
therefore, any changes in pay satisfaction associated with group incentive implementation would
be the result of some spillover effect. Hypotheses were formulated and tested in two quasiexperimental field studies conducted in a high-technology firm and a consumer-product
company that had both implemented gainsharing programs. The survey data were collected
before gainsharing implementation and 10 months after the two programs were put in place. The
findings indicated that where the distribution rule was based upon equal payments, a gainsharing
plan influenced pay satisfaction with benefits. On the other hand, it was found that where the
distribution rule was based on individual differences, the gainsharing plan affected satisfaction
with pay administration/structure and pay level.
Welbourne (1998) examined the effects of procedural and distributive justice on
satisfaction with gainsharing. The study was conducted with two firms, one representing a high
payout condition and one a low- and zero-bonus payment. The first firm was a high-technology
business, and the second site was a consumer-products company. In both companies, a survey
was administered on site before and after gainsharing implementation. The results showed that
distributive justice was more important than procedural justice only where the payout was high,
whereas procedural justice was more important where the payout was low. In sum, the study
showed that the favorableness of an outcome affects the relative importance of procedural and
distributive justice on employee attitudes.
Finally, Nalbantian and Schotter (1997) examined productivity effects of a variety of
group incentive programs through an experiment including simple revenue sharing, profit
sharing or gainsharing (target-based schemes), tournament-based (relative performance) schemes,
and monitoring schemes. The authors ran a set of nine different experiments using 408 college
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undergraduates recruited in groups of 12 from undergraduate economics courses at New York
University. They found that: 1) how a group performs in one incentive scheme depends on its
history under the scheme that preceded it; 2) tournament-based (relative performance) schemes
outperform profit sharing or gainsharing (target-based schemes); 3) monitoring can elicit a high
degree of effort from workers, but the probability of monitoring must be high and, therefore,
costly. Despite the generalization problem of the experimental design using student subjects, this
study was one of the few studies that investigated directly the relative performance of alternative
types of group incentive systems.
It is noteworthy that all of these empirical studies were conducted in the 1990s and after,
which reflects again the popularity of gainsharing research in recent years. The diversity of
research issues tackled by these studies contributed greatly to the expansion of the horizon of
gainsharing research. The depth of research on each issue has been so shallow, however, that
each of these issues was addressed by only a couple of studies. Further scrutiny is sorely needed
in each of these research issues.
Future Research Issues
Despite the sharp increase in gainsharing literature since the 1990s, there remain a few issues
that should be addressed by future research. Gainsharing is not a new phenomenon, yet many
potentially answerable questions remain unexplored. Considering the rapidly growing number of
firms adopting gainsharing programs, and in order to accommodate the recently increasing need
for improved economic competitiveness and employee participation, there is an urgency for
future research in this field to address the following research questions.
First, although previous literature proposed and tested comprehensive models explaining
and predicting the organizational performance in gainsharing programs, there still remain many
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other factors that may possibly be responsible for some portion of gainsharing performance.
The most obvious set of variables is the impact of changes in product market, discontinuities of
business strategies, and fluctuations of economic environment (business cycle) on plan
performance and survival. Because many gainsharing plans produce sub-optimal outcomes or are
discontinued due to these external factors, there is a pressing need to conduct a systematic
analysis of the external causes of sub-optimal performance and failure. In addition, future
research must examine internal factors of program outcomes such as the characteristics of
organizations and management, including technical competency, participative or authoritarian
management style, good communication skills, the ability to deal with employee suggestions and
new ideas, and the existence of a trusted plant and financial manager.
In particular, it would be interesting to investigate the relationships between business
strategies and the performance of gainsharing. Clearly, the examination of how vertical fits
(between strategy and HRM practices) and horizontal fits (among HRM practices) of HRM
systems influence the adoption, performance, and survival of gainsharing programs will be
among the urgent research agendas in this field.
Second, another crucial issue for gainsharing students and practitioners is the evaluation
of the various bonus formulas in gainsharing programs. Needless to say, it would be helpful for
practitioners to have some criteria to choose one among the many possible bonus formulas. In
implementing a gainsharing program, formula determination is the leading cause of disagreement
among corporate officials, local management, human resource management, union
representatives, and outside consultants (Bazerman and Graham-Moore, 1983; Graham-Moore,
1990). Indeed, one long-term observer argues that "the one-third of gainsharing installations that
failed did so in the first year.... typically, the blame is placed on the formula" (Graham-Moore,
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1990: 49). Clearly, HRM practitioners need to be aware of the patterns of program adoption
and the reasons for those patterns so as to be able to better select the plan that would be
appropriate for their organization.
However, no available studies provide useful guidelines showing the strengths and
weaknesses of the various gainsharing formulas and their possible fits to specific organizational
characteristics. The recent proliferation of customized gainsharing formulas (such as goal
sharing) again reminds gainsharing researchers of the urgent need for such guidelines. There has
been, however, little empirical research on what makes an organization more likely to choose
one particular type of gainsharing plan over another. Although there is some evidence that the
type of gainsharing is related to program success (Kim, 1996), previous literature generally has
been silent on this issue.
Third, the so-called "plateau" or "life cycle" effects of gainsharing programs should be
investigated and possible methods to avoid or overcome such phenomena should be proposed. A
number of organizations operating gainsharing programs reported the plateau or life cycle effect:
initial dramatic results over the first several years (sometimes for as long as 10 to 12 years) and
then subsequent stagnation of the program instead of continuing improvement (McKersie, 1990:
162-163). However, no serious study investigating the reasons for such phenomena and
suggesting possible remedies can be found. If this phenomenon is found to be inevitable, some
type of periodic refurbishing method refocusing the attention of the organization on the basics of
the plan should be suggested. Existing literature on organizational growth and/or organizational
development might be employed to formulate a theoretical model of the plateau or life cycle
effects of gainsharing programs.
Fourth, as is true with any literature that relies on case studies, the possibility of
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significant underreporting of negative results remains in gainsharing literature (Mitchell et al.,
1990: 68). The fact that approximately 20% of gainsharing programs were discontinued for one
reason or another (Kaufman, 1992; Kim, 1999) stresses the importance of research on those
failing cases. The present literature review identified only one study on a failed case of
gainsharing (Miller and Schuster, 1995), and it is very rare to find case reports studying firms
that try gainsharing and abandon it after a short trial period. Such studies would not only provide
reminders of the importance of some of the variables identified in the studies examining
determinants of gainsharing success, but would also provide valuable guidelines to show
gainsharing practitioners how to avoid costly failures resulting in a great waste of financial and
human resource investment.
Finally, despite the well-known success stories of gainsharing, some observers have the
impression that the gains from gainsharing plans frequently fall short of expectations, arguing
that some case studies of successful plans reported net productivity increases or bonuses that
amounted to less than 3% (e.g., Cooper et al., 1992). It is often indicated that the implementation
and operation of gainsharing requires substantial financial and human resources, including
bookkeeping and clerical costs, meeting and administrative time, and outside consultant fees. In
some organizations, these direct and indirect costs can be so large as to discourage use of the
gainsharing plan (Lawler, 1981: 151). Considering these concerns of some observers and the
rapidly growing usage of gainsharing, gainsharing practitioners and students would particularly
welcome a systematic cost/benefit analysis of gainsharing programs. In order to enhance the
external validity of the findings, it would be desirable for a cost/benefit analysis to utilize a case
study methodology involving a matching design with multi-cases, rather than relying on a single
case.
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References
Arthur, J.B. and Aiman-Smith, L. (2001) ‘Gainsharing and Organizational Learning: An
Analysis of Employee Suggestions Over Time’, Academy of Management Journal, 44(4): 737754.
Arthur, J.B. and Jelf, G.S. (1999) ‘The Effects of Gainsharing on Grievance Rates and
Absenteeism Over Time’, Journal of Labor Research, 20(1): 133-145.
Bazerman, M. and Graham-Moore, B. (1983) ‘PG Formulas: Developing a Reward Structure To
Achieve Organizational Goals’. In Graham-Moore, B. and Ross, T.L. (eds) Productivity
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4
Table 1
A summary of gainsharing studies by period, type, and subject
Period
Total number
of studies
6
9
Number of
theoretical
studies (%)
3 (50%)
4 (44.4%)
Number of
empirical
studies (%)
3 (50%)
5 (55.6%)
1970-1979
1980-1989
1990-2001
25
5 (20.0%)
20 (80.0%)
Total
40
12 (27.8%)
28 (72.2%)
Period
Total number Number of
of studies
studies
investigating
the impacts of
gainsharing
1970-1979
1980-1989
1990-2000
Total
6
9
25
40
0
4
5
9
Number of
studies
investigating
factors
influencing the
performance of
gainsharing
4
3
5
12
Type of empirical studies
3 cross-sectional survey studies
4 longitudinal data studies
1 qualitative multiple case study
8 cross-sectional survey studies
4 longitudinal data studies
4 quasi-experimental studies
2 experimental studies
1 case-meta analysis
1 qualitative case study
28
Number of
studies
formulating a
theoretical
framework of
gainsharing
Number of
studies
addressing
issues related to
gainsharing
2
0
6
8
0
2
9
11
9
4
Table 2
Author(s)
(Year)
Schuster
(1983a)
A summary of studies investigating the impacts of gainsharing
Research type
Empirical;
Longitudinal data
from six
manufacturing plants
Schuster
Empirical;
(1984)
Longitudinal data over
seven years from a
manufacturing plant
Wagner et al. Empirical;
(1988)
Longitudinal data over
114 months from a
unionized iron
foundry
Doherty et al. Empirical; Archival
(1989)
data from four
establishments;
Multiple case study
Hatcher and Empirical; Two
Ross (1991) surveys from 260
employees at a
manufacturing
organization
Kaufman
Empirical; Survey
(1992)
data from 112
organizations
BowieEmpirical; A
McCoy et al. longitudinal data from
(1993)
a public accounting
firm
Hanlon and
Empirical; A quasiMeyer
experiment
(1994)
using pre-/postmeasures with and
without control group
design
Arthur and
Empirical; A sevenJelf (1999)
and-one-half year
monthly longitudinal
data set from a single
auto-parts plant
Main findings/arguments
Found that after the introduction of the gainsharing programs,
productivity increased in five of the six plants and
employment remained stable in all plants.
Found an abrupt positive change in productivity, an influx of
suggestions, and stable employment and turnover trends after
the beginning of gainsharing.
Found that gainsharing led to a steady increase in productivity
without a corresponding increase in labor costs or employee
grievances. These findings substantiated a power-curve trend
in productivity, implying that gainsharing might stimulate
employees to learn efficacious task behaviors.
Found that gainsharing led to improved productivity, quality,
supply costs, safety, attendance, and development of costsaving ideas.
Found that a gainsharing program led to improvements in
perceptions of teamwork and concern for performance
(subjective criterion), and a significant decrease in grievances
and significant increases in product quality (objective
criterion).
Found that Improshare led to significant increases in
productivity, and that firm size was inversely related to
productivity gains.
Found that productivity was significantly increased after the
implementation of a gainsharing program, and that employees
worked smarter by devising more efficient work practices
through the suggestion system after gainsharing.
Found that three months after elimination of the group bonus,
higher levels of moral commitment and prosocial behavior,
and less intention to leave were observed in the experimental
group than the control group, implying that a full gainsharing
program can have lagged or residual effects on employee
behavior and attitudes.
Found that the introduction of a Scanlon plan was followed by
a gradual and permanent decline in grievance rates and
employee absenteeism. The authors believed these results to
be strong quantitative evidence for the ability of gainsharing
to transform existing labor-management relations.
0
5
Table 3 A summary of studies investigating
factors influencing the performance of gainsharing
Author(s)
(Year)
Ruh et al.
(1973)
Research type
Main findings/arguments
Empirical; Attitudinal
data for 205 managers
from 18 organizations
Found that managers in organizations that had abandoned the
Scanlon plan held attitudes that were less favorable toward the
traits and abilities of rank-and-file employees and toward
participative decision-making than did managers in
organizations that had retained the plan.
Identified three conditions for Scanlon plan success by
emphasizing the participation aspect.
Emphasized the monetary motivation part of gainsharing.
Found that Scanlon plan success was positively related to the
level of participation in decision-making, managerial attitudes,
CEOs' attitudes, expected level of success, company size, and
the length of experience with the plan.
Found that an increase in the level of participative activity
under gainsharing was associated with an increase in
productivity, and employee participation was more important
in improving productivity than group bonus tied to
productivity.
Stressed that money, not participation, produces better
performance under gainsharing.
Formulated a heuristic model in which three sets of factors
were hypothesized to affect the success of gainsharing:
structural, implementation, and situational factors.
Listed four categories of conditions and factors that affect the
success of gainsharing: organizational, technological,
financial/market, and labor force factors.
Found that several structural features and implementation
practices significantly predicted gainsharing success:
employee involvement in program design, use of outside
consultants, formal employment structures, and employee
favorability toward the plan.
Found that employee participation in decision-making was a
significant factor in productivity improvement, but changes
from six independent departmental plans to a single plantwide
gainsharing plan did not play a critical role in program
success.
Reported a failed case of gainsharing. The authors identified
various reasons for the failure: 1) the inadequate plan formula
that did not provide the accuracy or reliability of performance
measurement; 2) poor training of employees and supervisors
on the program; and 3) non-involvement of line managers or
Frost et al.
Theoretical
(1974)
Geare (1976) Theoretical
White (1979) Empirical; Data from
23 companies
Rosenberg
and
Rosenstein
(1980)
Fein (1982)
Empirical;
Longitudinal data of
262 team meetings
from a unionized
foundry
Theoretical
Bullock and
Lawler
(1984)
GrahamMoore and
Ross (1990)
Bullock and
Tubbs (1990)
Theoretical
Gowen and
Jennings
(1991)
Empirical;
Longitudinal data
from a unionized
manufacturer
Miller and
Schuster
(1995)
Empirical; A case
study of a 15-month
gainsharing pilot
program in a federally
owned and operated
Theoretical
Empirical; A metaanalysis of 33 case
studies of gainsharing
1
5
Kim (1996)
industrial facility
Empirical; Survey
data from 269
establishments in the
U.S. and Canada
personnel most familiar with shop floor operations in design.
Found that the following factors significantly influence the
performance of gainsharing: employee involvement, bonus
payouts, employee bonus share, bonus group size, consultant
involvement, employee votes, labor intensity, product market
situation, establishments' financial condition, seniority level of
employees, union status, and union support.
2
5
Table 4
Factors associated with the performance of gainsharing programs
Issues
Identified factors
Sources
Environmental
(external)
conditions
favoring
gainsharing plans
1. Growing or expandable market for output: can absorb
additional production or service capacity
2. Relatively stable nature of business: excessive seasonal
fluctuations not desirable to set a fair standard
3. Favorable and supportive parent corporation's attitude
toward gainsharing (if part of larger organization)
Gowen
(1991);
Kim
(1996);
Lawler
(1981 and
1988)
Gowen
(1991);
Kim
(1996);
Lawler
(1981)
Organizational
(internal)
conditions
favoring
gainsharing plans
1. Top management commitment toward gainsharing
2. Union favorable to cooperative efforts (if unionized)
3. High level of trust between labor and management
4. Participative style of management: managers willing to and
able to work with critical suggestions for changes
5. Accounting system: trusted, competent to provide various
data on time
6. Maintenance and engineering staff: competent and willing to
respond to new ideas and suggestions
7. High to medium work flow interdependence: cooperation
and co-worker monitoring among employees must be desirable
8. Stable products and costs for a few years: to set standards
easily
9. Lack or limited use of overtime in the past: gainsharing may
reduce overtime pay significantly
Implementational 1. Employee vote: implemented by employees' majority "YES"
conditions
votes
favoring
2. Consultant involvement in design, implementation, and/or
gainsharing plans operation stages of gainsharing: to provide legitimacy and
expertise
3. Employees' voice and involvement in the design process
4. Extensive and periodical training of existing and new
employees
5. Active and open communication policy: make employees
well aware of details of gainsharing plan and financial results
Design features
1. Intensive employee involvement component (the use of
leading to
employee suggestion system, self-managing teams, and/or
successful
screening teams): to utilize employees' hidden knowledge and
gainsharing plans creativity
2. Simple financial measures: must be easy to understand
3. Small bonus group (usually less than 500 employees): to
make a stronger connection between individual efforts and
bonuses
4. Frequent bonus period: for example, monthly bonuses are
Bullock
and Tubbs
(1990);
Goodman
and Dean
(1990);
Kim (1996)
Bullock
and Tubbs
(1990);
Kim
(1996);
Masternak
(1997);
Mawhinney
and Gowen
3
5
more motivating than yearly bonuses
5. Controllable targets: employees must be able to influence
outcomes (i.e., production costs, service quality, safety and
health records, delivery records)
6. Customized plans: specifically adjusted or developed for
peculiar situations and structures of the establishment
Factors leading
1. Inadequate bonus formula: inclusion of too many
to unsuccessful
uncontrollable factors, or lack of fit between business strategy
gainsharing plans (i.e., focusing on quality) and formula (i.e., emphasizing only
labor costs)
2. Too complex formula: employees do not see the connection
between their efforts and bonuses
3. Too high or too low standards: no bonuses at the beginning
or too high bonus amount
4. Major changes in the business: formula adjustments cannot
reflect product or service changes accurately
5. Failure to survive business downturn
6. Parent company's decision to discontinue the gainsharing
7. Management's unfavorable attitudes to capacity and ability
of rank and file employees
8. Authoritarian management style: do not allow genuine
employee involvement
9. Poor communication: employees do not understand the
details of the gainsharing plan
10. History of distrust between labor and management
Opposition from union, employees, or both
(1990);
White
(1979)
Hochwarter
(1995);
Lawler
(1988);
Ruh et al.
(1973)
4
5
Table 5
Author(s)
(Year)
Goodman
and Moore
(1976)
Cummings
and Molloy
(1977)
A summary of studies formulating a theoretical framework of gainsharing
Research type
Main findings/arguments
Empirical; Three
waves of survey data
from 145 employees at
a manufacturing plant
Theoretical
Applied the expectancy model to gainsharing and found that
the expectancy and instrumentality beliefs remained relatively
stable six months after the beginning of gainsharing.
Mawhinney
and Gowen
(1990)
Cooper et al.
(1992)
Theoretical
GomezMejia et al.
(2000)
Theoretical
Empirical; Two
experiments
employing college
students
Welbourne et Empirical; A quasial. (1995)
experimental field
study of 221
employees working
for two firms
Kim (1999)
Empirical; Survey
data from 211
establishments in the
U.S. and Canada
Arthur and
Empirical; A
Aiman-Smith longitudinal data on
(2001)
employee suggestions
submitted over four
years at one plant
Argued that the principles of the Scanlon plan are consistent
with widely accepted propositions of motivational theory such
as fair distribution of benefits from the program in order to
ensure equity.
Formulated a model to predict gainsharing program adoption
and effectiveness utilizing concepts of reinforcement theory
such as the law of effect and operant conditioning.
Identified problems that may limit potential gains from
gainsharing, and found that fair distribution rules that are
participatively developed can ameliorate the social dilemma
inherent in gainsharing plans.
Found that when employees perceive procedural and
distributive justice as present in gainsharing programs, they
engage in mutual monitoring, and the perceived fairness of
procedures may be more important to agents than the
perceived fairness of outcomes.
Utilizing an institutionalization framework, found that there
are two mechanisms whereby the various factors influence the
survival of a gainsharing plan: direct and indirect effects. The
results showed that the some factors directly influence
program survival, whereas others affect program survival via
their influence on program performance.
Used an agency and risk-sharing framework to develop a
model of gainsharing, highlighted the differences between
group-wide and individual incentive arrangements, and
produced various sets of testable propositions.
Analyzed the changing content of employee suggestions by
proposing a model of gainsharing as an organizational
learning system. The authors found that suggestions indicating
first-order learning were initially high but declined over time
as a percentage of total suggestions, while suggestions
congruent with second-order learning became a larger portion
of the total suggestions over time.
5
5
Table 6 A summary of studies addressing issues related to gainsharing
Author(s)
(Year)
Schuster
(1983b)
Research type
Main findings/arguments
Theoretical; The first
systematic literature
review
Reviewed both descriptive and empirical literature on the
Scanlon plan over 40 years. Described the philosophy, design
of the Scanlon plan, and the impact of the Scanlon plan on the
organization and the union; identified problems and factors
influencing outcomes; and reviewed studies on employee
attitudes toward Scanlon plans and factors influencing
employee perceptions of the plan.
Summarized previous gainsharing research, and proposed the
congruence and phase approaches to explain why gainsharing
programs work, and what works best in terms of bonus
formula and processes.
Reviewed 13 surveys and 29 case studies. An operant theory
based upon the law of effect was suggested to provide a
theoretical framework of the effectiveness of gainsharing.
Found that the desire to improve performance, make the work
easier, and become involved in work decisions were important
determinants of an employee's decision to contribute
suggestions. Interviewees viewed the desire for influence as
being more influential than the desire for bonuses.
Found that union status did not have a direct relationship with
the implementation decision. The implementation was found
to be positively related to participation and expected outcomes
in the nonunion facilities, but was unrelated to these variables
in the unionized facilities.
Critically reviewed gainsharing literature up until the early
1990s. The review discussed different theoretical formulations
making predictions about the behavioral consequences and
conditions mediating the success of these problems, examined
the supporting empirical evidence, and proposed future
research agendas.
Found that where the distribution rule was based upon equal
payments, the gainsharing plan influenced pay satisfaction
with benefits; where the distribution rule was based on
individual performance, the gainsharing plan affected
satisfaction with pay administration/structure and pay level.
Found that gainsharing programs with union involvement in
program administration resulted in better-perceived
performance than average programs in the nonunion sector.
However, gainsharing programs in the union sector without
union involvement had worse outcomes than those in the
nonunion sector.
Lawler
(1988)
Theoretical; Literature
review
Gowen
(1991)
Theoretical; Literature
review
Hatcher et al. Empirical; Interviews
(1991)
with 149 supervisors
and employees in five
companies
Collins et al.
(1993)
Empirical; Survey
data from 485 upperlevel managers at 59
facilities
Welbourne
and GomezMejia (1995)
Theoretical; Literature
review
Welbourne
and Cable
(1995)
Empirical; Two quasiexperimental field
studies
Kim and
Voos (1997)
Empirical; Survey
data from 217
establishments in the
U.S. and Canada
6
5
Nalbantian
and Schotter
(1997)
Welbourne
(1998)
Mangel and
Useem
(2000)
Empirical; Nine
Found that: 1) how a group performs in one incentive scheme
experiments using 408 depends on its history under the scheme that preceded it; 2)
college students
tournament-based (relative performance) schemes outperform
profit sharing or gainsharing (target-based schemes); and 3)
monitoring can elicit a high degree of effort from workers, but
the probability of monitoring must be high and, therefore,
costly.
Empirical; Two quasi- Found that distributive justice was more important than
experimental field
procedural justice only where the gainsharing bonus payout
studies
was high, whereas procedural justice was more important
where the payout was low.
Empirical; A 1990
Found that gainsharing plans were used to enhance employee
survey data set from
participation in organizations that employ market-based
802 organizations
control methods. Organizations that use bureaucratic or clan
control were not found to be less likely to adopt gainsharing,
and were more likely to use participation initiatives that did
not involve a group bonus.