Gain Sharing vs. Profit Sharing
Gainsharing
MLR601
April 5, 2007
Gainsharing and Profit-sharing are incentive plans that are designed to pay employees incentives based upon good company performance. By using these plans, companies found that employees are motivated to stay with the company longer. Because employees can directly affect the output of a company they will also work harder to achieve selected goals when incentives are attached. However, incentive plans are not appropriate for every company and business must find a way to put the plan to good use in a fair and productive way.
Gainsharing Vs. Profit Sharing
Gainsharing and profit-sharing are incentive plans that are both designed to pay employees beyond their normal wages upon good company performance. The two plans are similar in that they both payout when company performance goals are met. While both plans motivate employees to do what is in the best interest for the company, the two plans also contrast in different ways.
Gainsharing links employee performance to savings resulting in payouts, while profit-sharing links financial success of the total organization to payouts. Typically, gainsharing applies to a single plant, while profit-sharing applies to the entire organization.1 With gainsharing typically applied to a single plant, employees of that plant are usually involved in the design process of the plan. A typical plan is based on comparison of a baseline performance to actual performance for a given period.2 Employees involved directly in the process are ideal for defining those baselines and metrics for quantifying both baseline and actual performance. On the other hand, profit-sharing is based on year-end profits. Therefore, the only employee involvement is typically from managers and employees who are responsible for tasks and higher level decisions that can impact the bottom line. This difference between the two plans is most likely the reason all employees are usually eligible to participate in
MLR601
April 5, 2007
Gainsharing and Profit-sharing are incentive plans that are designed to pay employees incentives based upon good company performance. By using these plans, companies found that employees are motivated to stay with the company longer. Because employees can directly affect the output of a company they will also work harder to achieve selected goals when incentives are attached. However, incentive plans are not appropriate for every company and business must find a way to put the plan to good use in a fair and productive way.
Gainsharing Vs. Profit Sharing
Gainsharing and profit-sharing are incentive plans that are both designed to pay employees beyond their normal wages upon good company performance. The two plans are similar in that they both payout when company performance goals are met. While both plans motivate employees to do what is in the best interest for the company, the two plans also contrast in different ways.
Gainsharing links employee performance to savings resulting in payouts, while profit-sharing links financial success of the total organization to payouts. Typically, gainsharing applies to a single plant, while profit-sharing applies to the entire organization.1 With gainsharing typically applied to a single plant, employees of that plant are usually involved in the design process of the plan. A typical plan is based on comparison of a baseline performance to actual performance for a given period.2 Employees involved directly in the process are ideal for defining those baselines and metrics for quantifying both baseline and actual performance. On the other hand, profit-sharing is based on year-end profits. Therefore, the only employee involvement is typically from managers and employees who are responsible for tasks and higher level decisions that can impact the bottom line. This difference between the two plans is most likely the reason all employees are usually eligible to participate in