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is Gainsharing Different from Profit Sharing?
people mistakenly say "Profit Sharing" when they are
talking about their Company's Gainsharing System. I get the impression
that people use the terms interchangeably.
Gainsharing is quite different from Profit Sharing.
1. Power to Motivate Rank and File Employees
For motivation to work, there must be two basic
A. People Must Understand What To Do to Drive Performance.
One of the main differences between Gainsharing
and Profit Sharing is that Gainsharing very
directly spells out what people need to do to drive the gains.
A Profit Sharing system pays out if the company beats the goals
set to trigger the Profit Sharing payout, but it doesn't tell people
what they need to do to make the profits happen.
Gainsharing system is very specific in telling people what
needs to happen, both overall and in their specific
area, if we are going to hit the targeted performance level.
This intensive planning and feedback system is key to Gainsharing's
enduring power to drive employee and company performance.
Since the Profit Sharing bonuses just "happen" from
time to time and people don't know exactly what they did to make
them happen, Profit Sharing becomes an "entitlement."
That is, an expected part of their compensation.
This is one of the main ironies of Profit Sharing.
People often develop a Profit Sharing system because they want
pay for performance and they do not want
That is, they only want to pay if the performance
is there. But a Profit Sharing system gives them the exact thing
they do not want - a sense of entitlement.
Because people don't
understand the connection between what they do and profits,
they feel entitled to the profit sharing. You
don't need to do anything particular to receive it. If you
work here when it's paid out, you receive it.
having snow fall on you if you live in Minnesota. You
don't need to do anything to make it happen. If you
live there long enough, the snow will fall on you.
B. Employees Must Believe
They Can Influence Profits or Overall Results.
With Profit Sharing, people may not believe
that their efforts will actually influence performance.
They may feel that "Sure we can work hard. But management
will just go buy a new machine or some other major expenditure
and that's where our bonus will go."
It's not as though Profit Sharing is a bad option.
It can work well to motivate high-level management
who can see how to drive the performance. They have the information
and resources to "connect the dots" and make the profits
It can also work well to fund retirement instruments,
It's just that Gainsharing is a much better tool
to motivate rank and file employees.
2. Costs Included
on the most important costs in a company's financials. Profit
Sharing includes the entire P&L.
You can't focus on everything. It's a contradiction.
3. Frequency of Feedback
Gainsharing systems usually provide weekly or monthly
feedback. Many have planning systems that specify what needs to
happen on a shift-by-shift basis. This frequent feedback allows
them to make adjustments "during the game."
4. Frequency of Payouts
Gainsharing systems typically have a (potential) payout
on a monthly basis. Profit Sharing systems typically payout
(potentially) on an annual basis. Of course, the more closely
we tie the rewards to the performance, the greater the motivational
impact of the rewards paid out.
Gainsharing is a powerful motivator because (1)
people know what they need to do to drive
the gains, and (2) they see the "gains" varying with
how well they actually do what they need to do to drive the gains.
They see the cause-effect connection.
This connection is what makes Gainsharing work
better than profit sharing in driving performance.
Profit Sharing is different, but effective in it's
It can be effective to motivate high-level executives,
and fund retirement instruments. It is often used effectively in
conjunction with Gainsharing.
learn more about Gainsharing and
how it applies in your Company, take a look at
our free videos and request a free copy
of our Executive Gainsharing Briefing DVD by clicking
You can also learn more at our main website www.gainsharing.com
About the Author:
Dr. Charles DeBettignies is President of Gainsharing Inc., a firm
specializing in Gainsharing Systems, and offering information, education,
training, design and implementation assistance.
Are you interested in Gainsharing, but have questions about how it would be applied specifically in your Company?
If so, give us a call at 317-371-1021. We have a special,
limited time offer to discuss with you.
P.O. Box 501548
Indianapolis, IN 46250
Inc. All rights reserved.