Summary of a recent presentation on gain sharing I delivered at the Churchill Group.
Gain Sharing: improving your profits, productivity and brand
Top Ten Tips
1. Shoot for what you want to gain.
2. Utilise knowledge of workers at the coal face.
3. Communication is the key!
4. Align the goals and the metrics.
5. Be transparent.
6. Encourage collaboration.
7. Decide who’s in and who’s out with respect to sharing the gains.
8. Working through the process and having the discussions is worthwhile even if payouts are not achieved.
9. Model processes prior to implementation.
10. Take advantage of technology.
Presenter: Dr Stuart McGill
Stuart is an experienced trainer who has worked with hundreds of sales staff, leaders and sales managers. He has been a Lecturer in economics, marketing and MBA courses at three Australian Universities. Stuart provides training to promote and generate high morale, more sales, excellent customer service, improved productivity, and increased staff happiness.
What is Gain Sharing?
Stuart defines gain sharing as “business improvement incentivised by a group bonus (that can’t be fudged)”. It provides a structure for incentivising input and collaboration.
Gains can be seen in terms of the ratio of inputs to outputs: if outputs rise and/or inputs are used more efficiently, we have a gain. The sharing of these gains (extra revenue) represents gain sharing.
Productivity is the ratio between inputs and outputs. If you can increase the ratio of inputs vis-à-vis outputs, then you will have a gain resulting from increased productivity. For this reason, gain sharing is also often referred to as ‘productivity gain sharing’.
If there are no gains (i.e. no increases in productivity), there are no payouts. Gain sharing does not hinder an organisation’s level of profitability as it is only ‘extra’ revenue that is paid out when gains are reached within the organisation. This extra revenue is divided among those included in a gain sharing agreement (according to pre-arranged terms). Payouts are in addition to the employees’ normal wages. The organisation and the employee therefore both benefit from a gain sharing arrangement: the organisation through increased productivity (and revenue) and the employee through increased monetary rewards. It’s about giving away what is created through the organisation becoming more productive.
Payment gateways may also be negotiated as part of a gain sharing agreement. For instance, in order for a payout to occur, revenue must increase and also a goal must be achieved. Stuart gives the example of a hospital whereby the goal to be reached (i.e. payment gateway) is that a 90% patient satisfaction level must be achieved in order for the gain to be acknowledged (and the payout made). The presence of a payment gateway enables the simultaneous achievement of increased productivity/gains as well as kicking agreed goals.
Gain sharing represents opportunities for: collaboration between management and employees, a better working organisation, increased competitive, organisational growth, jobs growth, efficiency, profit (gain) sharing, and staff retention.
Remember that gain sharing is an ongoing process. The work is never done!
A benefit of gain sharing is that it promotes worker engagement in achieving organisational goals – if employees have a stake in the productivity of the organisation they will be more inclined to positively contribute to making the organisation better.
Keep it simple: choose only 2 or 3 measures that are easily understood and trackable.
Decide who’s in and who’s out: determine who will be involved and how the spoils will be split. Stuart recommends to start by considering a 50/50 split and work up or down from there. A split of 35% (for employees) should be a minimum. You also need to consider how much of the pie each worker with get and how the pie will be divided up (e.g. will supervisors get the same as other workers?). The split will also depend on the context of your organisation.
Consider motivation levels: employees need to get enough out of the agreement in order to be motivated to achieve the objectives of gain sharing. Research shows that monthly payouts are most beneficial for employees’ motivation levels, and that a minimum of 3-5% payout is required in order to make gain sharing worthwhile.
Consider how you will do performance feedback.
Consider organisational size: gain sharing can be used in organisations from a minimum of 5-10 employees. For very large organisations, you could break it down to team and group levels (taking into consideration the composition of those teams/groups), but you don’t have to. There is also a move to implementing gain sharing in SMEs. Social media and gamification provide new opportunities to do gain sharing in an improved manner.
Identify problems you want fixing: when questioning whether gain sharing will work in your organisation, consider whether you’ve got a problem that gain sharing might fix. To really understand what problems your organisation is facing, a good place to start is by talking to those at the coal face. Employees often know more about what’s happening in the organisation than higher-level managers. Gain sharing can liberate the ideas of employees in order to make the organisation run better. If your employees think that there are benefits of talking to management about problems they have identified (e.g. financial rewards) they are more likely to do so.
Studies show at least 70% of employees are happy to work with management to improve the workplace, which represents a large foundation in which to build gain sharing initiatives.
Validity of design: if you encounter complacency in achieving the goals of gain sharing, but a payout is still made, then the design might be at fault as you are not targeting the right area.
You might need to utilise the skills of a consultant to get a true picture of what’s going on in your organisation. It might be difficult for managers to get a clear picture from the inside. But obviously an attempt can be made using internal resources only.
Overview of the Process
Gain sharing is a process of facilitation, negotiation, and implementation.
Facilitation is the first part of the process (note that this can be outsourced if required).With the facilitation process, ideally you want to do a divergent thinking process, then a convergent process, then reach a decision point.
A risk is that decision points may be taken too early in the process (resulting in an ‘insufficient decision’). Be conscious that the first idea that you think is ‘good’, may not be ‘great’ – always ask “and what else?”
There are many techniques one can employ in facilitation. Consider stacking, encouraging, balancing, making space etc. The more you can work through this in a collaborative way, the greater the platform to increase the effectiveness of gain sharing.
When negotiating a gain share agreement include all stakeholders. If a union is present they should be included...and studies show it works better if you do. You’ll find Unions tend to not have a problem with gain sharing as it enhances the amount of money their employees can take home.
There are off the shelf agreements that you can get – it doesn’t need to be complex – 5 pages might be enough to be sufficient.
Gain sharing can be top-down (e.g. owner led) or bottom-up (e.g. staff and / or union led), or can play out in tandem.
Need to be able to share data (current position in relation to achieving goals) with employees in order to keep them motivated and display transparency.
The key is to align the goals with the metrics: “shoot for what you want to chase”. Make sure the metrics chosen to measure productivity improvements align with the goals of the organisation.
While many benefits of gain sharing exist (e.g. increases in productivity, engagement, happiness, staff retention and sustainability), if you can achieve just one, then the exercise is worthwhile. At the end of the day, if the discussion has taken place (i.e. a process of looking at productivity, revenue and costs) then the exercise is not a failure.
Technology advances represent opportunities for gain sharing, for instance, the cloud can be used to show/track results.
The Internet can show employees ‘where you are at’ in terms of achieving goals.
Consider using LinkedIn and Facebook to offer new and effective ways of connecting groups across companies (and countries).
Exercises and Learnings
Exercise: Identify 3 areas where you could increase revenue and decrease costs.
• Often organisations will get stuck when doing this.
• Business models impact upon potential answers to these questions. When undergoing this exercise you may identify areas where the business model restrains your ability to affect these areas – ask yourself how your organisational model restrains you reducing costs, or how it is limiting revenue.
• A lot of the value in this exercise is achieved through simply looking at the value chain and considering where improvements can be made?
Exercise: Put a ballpark % on the change identified above (e.g. revenue up 10% due to _______________)
• Undertaking this exercise forces you to think about the numbers.
• Makes you think about the process/chain of logic that leads to the numbers. How the number is achieved may not be at first obvious but can become apparent as you work through the chain. This is a beneficial process in itself.
• Obstacles represent areas where gains might be achieved