7/30/2019 Gainshairng vs Profit Sharing

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Many people who confuse Profit Sharing and Gainsharing view them as being one in the same.Employees have an opportunity to earn a bonus under both approaches, but that is where thesimilarity ends. There are always exceptions, but the following provides a general outline of the majordifferences.

Gainsharing Profit Sharing

Purpose To drive performance of an

organization by promoting

awareness, alignment, teamwork,

communication and involvement.

To share the financial success of the

total organization and encourage

employee identity with company

success.

Application The plan commonly applies to a

single facility, site, or stand-alone

organization.

The plan typically applies

organization-wide; companies with

multiple sites typically measure

organization-wide profitability rather

than the performance of a single site.

Measurement Payout is based on operational

measures (productivity, quality,

spending, service), measures that

improve the line of site in terms of

what employees do and how they are

compensated.

Payout is based on a broad financial

measure ofthe organizationsprofitability.

Funding Gains and resulting payouts are self-

funded based on savings generated

by improved performance.

Payouts are funded through company

profits.

Payment Target Payouts are made only when

performance has improved over a

historical standard or target.

Payouts are typically made when

there are profits; performance doesnt

necessary have to show an

improvement.

EmployeeEligibility

Typically all employees at a site are

eligible for plan payments.

Some employee groups may be

excluded, such as hourly or union

employees.

PayoutFrequency

Payout is often monthly or quarterly.

Many plans have a year-end reserve

fund to account for deficit periods.

Payout is typically annual.

Form of Payment Payment is cash rather than deferred

compensation. Many organizationspay via separate check to increase

visibility.

Historically profit plans were

primarily deferred compensationplans; organization used profit

sharing as a pension plan. Today we

see many more cash plans.

Method ofDistribution

Typically employees receive the

same % payout or cents per hour

bonus.

The bonus may be a larger % of

compensation for higher-level

employees. The % bonus may be less

7/30/2019 Gainshairng vs Profit Sharing

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for lower level employees.

Plan Design &Development

Employees often are involved with

the design and implementation

process.

There is no employee involvement in

the design process.

Communication A supporting employee involvementand communication system is an

integral element of Gainsharing and

helps drive improvement initiatives.

Since there is little linkage betweenwhat employees do and the

bonus, there is an absence of

accompanying employee

involvement initiatives.

Pay forPerformancePlan versusEntitlement

Gains are generated only by

improved performance over a

predetermined base level of

performance. Therefore, Gainsharing

is viewed as a pay-for-performance

initiative.

Profit sharing often is viewed as a

entitlement or employee benefit.

Impact onBehaviors

Gainsharing reinforces behaviors that

promote improved performance.

Used as a tool to drive cultural and

organization change.

Little impact on behaviors since

employees have difficulty linking

what they do and their bonus.

Many variables outside of the typical

employees control determine

profitability and the bonus amount.

Impact onAttitudes

Heightens the level of employee

awareness, helps develop the feeling

of self worth, builds a senses of

ownership and identity to theorganization.

Influences the sense of employee

identity to the organization,

particularly for smaller organizations.