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 the similarity ends. There are always exceptions, but the following provides a general outline of the major differences. Gainsharing Purpose Profit Sharing

To drive performance of an organization by promoting awareness, alignment, teamwork, communication and involvement. The plan commonly applies to a single facility, site, or stand-alone organization.

To share the financial success of the total organization and encourage employee identity with company success. The plan typically applies organization-wide; companies with multiple sites typically measure organization-wide profitability rather than the performance of a single site. Payout is based on a broad financial measure of the organizations profitability.

Application

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. Gains and resulting payouts are selffunded based on savings generated by improved performance. Payouts are made only when performance has improved over a historical standard or target. Typically all employees at a site are eligible for plan payments. Payout is often monthly or quarterly. Many plans have a year-end reserve fund to account for deficit periods. Payment is cash rather than deferred compensation. Many organizations pay via separate check to increase visibility. Typically employees receive the same % payout or cents per hour bonus.

Funding

Payouts are funded through company profits. Payouts are typically made when there are profits; performance doesnt necessary have to show an improvement. Some employee groups may be excluded, such as hourly or union employees. Payout is typically annual.

Payment Target

Employee Eligibility

Payout Frequency

Form of Payment

Historically profit plans were primarily deferred compensation plans; organization used profit sharing as a pension plan. Today we see many more cash plans. The bonus may be a larger % of compensation for higher-level employees. The % bonus may be less

Method of Distribution

for lower level employees.

Plan Design & Development

Employees often are involved with the design and implementation process. A supporting employee involvement and communication system is an integral element of Gainsharing and helps drive improvement initiatives.

There is no employee involvement in the design process. Since there is little linkage between what employees do and the bonus, there is an absence of accompanying employee involvement initiatives.

Communication

Pay for Performance Plan versus Entitlement

Gains are generated only by Profit sharing often is viewed as a improved performance over a entitlement or employee benefit. predetermined base level of performance. Therefore, Gainsharing is viewed as a pay-for-performance initiative. 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. Influences the sense of employee identity to the organization, particularly for smaller organizations.

Impact on Behaviors

Impact on Attitudes

Heightens the level of employee awareness, helps develop the feeling of self worth, builds a senses of ownership and identity to the organization.