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3. Differentiate, in detail, between annual bonuses for employees and gain sharing plans

Mursal Haroon

78034

BAM510

Human Resource Management

Unit 3

Date
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3. Differentiate, in detail, between annual bonuses for employees and gain sharing plans

In organizations, there are bonuses that are paid to employees. The annual bonuses are

paid at the end of the calendar year and are dependent on the results realized by the organization

and the personal inputs of the employee toward the realization of these positive outcomes. The

majority of organizations implement annual bonuses as a short-term performance incentive for

motivating managers. The yearly bonus is dependent on three main factors, which include

eligibility, individual performance, and fund size. Gainsharing is an incentive plan that involves

the majority of all employees in a shared effort to realize productivity goals. The cost-savings

gains are divided among the employees and the organization. This paper examines the

differences between annual bonuses and gains sharing plans for the employees.

The annual bonus is provided to the employees at the end of the year. It depends on the

results achieved by the organization and the individual contribution of the employee. The

majority of the organization uses this type of incentive to motivate their managers over a short

term performance. The incentive can result in approximately 25% or more adjustments to the

total pay (Dessler, 2017). The annual bonus incentives are dependent on three critical factors,

which include eligibility, the size of the fund, and individual performance. Eligibility has been

conventionally based on salary or job level (Dessler, 2017). However, this has recently changed

by involving salary grade as an eligibility criterion. The second factor is fund size, which

involves the organization determining the available annual bonus fund. There is also the

individual factors, which entails determining the actual individual award. Usually, a target bonus

is set for the respective eligible positions—these details criteria for the provision of an annual

bonus.
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Gainsharing entails incentives that involve many employees. The objective of the plan is

to enhance the achievement of the organization’s productivity goals. The cost-saving gains

realized after the improved performance are shared among the respective employees and the

organization. The available gain sharing plans encompass Improshare, Scanlon, Rucker, and

Lincoln Plans (Dessler, 2017). The Scanlon plan, which is the most successful, involves sharing

of pre-established cost savings by employees, which is dependent on the effort of the employees.

It requires formal employee involvement and periodic progress reporting. Some of the basic

elements of this plan include a bonus, a ratio, a production committee, and a screening

committee.

The main difference between gain sharing plans is the formula used by employers to

establish employee bonuses. For instance, the Scanlon plan uses a formula that determines the

ratio of payroll expenses to total sales. In some cases, the total sales are added to the positive

change in inventory. There is the Lincoln incentive plan developed in Lincoln Electric Company

(Dessler, 2017). In this method, the company staff performs on a guaranteed set goals basis. The

organization then shares its total yearly profits among the employees. The distribution of the

profits is based on the employee merit rating. However, it is important to understand that most

organizations customize their gain sharing incentive plans.

In conclusion, organizations use different incentive plans to motivate their employees.

The annual bonus incentive plans are used in the motivation of managers based on short-term

performance. The criteria used in determining bonuses include eligibility, individual

performance, and the size of available funds. Gainsharing usually involves many employees in a

shared effort to realize the company objectives. The cost-saving gains from the increased

performance are shared among the organization and its staff. It is important to understand that
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incentive plans are employed by organizations to motivate employees and ultimately enhance

company productivity.
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Reference

Dessler, G. (2017). Human resource management (15th ed.). Pearson Higher Education.