Gain Sharing vs. Profit Sharing

“Incentives are the cornerstone of modern life”(Levitt and Dubner 12). Levitt and Dubner once mentioned in their book “Freakonomics”. According to Oxford dictionary, incentives are something tends to incite to action or greater effort, as a reward offered for increased productivity (“incentives”). In business field, incentives are something given by bosses to encourage their employees to endeavour in bringing benefits to their business. For a simple example, the employee who hits the monthly or year sales target will get cash or prizes as incentives. Apparently, these incentives are something that motivates employees maintains their great performance and also to motivate other employee, whoever wants to get the incentives, work harder.

A well-planned gainsharing plan is essential when implementing the bonus program. First, a plan should include elements of employee involvement. It is important that management gain employee

Group Incentive Plan: It is set in place to promote helpful, combined behavior among employees. Through this company a group incentive plan assists in nurturing relationships among their staff member, inspiring them to discover ways to collaborate in a shared environment in order to be successful. The method is able to create a stronger team, brainstorming and building a entrusted sense of project ownership for everyone.

One of the main issues that the plant faced is the fact that there is no more understanding between the employees and management. They blamed each other. Management blamed the employees for the low productivity and the employees accused them of being devious with the bonus calculation (Michael Beer, 2008). As a result, the communication flow between them is broken. Management failed to effectively perform their duties as leaders of the plant. As one of the solution to this problem, the plant could benefit from using the supportive model. According to Newstrom, management who use this model support their employees in their work. Also, they provide tools to help them grow and accomplish things in the interest of the company (Newstorm, 2015). As a result, this would give the employees the feeling that

Main goal of gain sharing is to improve performance and eliminate waste materials through employee involvement. Through gain-sharing plan, Alliston can motivate production employees to reduce waste of raw materials and number of defeated

Individual incentive pay plans reward employees for meeting one or a combination of performance standards (e.g. productivity, safety, or attendance) set by the employer (Martocchio. 2013). Piece- rate pay is one of four individual incentive plans offered in the employment industry. Employers have two options to select from when choosing this incentive plan. The first option is compensating the employee hourly for each piece over the given production number. The second option is compensating employees based on established subjective (quality) and objective (quantity) performance standards. In both options the employee is, essentially, being compensated for the work he or she does and not what could have been completed (Gibbons. 1987).  Motivation,

Managers are to make all employees aware of the opportunities for profit sharing based on the achievement of goals. Verbal and monetary recognition will be used to reinforce good behavior, to motivate employees, which will increase their performance leading to additional recognition and job satisfaction.

* Reward for good performance, for example, positive appraisal. Before a company promotes an employee to a particular

A well-articulated compensation philosophy drives organizational success by aligning pay and other rewards with business strategy. It provides the foundation for plan design and administration and anchors current and future plans to the company's culture and values (Kaplan, 2006, p.32). Recognizing and rewarding achievement is the cornerstone of the company A’s compensation philosophy. The mission of the company is to attract, select, place and promote all individuals based on their qualifications. The company believes that performance-based compensation helps attract, develop and retain talented professionals. In addition to base pay which based upon local market conditions and targeted to be above market, the company provides the following types of potential compensation to reward performance:

Some employees rely on the extra income every couple of months to help with expenses, but because of the high taxes attached to the income depending on what the actual amount would be may not be worth it at all. The purpose of most profit plans provides more financial flexibility to the company. Profit sharing plans may fail to motivate employees because they do not see a direct link between their efforts and corporate profits. Hourly employees may have trouble seeing the connection because their efforts appear to be several steps removed from the company’s performance, and because company profits vary from year to year, employees’ receive their earnings based off company profits. Employees will find it difficult to predict their earnings, which will affect their saving and buying behavior. (Martocchio, pg. 97, 2011)

Pivotal in that philosophy development is how and to what extent pay will be tied to specific types of performance.  This issue will not be treated the same in every organization.  However, every business should be able to identify certain performance objectives it wants its workforce to fulfill and the financial outcome that will be achieved if that result is attained.  Such a projection can be translated into an increased shareholder value figure.  (The VisionLink Advisory Group)

Reward Management (RM) has been defined as the distribution of monetary and non-monetary rewards to employees in an effort to align the interests of the employees, the organisation, and its shareholders (O’Neil, 1998). In addition O’Neil (1998) also suggests that a RM system can serve the purpose of attracting prospective job applicants, retaining valuable employees, motivating employees, ensuring legal requirements relating to direct and indirect rewards are not violated, assisting the company in achieving human resource and business objectives, and ultimately assisting the organisation in obtaining a competitive advantage.

Although research generally confirms that pay-for-performance plans can influence greater outcomes, it is unclear how effective different pay plans are relative to each other (Park, 2012). Like most things in business, compensation is something that requires evaluation, study, assessment, strategy, modeling and integration.  Achieving a pay for performance culture does not happen without paying attention to the behaviors, activities, rewards and motivations that have to be linked and reinforced through a well engineered and successfully executed process.  Actually if that process does not tie rewards to shareholder financial objectives, employ the proper mix of compensation elements, result in meaningful dollars, embrace performance that employees can impact and are effectively communicated and reinforced, then the results it produces will likely fall short (Vision Link Advisory Group, 2013).

Keeping employees motivated in addition to creating incentives and/or additional ways for employees to receive more compensation will create better performance overall within an organization. Contrary if company B gives their employees incentives to perform, without any motivational tactics they probably will not have as many top performances as company A, in addition the company may only seek short term rewards verses have long term success. Lack of motivation for employees within an organization, can cause long term damage for the company’s success. Different things motivate everyone; therefore there should be a system in place to keep employees motivated for the long term success of the company. In the MBM textbook under the concept of incentives, compensation, and motivation, there are a couple of different views of how it should be applied within an organization. We will discuss The Social Role of Profit, Personal Profit and Losses, and the way Market-Based Management view how incentives, compensation, and motivation should be applied and the things that effectively drive employees’ actions while at work.

Today, competition between the businesses is extremely high thus companies need to find ways to be competitive. Organizations prepare the best market strategy to increase the company performance and the ways to keep their employee motivation on the highest level to perform well within the competition. At that time, several incentive pay programs play an important role for every organization to perform well within the competition.