All three terms refer to different programs with different goals and outcomes. Not only does each term mean something different, one consultant stated that he consistently sees businesses using the wrong program for what they are trying to accomplish.
Since we are ending this year and getting ready to start a new one, I thought it would be a good idea to have a brief review of the three incentive programs and highlight the pros and cons of each one. Since some programs, such as profit sharing need to be defined and structured in advance, the review may be helpful before the beginning of the new year.
Again, let me stress that this review will be very high level and basic. For more detailed information on each type of program, there is considerable information on the internet. They are totally at the discretion of the employer and are not dependent upon whether the organizations was profitable during the year. The most common form of bonus payment is for each employee to receive the same dollar amount, often prorated based upon FTE status.
In some organizations, there may be different bonus amounts based upon management level. Some organizations link them to Christmas as in Christmas bonus or other holiday. As said earlier, an organization can decide to award bonuses regardless of whether it was profitable during the year.
Discretionary bonuses also have some disadvantages. There is no link between profitability and bonus, no link between any type of increased productivity or efficiency, no motivational factor involved, and no differentiation based upon differing employee contributions.
Discretionary bonuses are taxable as regular income unless contributions can be made to a qualified benefit program such as a k. If they are structured to allow this, employees are often given opportunity in advance to contribute to the plan or not. Regarding FLSA, the IRS has ruled that these bonus payments can be excluded from calculating the regular rate of pay they meet two requirements: the decision to make an award and the amount of the award are at the sole discretion of the employer, and the bonus payment is not made according to any prior agreement, contract, or promise causing an employee to expect such payment regularly.
Discretionary bonuses stand alone, but gainsharing and profit sharing are both pay-for-performance programs that seek to improve organizational performance in some way. We all rise or fall together based upon group performance. Gainsharing plans that incentivize high sales or higher bottom line profits also drive workers towards focusing only on products that typically offer higher margins.
Workers often manipulate sales and marketing initiatives to favor such products. This can significantly damage a companys image by suggesting to its clientele that the business is only interested in selling products that offer higher margins. However, in spite of all their shortcomings, gainsharing plans are still popular and effective incentive schemes. A gainsharing plan not only motivates a worker to put in his best performance, but also cultivates in him a sense of pride in his achievements at the workplace.
This results in indirect benefits such as lower levels of employee attrition and subsequently, lower time and money spent in training new workers.
Gainsharing plans also assist businesses in managing their payroll and save on operating expenses when business is slow. Written by Jason Gordon Updated at June 25th, Contact Us If you still have questions or prefer to get help directly from an agent, please submit a request. Please fill out the contact form below and we will reply as soon as possible. Academic Research on Gainsharing Plan From individual incentives to an organizationwide gainsharing plan : Effects on teamwork and product quality , Hatcher, L.
Journal of Organizational Behavior , 12 3 , The authors employ various procedures to analyze the effects of a companys transition from an individually oriented piecework plan to a gainsharing plan. The transition involved the following actions: Termination of the individual incentive system. Introduction of performance bonuses on a plant-wide basis.
Facilitating employee participation in management decisions through an idea system. An analysis of a survey conducted post-transition revealed that there were noticeable improvements in employee perception of teamwork and interest in performance. Implementing a gainsharing plan : What companies need to know , Beck, D.
This paper studies the various procedures involved in implementing a gainsharing program and offers insights to businesses planning such a move. The author reiterates the importance of factoring in employee values and prescribes gainsharing programs that not only suit the financial situations of individual businesses, but are also able to measure changes in performance. Attributions for participation and nonparticipation in gainsharing- plan involvement systems , Hatcher, L.
The authors survey supervisors and non-management employees of five firm with active gainsharing programs in order to explain variations in employee willingness to participate in such programs.
The study found that an employees motivation for improved performance and involvement in management decisions had a direct impact on his willingness to offer suggestions. Work-from-home will become much more common-even in the healthcare industry. Is HR positioned to support this work alternative?
How should it be prepared? Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. Here is how we will break the information up: This Post: What are team incentives and the pros and cons of using them Second Post: Why team incentive programs fail and how to make sure yours succeeds Third Post: The basic building blocks of any team incentive program Final Post: A template for constructing a team incentive program What are team incentive programs?
Should team incentives replace an individual merit program? Pros and Cons Since we have already decided that team based incentives are not going to replace our individual merit program we can determine what their positives and negatives are. Pros: Foster collaboration and teamwork. The team has a defined goal. The team is only as strong as its weakest link. The great equalizer. Every team member will get the same reward. In my experience, both our higher and lower paid team members appreciated this fact.
There were differences in hourly rates, but the group members were treated equally when aiming for the common goal. Override individual goals. Individual goals can get in the way of productive work.
There are differences in what your employees are after. Team incentives focus on the common goal of the group. Teams that are given a goal and the increased freedom to decide how to achieve it are demonstrating the issue ownership and self-actualizing behavior that we all seek to create in our organizations. Pride and sense of achievement.
Teams that determine the best course of action to achieve a goal have an incredible sense of pride when they do so. For more information : Compensation Consultants. Helps companies achieve sustained improvement in key performance measures Rewards only performance improvement Payouts are self-funded from savings generated by the plan Aligns employees to organization goals Fosters a culture of continuous improvement Enhances employee focus and awareness Increases the feeling of ownership and accountability Enhances the level of involvement, teamwork and cooperation Supports other performance improvement efforts and helps promote positive change Promotes morale, pride, and more positive attitudes toward the organization.
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