Discuss the key elements in designing a gain-sharing plan.

Question

What will be an ideal response?

Answer 1

The following issues are key elements in designing a gain-sharing plan:

Strength of reinforcement: Incentive pay tends to encourage only those behaviours that are rewarded.
Productivity standards: Almost all group incentive plans use a historical standard that involves the choice of a prior year's performance to use for comparison with current performance. Sharing the gains-split between management and workers: Part of the plan must address the relative share paid to management and workers of any profit or savings generated.
Scope of the formula: These can vary in the scope of inclusions for both the labour inputs in the numerator and the productivity outcomes in the denominator. Performance measures have expanded beyond traditional financial measures.
Perceived fairness of the formula: One way to ensure the plan is perceived as fair is to let employees vote on whether implementation should go forward. This and union participation in program design are two elements in plan success.
Ease of administration: Sophisticated plans with involved calculations of profits or costs can become too complex for existing company information systems.
Production variability: One of the major sources of problems in group incentive plans is failure to set targets properly. A good plan ensures that environmental influences on performance, not controllable by plan participants, should be factored out when identifying incentive levels.