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Establishing a Gainsharing Incentive Program

By Justin O'Rourke, @justino365
VP of Client Development | Continual

Gainsharing, a incentivized compensation program that shares achieved savings or revenue with those impacting the savings, has become an increasingly popular way to reduce some hard-to-manage business operating expenses.  While gainsharing programs can result in benefits to the workforce beyond greater paychecks, implementing gainsharing programs to reduce waste can be challenging.  To implement a successful program, an organizational leader must communicate the program effectively, involve the appropriate stakeholders, and maintain momentum after savings are achieved.

It’s Not (Just) About the Money

Last time you stayed at a hotel, did you notice the little sticker on the backup roll of toilet paper asking you to be environmentally conscious by using the other roll first?  While the use of this message may fall under an environmental element of the hotel’s organizational strategy, the primary function of that sticker is to save money by ensuring housekeepers are not throwing away partial toilet paper rolls.  Although the sticker’s primary purpose is cost savings, influencing guest behavior would not be nearly as effective if the sticker asked to finish the other roll to help the hotel save money.

So, how do you deliver your gainsharing message?

Just like the hotel guests, your message might be better received if it is not just about the money.  For example, here are the two ways of introducing an employee gainsharing program to reduce paper spend:

The Easy Way: “We spent too much on paper products last year, so we are paying employees a percentage of what is saved next year.”

The Better Way: “We used too many paper products last year.  Reducing our carbon footprint aligns with the corporate citizenship component of our organizational strategy.  To do so, we are introducing an incentive to eliminate unnecessary use of paper products.  Any savings on next year’s paper spend will be shared with employees at the end of the year.”

The “Better Way” approach not only entices the employee by presenting a financial incentive, it draws upon something bigger than a self-serving monetary reward.  For some employees, that “something bigger” will be environmental consciousness.  For dedicated employees, their motivation could just be a matter of optimizing the organizational strategy.  Either way, it’s about more than just money.

Engage and Empower Stakeholders

Good business leaders often look for ways to increase employee engagement and buy-in.  They don’t want to gift full governing authority to their staff, but they recognize the need for employees to feel like they positively influence their workplace.  This is because autonomy and employee buy-in has been shown countless times to increase job satisfaction and employee performance.

Let your employees play a substantial role in determining what actionable steps will be taken to reduce spend.  In some areas, they may have better ideas than the management team.  If employees collaborate to create their own plan, they will be more likely to implement the plan.

Continuing Success

After the first term, you may feel like savings in the expense are may have been optimized.  If you are right, your team will find it difficult to make themselves extra money if the benchmark has been reset.

After the first year, you have a few choices.  First, you could reset the benchmark to encourage staff to achieve even further savings in the expense area.  Consequently, if the expense area is already optimized by the last term’s efforts, employees’ attempt to achieve further savings may be damaging to the business.

Your second option is to discontinue the gainsharing program altogether.  However, discontinuing the program puts you at risk for employees to fall back into old habits.  Ideally, employees would have changed their behavior and developed better habits during the initial term and will no longer need a financial incentive.

The third option, and perhaps the most effective, is to shift the gainshare focus to another expense area.  While you are relying on the formed habits of employees to sustain the savings in the primary area, the continued integration of savings into organizational culture creates additional support to the initial expense area.

Overall, gainsharing can be an effective method of reducing waste in the workplace.  Business leaders can see positive reduction in waste by aligning the savings initiative to organizational strategy and allowing employees to drive the change.  By getting managers and supervisors on board with the savings plan, the business can ensure that employers are receiving the right support to drive a long-term waste reduction plan.