HD36 - A Study of Gainsharing as a Component of Managed Competition


Executive Summary:
Gainsharing is defined as a group bonus plan that shares cost savings from improved performance in productivity and performance with most or all employees of a unit. It is an incentive system that provides rewards for gains in productivity; thus, there must be a measurable output for a payment to occur. Successful gainsharing usually involves three elements: (1) a management philosophy of open communication encouraging employee participation; (2) a system which seeks, evaluates and implements employee suggestions on how to increase productivity; and (3) a formula for measuring productivity gains and sharing these gains between employees and the employer.

Study findings indicate that a mechanism exists for Commonwealth of Virginia agencies and institutions to implement gainsharing programs on a pilot basis. This authority exists in Appropriation Act Language authorizing the Department of Personnel & Training to approve pilot compensation programs within agencies that support the redesign of the classified compensation plan.

Gainsharing programs must be funded from an agency's existing appropriation, which is a characteristic of pilot compensation programs approved by the Department of Personnel and Training.

A gainsharing pilot would not be required to be part of a managed competition process, but could be implemented as part of such a process.

Gainsharing initiatives must consider the source(s) of funding for the agency and whether there are restrictions which might prohibit the distribution of savings to eligible employees.

Gainsharing programs require detailed planning. An example of a method to establish a gainsharing program might include the following steps:

• Establish a gainsharing design committee.
• Train them in the organization's sources of income and expenditures.
• Identify specific, measurable business goals for a specified time period.
• Determine how to measure results.
• Test the measures to ensure reliability and set a performance baseline.
• Determine how participants will share gains.
• For the plan to pay for itself, there has to be a financial return. Since some measures may not produce a financial result, there must be at least one financial improvement that can fund the plan.
• Design a payout schedule that shows the required baseline for each measure and how the plan generates award dollars beyond the baseline for each measure.
• Develop an employee communication program using various means of communication.
• Obtain management approval.
• Develop a methodology to evaluate performance to ensure that the quality of services provided has not been degraded.

The decision to pilot test an alternative compensation program is voluntary and contingent upon agencies' or institutions' needs, resources, and staff commitment to develop, implement, and maintain the project pilot.

For those agencies interested in testing such a program, the Commonwealth Competition Council offered the following as a partial list of tangible benefits:

• Cost savings. No additional funding is required since funding is from savings generated by reengineered or more efficient functions.
• Management and employees are required to determine the full cost of their operation. This results in good business practices.
• Gainsharing provides an opportunity for managers and employees to work together in an innovative manner to enhance productivity.
• Gainsharing familiarizes employees with the agency's performance measures and performance budgeting issues already in place with the Department of Planning and Budget.
• Implementation of gainsharing programs changes the culture of government.
• Gainsharing provides an avenue to accurately measure performance, improve communication and hold employees accountable.
• Gainsharing programs should improve the quality of service benefiting Virginia citizens resulting in increased customer satisfaction.
• In theory, this type of program should increase morale and reduce turnover and absenteeism.