Case Study

Abstract

Ameri Steel's experience with gainsharing demon-strates the effectiveness of using incentives to improve productivity within an organization. The advantages of gainsharing over profit sharing are two-fold: first, gainsharing distributes operating gains (as opposed to bottom-line profits), and, because it is easier to measure, can be paid out with a greater frequency than profit-sharing awards. The frequency of payouts is vital to the effectiveness of the plan, since there is a more immediate incentive with which to motivate employees. A further advantage of gainsharing is that, rather than basing rewards on total company profits, payouts can be based on the performance of plants, teams, or small work units. This struc-ture encourages employees to work together cohesively in a team environment. Companies with gainsharing programs are thus able to attract team-oriented risk-takers who are not afraid to bet the farm on their performance, while ensuring that excellence is rewarded with frequent and substantial payouts. Indeed, the Ameri Steel gain-sharing plan has helped the company generate an average of 8% annual improvements in productivity in the four years since management adopted this program, while employees have enjoyed average payouts equal to 46% of their base pay.