GAINSHARING
Successfully applying gainshare plans to the public sector
When properly designed and understood by all stakeholders, gainsharing plans have the potential to deliver strong results in public sector organisations, according to a study of the US Postal Service, published in a recent edition of the WorldatWork Journal.
Research on the long-term effectiveness of gainsharing plans has tended to focus on private manufacturing. Indeed, there is something of a dearth of high-quality, timely information on the use of gainsharing among public sector and not-for-profit organisations. To fill the information gap, Gregory K Shives and K Dow Scott of Loyola University Chicago have undertaken a detailed case study looking at one such employer that has already confronted the challenge: the US Postal Service's six-year experience with an EVA-based gainsharing plan.
This controversial gainsharing programme was introduced in 1995 and had 84,000 participants (primarily managers and supervisors) out of a workforce of some 770,000.
Plan results
The researchers discovered that from the perspective of USPS management and its reward professionals, the incentive plan was an overwhelming success with marked improvements evident in each of the three measures of the balance scorecard model.
But despite the success of the programme in its early years, the USPS scrapped the plan in 2002 amid mounting controversy. Critics found it unthinkable that employees were awarded "bonuses" when the postal service was not only losing money but seeking a price hike.
| Getting it right |
| In their ten-page WorldatWork article Gregory K Shives and K Dow Scott advise that before implementing an incentive plan, managers should: |
| 1. Define organisational goals -- critical to defining the plan's purpose. |
| 2. Assess your organisational structure and commitment -- remember that effective gainsharing programmes are participatory. |
| 3. Examine existing pay plans -- incentive plans should "complement" sound base pay management. |
| 4. Identify all stakeholders, including independent government boards, politicians and even the media. |
| 5. Keep things simple and relevant. |
| 6. Educate on the potential rewards and downsides of variable pay. |
| 7. Monitor plans and adjust -- based on changing conditions. |
| 8. Document and adjust goals or performance standards to drive higher levels of performance. |
What is EVA?
Economic value added is a relatively popular performance measure. The concept can be expressed in terms of the following formula:
EVA = After tax operating income — (investment in assets x weighted average cost of capital)
If your calculation produces a figure greater than zero, the activity is adding value.
A final word
"Based on the USPS experience with EVA-based gainsharing, elements of these plans can be successfully adapted to the public sector when the unique nature of the organisation's business model is acknowledged in the plan's design phase." -- Gregory K Shives and K Dow Scott, WorldatWork Journal, first quarter 2003.
Want to know more?
Title: "Gainsharing and EVA", by Gregory K Shives and K Dow Scott, WorldatWork Journal, first quarter 2003.
Availability: Contact WorldatWork, 14040 N. Northsight Blvd, Scottsdale, Arizona, USA AZ 85260, tel: 001 480 951 9191 or email: worldatworkjournal@worldatwork.org
WorldatWork, formerly the American Compensation Association, is one of the HR professions oldest and most distinguished bodies. Founded in 1955, it is "dedicated to knowledge leadership in compensation, benefits and total rewards". WorldatWork is a not-for-profit association with a membership of more than 25,000 human resource professionals, consultants, educators and others, primarily in the United States and Canada.
For further details about WorldatWork visit www.worldatwork.org
Posted 1 October 2003