Profit Sharing and Gain Sharing Many People

¶ … Profit Sharing and Gain Sharing

Many people tend to confuse gain sharing and profit sharing as they view them as one thing. This has led many firms to adopt the use of a profit sharing tool instead of a gain-sharing one. The purpose of this paper is to explain the differences between gain sharing and profit sharing based on various aspects in an organization.

Profit sharing and gain sharing vary significantly. Typically, profit sharing programs are usually in the form of end-year bonuses and paid on an annual basis. While they are often companywide, some firms have excluded unions from programs of profit sharing due to the established terms and conditions of contract between the union and the company (Bar-Haim 15). On the other hand, gain-sharing programs are specific, formal, and applied a defined group of employees. They involve a high level of feedback and communication between the management and employees. In addition, meetings could happen on a weekly basis with discussions about daily output levels.

Human resource managers conquer that businesses should select which program to implement based on the management goals and the nature of the company. Profit sharing programs may help workers to be on equal footing with their peers and identify with the company. Nevertheless, companywide benefits might have minimal impact on individual motivation to increase revenue. On the contrary, gain sharing might build a subculture within the company. Performance is related to individual employees and fosters the development of self-ownership and self-worth depending on the success of the company (Bar-Haim 22).

Gain sharing presents the possibility for a quarter of monthly payout opportunity. Gains and the resulting payouts are best described as scores in a group score as contrasted to an individual score. The score assists provide a shared focus for the workforce on measures they can control and influence. Therefore, gain sharing demonstrates to the best in work settings, which requires collaboration between work groups, departments, and individuals. Another key feature of gain sharing is that a percentage of employees share is put in end-year reserve account, which is paid to all the eligible participants at the end of every fiscal year. During deficit performance periods, the employees' share of the loss can be deducted from the yearly reserve account (Bar-Haim 51). This means that employees will see the impact for worse performance. This will reinforce long-term thinking. At the close of the plan year, the reserve will be negative as the company will have to absorb the loss and begin the next year plan at zero. The concept of reserve account helps further create a feeling of employee ownership and identity to the company.

Gain sharing is specific unlike profit sharing. The resulting gains and measures only target a specific facility and not aggregate across the organization. In addition, this concept is applied to increase the line-of-sight and controllability. Contrary to group incentives, gain sharing only measures across functions, units, and departments. This concept seeks to build communications and cooperation between departments contrary to building silos. (Bar-Haim 88). Another difference between gain sharing and profit sharing relates to the method of plan development and design. In big corporations, the plan could be developed and designed by compensation experts through approval by the executive committee comprising of board members.