An Oldie but a Goodie: A Case for Gainsharing
Like everything in society today, Organization Development is susceptible to trends. What is the latest intervention? The hot new theory? The model that everyone is talking about? Of course, the downside to this attention is that some older interventions, theories, or models collect dust on the proverbial shelves of practitioners and scholars. I would like to draw your attention to one such intervention method, that of gainsharing, and share with you a 20-year journey I have had with it in my organization.
As a young graduate student, I was introduced to gainsharing in one of my OD classes. It was a fairly straight-forward concept: a company sets goals for its employees to achieve, and if they do, they “share” in the “gains” realized by the company (hence the term, gainsharing). A financial calculation is made to determine what the “gains” are and a percentage of those gains are shared with the employees who participated. Here’s a simple hypothetical example:
Goal: Reduce our carbon footprint by not printing to paper.
Saves company: $50,000 in paper, toner, maintenance of printer, IT department time.
Share gain at 50% with team of 100 people: Each person receives $250.
Sounds like a win-win! Impactful for the company, and the gainsharing bonus motivates the team to do the little it takes to achieve the goal. It is deceivingly simple, though, because the financial bonus portion of gainsharing is just a fraction of what a properly integrated gainsharing program includes.
In my journey over the last 20 years, I can attest that Gainsharing is more than a financial bonus sharing program. It has changed the culture of our organization from one that saw clients as a bother, viewed management with suspicion, and felt in the dark about the performance of the company. Today, this same company has a culture that is goal-oriented, cares about its clients, knows the key indicators of the company’s performance, and is focused on growth. I credit leadership and the structure of Gainsharing for these improvements, and what follows is a history of how we got there.
My company is an independent insurance agency in Northwest Ohio. The team I lead is responsible for servicing the needs of our clients, developing relationships with them, and ultimately retaining them year after year. Retention is a key indicator of their performance Problem was, when I started there, no one understood the concept of retention, let alone our retention percentage. Clients were viewed as “just more work,” and no one tracked our lost clients to know if team members were doing their jobs well or poorly. Sales people wrote new business, but if existing clients were leaving in droves, the agency wasn’t growing. Who cared?! The service team was not motivated to care.
My wheels were turning, and Gainsharing was fresh in my mind. But there were several hurdles to overcome. I quickly learned that in order to implement Gainsharing, I needed information, the first hurdle. We needed data to determine our current state in order to set a target goal for improvement. What was our retention rate? Who were our lost clients and how much revenue were we losing? Were Sally Sue’s clients leaving in greater numbers than Jane Doe’s? And why were they leaving? Was it because of something we could control — like dissatisfaction — or did they pass away or sell their business? We did not know any of these things. So the first order of business was to develop a procedure to gather all of this data so that we could determine our current state. This required the cooperation of the very team that viewed clients as “just more work.” Why in the world would they want to cooperate in this data mining task? They were quite suspicious.
What I learned about suspicion is that it often comes from being left in the dark. Communication was the next hurdle to overcome. They deserved to know why they should work to collect the data. Along with communication follows trust. When people are deprived of information, they tend to distrust and often make up scenarios to fill in the gaps. Sharing with them the concept of Gainsharing, even before the data could be analyzed, was important. Continuing to communicate as information became known was critical. Once the components of Gainsharing were designed, the entire team met every month to review the previous month’s data and review the actual results against goal. Continuous communication breeds trust. It didn’t happen overnight, but it did happen.
The final hurdle was the design of the actual bonus program. (Interesting that it was last in that it is the component most people think of when they think about gainsharing.) What were the elements? What percentage would be shared? How do we calculate it fairly? This required some creative number crunching to create something that never existed before, but actually, designing the formula was the easiest part.
Over the years, the program has been tweaked and modified many times as I’ve learned about the activities that influence our retention. The formula is not static. As the company’s goals change, Gainsharing changes with it. Today, the bonus program has four elements: reviews with clients (a target number to achieve), retention, upselling, and internet reviews (Google and Facebook). These are elements that we believe drive retention, the ultimate goal. Today our retention goal is 95 percent, which means that 95 percent of our clients renewed their policies in the past year. Hitting this target means that the new accounts written by the sales team actually help the agency grow, versus replacing the lost clients.
Over twenty years, I learned that a successful Gainsharing program requires these elements:
1. Leadership. Gainsharing worked at my agency because I persisted. I did not give up on the program when something did not go quite right. I was willing to tweak it, modify it, and add new elements. I also believed in sharing information and in sharing financial gains, two critical elements necessary for a successful gainsharing program.
2. Communication. Every single month, the entire team meets and reviews last month’s reports. Every member of the team knows exactly where we are at throughout the year. Questions are asked and answered in a transparent way, and people have been treated fairly. When a situation arises that could be decided in multiple ways, I lean in favor of the team and make the decision that benefits their achievement of goals.
3. Bonus design. The bonus formula must be fair for both sides with quantitative goals that are either met or not. The sharing component must be a fair percentage. I chose 40–50 percent. The bonus calculation must not feel mystical; it should be easy for anyone to calculate.
The benefits of designing and implementing a gainsharing program are worth restating: a culture that will be the envy of your competitors, a fun environment, and a highly successful company. All reasons why I think Gainsharing is an oldie but a goodie. I encourage you to dust off your textbooks and read more about it.
Diane T. Keil-Hipp is COO at Knight Insurance Group, an independent insurance business in Toledo, Ohio, and a doctoral student at BGSU.
