piggy bank and measuring tapeGuest article by employee benefits consultant, Chris G. Hylton, MA

Many workplaces are organized into teams designed to help maximize productivity and effectiveness. There are countless forms of team building strategies and activities that can be applied to help almost any workplace team be more successful. But. . . have you ever considered team compensation?

Team compensation is most effective when it is applied in organizations where teamwork is critical to achieving goals. When done correctly, team compensation can help encourage teamwork and increase individual effort.

Two common forms of team compensation are profit sharing and gain sharing. Profit sharing is when employees are paid a percentage of the company’s overall profits. Gain sharing is when employees are financially rewarded for pre-determined and measurable achievements that are directly related to the organization’s vital performance metrics.

Profit sharing works for many different reasons. It helps employees to work together towards a shared goal. Studies have shown that it can increase motivation, commitment, and quality of work. In order for an organization to reap the benefits of profit sharing, this form of team compensation must be a good match for the company. A few things to consider when thinking about implementing a profit share plan include:

  • Is the organization able to set clear, realistic, measurable, and attainable goals to be tied into the profit share plan?
  • Does the organization have a system in place to objectively track the desired performance?
  • Does the organization have a communication strategy ready to help employees understand the profit sharing plan?
  • Is the organization profitable?

The last question might just be the most important! In order for profit sharing to be an effective form of team compensation, the organization must be confident that there will be profits available to share with employees. If the set goals are met but there are no profits, you can expect disgruntled and discouraged employees.

Gain sharing is different from profit sharing. An easy way to distinguish the two is to remember that profit sharing is related to profitability and gain sharing is tied to productivity. Much like profit sharing, well designed gain sharing programs can increase motivation, commitment, and quality of work. Gain sharing works well when an organization would like to improve performance and productivity while reducing costs. A few things to consider when thinking about implementing a gain share plan include:

  • Does the organization have performance levels that can be easily quantified?
  • Does the organization have the ability and means to remove barriers to achieving the desired goals?
  • Does the organization have an effective measurement and feedback system in place?
  • Does the organization have a communication strategy ready to help employees understand the gain sharing plan?

While profit sharing plans may offer financial incentive on a quarterly or yearly schedule, gain sharing plans can easily cycle much more frequently, even on a monthly basis. The advantage to this frequency is that employees receive their incentives on a regular basis and it allows quicker opportunity to address poor performance and barriers to success.

Companies don’t have to pick one or the other. Many organizations successfully offer profit sharing and gain sharing plans. Team compensation can be a powerful tool in helping employees to feel engaged, invested, and acknowledged. The key is to ensure that any team compensation plan offered is designed to help both the employee and the company reach their goals.

ChrisBWAbout the Author

Chris has been a Consultant in Alberta since 1981, and has extensive experience in the management of change processes as they impact human resource, employee benefits, pensions and investments.  He has had his own consulting firm since 1989, and has many years of experience on volunteer boards and committees serving the community.

Chris is a Benefits & HR specialist who works with employers and employee groups to provide innovative compensation, benefits and pension programs for staff.