Re-inventing gainsharing for enterprise 2.0 - move over positional power
My previous post is about the future of work; in relation to workers being able to work on tasks that they like and swarm type teams that assemble and dissolve ie. teams that only exist to achieve something, rather than the team perpetually existing. Across the post was smatterings of leadership models and employee engagement as organisational design fundamentals.
I posted a link to my post on Google Plus and it received just about 50 comments…that’s more than my blog has ever seen. Anyway two impressive comments were by Sig Rinde on hierarchies (which I will have to think a bit more about) and Jon Husband who spoke of an old concept/program/scheme/methodology called "Gainsharing".
Here’s what Jon said:
The way money is dished out as salaries and boni (that sure sounds weird, doesn’t it?) is directly related to and based on position in a traditional hierarchy, and as some of you know, my position is that (due to the now-networked environment) until the methodologies underneath the process of assigning boxes on the org chart changes (somehow) then money and the practices of ’scientific’ management will remain in place and continue to cause much dissonance and (mostly) needless resistance to change.
Re: money, again. I am really very surprised that no one (well, except me once, in a tweet) has ever brought up the concept of "gainsharing", an old-ish remuneration philosophy and methodology that had some experimentation back in the day when there were still some viable unions.
I’d argue that it at least in concept is tailor-made for a networked world where will perforce see more self-directed work groupings, a massive change in the role of middle management, and a diminution in the more-or-less automatic attribution of positional power and status that we see in traditional hierarchies.
Just think of it .. more of the money paid to people based on what happens as a result of sharing information and knowledge in relevant and pertinent ways, and the distribution of that money paid made on the gains (from a baseline) accomplished by carrying out work.
Gainsharing as a productivity-development and remuneration concept began to go dormant around the year 2000 .. which may coincide with a range of factors .. less unions, more "back to basics" in business after 9/11, and so on.
As I said, I really wonder why no one has brought it up before.
Could it also be that a decent proportion of the people who have been the standard-bearers for Enterprise 2.0 and Social Business are tech-oriented people who are (in all fairness) basically starting to learn about organizational sociology as they go ? < /teasing >"
I really like what Jon gets at, that those who actually do the work are the one’s the get recognised; and at the same time we are not paying others just for their job title (positional power), but rather their effort and talent. And basically that can happen as regular workers now have access to people and information, and perhaps the autonomy to make decisions within their local work environments. So basically we now have the ability, but traditional structures and the profit-obessessed purpose of which business has become (the CEO and shareholder relationship) stand in the way for complete change, as they have much to lose…politics and power play. It’s not always this way.
Gary Hamel puts it more eloquently:
Modern” management is one of humanity’s most important inventions, Gary Hamel argues. But it was developed more than a century ago to maximize standardization, specialization, hierarchy, control, and shareholder interests. While that model delivered an immense contribution to global prosperity, the values driving our most powerful institutions are fundamentally at odds with those of this age—zero-sum thinking, profit-obsession, power, conformance, control, hierarchy, and obedience
I then shared a comment linking to a post by the insightful Olivier Amprimo on the denatured role of management; which riffs off Jon Husband’s thoughts on the shareholder gains driver which is a root that needs to be pulled out, or basically a new plant needs to be seeded for the future of work to naturally unfold.
Olivier says:
…there is one blind element that no one really addresses in the current crisis: the selfishness of senior management.
Back in the 80’s politicians have deregulated the capital market by dis-intermediating it. Before when senior managers wanted to have money, for most of them, it was compulsory to visit bankers. Bankers were lending money at a certain rate, for a certain time, for a certain risk. Bankers are not perfect but they are providing middle / long term visibility.
Since deregulation senior managers issue shares of the company they run (and bankers are forced to design junk products to make a living ). By doing so they transform their company in a commodity on a market and they face competition from all other listed companies, including those in more profitable industries.
This creates a push toward relentless search for profitability. Either they align or they don’t get money, the shares drop and the company goes havoc. To make sure this does not happen, investors have incentivised senior management to deliver short term and high returns.
They have denatured the role of management, that classically is there to secure the long term of corporations.
To be successful senior management has set short term evaluation criteria, mostly on individual basis as this is the easiest ones to monitor. Some people buy it, some don’t and withdraw, demotivated by the absence of sense/long term vision. Either way this is the best way to kill collaboration or ‘engagement’, understood as an effective contribution to the company, the collective…
This is precisely what social computing tackles, by connecting people and surfacing implicitly (i.e. making ‘publicly available’) their contributions. Smart social computing lets people be selfish (ego) yet deliver positive side effects for the group.
As usual Technology is used to solve human and organisational issues. Because this goes against incentives systems and behavioural norms, it is a painful and time-consuming process to make ‘Enterprise 2.0’ happen"
And Jon’s response:
Yeah .. the shorthand for what Olivier (a very very smart fellow IMO) wrote about is <b>"managerial capitalism"</b> .. managing the business so as to earn as much, as quickly as possible, from increasing share prices and the accomplishment of short-term performance objectives approved by a friendly Board and compensation committee.
I responded with a few more links on managerial capitalism:
re: managerial capitalism
After years of stress and long hours to get the partnership, why would I be interested in the long-term future of the business? I have earned my reward, and nobody is going to take that from me until I retire. As an MBA student said to me in a class last night, becoming a partner is like a pie-eating competition and the prize is that you get to eat more pie
This creates the management culture of forcing efficiency changes to the point where you are gambling that no external “knock” will topple you. And with today’s high executive rewards, it is better to go for a few years of high profits and risk being kicked out as a result of lack of resilience than creating a long term viable operation. Trouble is, you are gambling with lives (mining) and shareholder value (recent derivative scandals) as well as climate (fossil emissions).
As a manager organizing work you need to make strategic decisions about the capabilities of the organization. One of them is the level of resilience against external challenges verses operational efficiency…resilience describes an organization’s rebound capability…At the opposite end of the scale is efficiency. The more a network can specialize and streamline, the better it can get at doing one or a few tasks effectively. Of course, the trade off is that it cannot withstand a wide range of challenges, especially if these challenges are not factored in when designing and putting together the network…Process streamlining is another tactic, especially using automated IT systems and machines. Here again, the process will work well until an external challenge upsets the whole thing. And that is what Corporate Management is all about: it is a gamble that the unlikely outer challenges your organisation faces will not affect profits for the year you are responsible. And after all, if the awareness of any external challenges is not present, a manager cannot be blamed for not factoring it in.The recent Icelandic volcano ash surge is a good example. No one could have been expected to factor it in, and therefore the European transport network is unable to cope with an air traffic ban. Companies go bust, people get forced to take paid leave, and huge debts mount up. But there is no blame on management.If international oil companies no longer have any fields to explore and open up, thus reducing their output, it will not be blamed on management if they had only a short-term profit goal to maintain.
Like you say it all comes down to the fundamentals of capitalism:
Reward long-term thinking and punish short-term selfishness
Anyway I thought I’d Google "gainsharing"; and noodled through about 5 pages of results and read four or five articles
The concept of gainsharing has roots that are much deeper, dating back to the 1930s when a labor leader, Joe Scanlon, preached that the worker had much more to offer than a pair of hands. The premise was that the person closest to the problem often has the best and simplest solution. Moreover, if the worker is involved in the solution, he or she most likely will make the solution work. Scanlon used a team approach to solicit, review, approve and implement employee ideas and suggestions to drive the improvement process. Moreover,
Scanlon and the gainsharing concept shared the financial gains from improved performance. The Scanlon approach often was referred to as “a frontier inlabor management cooperation.
Gainsharing is a very literal term. In short, as an organization gains, it shares. The typical gainsharing organization measures performance and, through apredetermined formula, shares the savings with all employees. The organization’s actual performance is compared to baseline performance (often a historical standard) to determine the amount of the gain. Because gains are measured in relationship to a historical baseline, employees and the organization must change to generate a gain. The gainsharing system is one that builds ownership and employee identity to the organization. The employee becomes more of a stakeholder. Gainsharing is focused on social aspects of theorganization and looks to make many of the smaller day-by-day changes that drive continuous improvements. The steady and small improvements lead to significant progress over time. The performance bar continues to rise in daily work activities, the employee mindset and the way people do their work.
Compared to Lean Six Sigma, the focus of gainsharing is less on technical tools and more on the social and philosophical side of the workplace. Lean Six Sigma is more of a top-down process. Lean Six Sigma involves a limited number ofemployees through performance improvement project teams. On the other hand, gainsharing attempts to engage the total workforce through many different mean
“As we make these improvements, what’s in it for me? Sure it’s nice to have a job, but don’t executives receive larger bonuses when we help make these improvements? Is that fair?” Gainsharing provides the all-important link to this question. Gainsharing companies believe it is fair to share. Gainsharing’s bonus system provides a common focus, “a score.” As performance improves by working smarter, everyone shares. Interestingly, it’s not about the “money;”it’s about the “sharing.” Sharing and its impact on the sense of equity are very powerful, leading to a significant impact on the principle of identity.
As we all know, an owner of a business acts much differently than the workers. Identity speaks to the sense of purpose, belonging, accountability and ownership. This is what sharing drives. As identity and understanding grow, the need for change is recognized. Change leads to improvement, and improvement leads to gains. As identity and the sense of ownership are developed, employees naturally will have ideas on ways to improveperformance. Involvement is a means of “working smarter,” and there are never-ending ways to do so. Involvement and working smarter foster continuousimprovement.
- Robert L. Masternak and Michael A. Camuso
One of the main differences between Gainsharing and Profit Sharing is that Gainsharing very directly spells out what people need to do to drive the gains. A Profit Sharing system pays out if the company beats the goals set to trigger the Profit Sharing payout, but it doesn’t tell people what they need to do to make the profits happen.
Since the Profit Sharing bonuses just "happen" from time to time and people don’t know exactly what they did to make them happen, Profit Sharing becomes an "entitlement." That is, an expected part of their compensation.
Because people don’t understand the connection between what they do and profits, they feel entitled to the profit sharing. You don’t need to do anything particular to receive it. If you work here when it’s paid out, you receive it."
The concept of gainsharing is simple. First, the hospital calculates its historic rates of productivity (and, where measurable, quality). Then, new targets are set. If performance reaches the new targets, the hospital and its employees share the monetary gains. Because it involves money that the hospital otherwise would not have saved or earned, the program isself-funding. In this sense, it is a win-win program for both the hospital and its employees.
- Kent E. Romanoff andJames B. William
I like the concept of gainsharing, but I don’t like its execution. Rather than an incentive scheme it needs to be a natural part of how we work; given the right organisational design conditions, such as autonomy.
To me, gainsharing should be non-existent or in the background, just like KM, collaboration, employee engagement. Now by saying background I don’t mean they are not important, far from the truth; what I mean is that rather than schemes or programs, they simply need to be absorbed in the natural flow of work. They are not promoted as a thing on their own, rather they’re simply part of how we work around here.
To me gainsharing can be thrown in a bucket with all sorts of business goals or ways to achieve business goals. Instead what we can do is pay attention to employees, and behavioural goals…by doing this I think we will see the fruits of gainsharing via an indirect approach.
When you read this sentence tell me how gainsharing is different than KM, collaboration, improvement, engagement:
Recommending ideas and executing them; see where pain points and local gaps are and having the autonomy to budget and run with them. As a result of this type of self-managing and improvement you get a cut of the gain; and do meaningful work and become recognised by peers.
OK, what gainsharing brings to the table is you get a cut of the gain…cool. But just like KM, collaboration, engagement, performance and improvement it’s about people being able to do their job better. We don’t need a top-down managed program to do this with targets and outcomes and measurements. We just need to understand how employees work, pay attention to meaning, purpose, challenge, autonomy, recognition, etc…as a result we will achieve our goals (performance, enagement, KM, etc…) in a more indirect way.
It’s the execution, strategy, and implementation that needs to change. Instead of programs, the strategy is to understand employee needs, likes and wants. That’s a generic strategy that will achieve a myriad of business goals as a by product. Not only that, paying attention to employees will surface new business goals management haven’t thought of or realised.
In a nutshell, gainsharing is part of the natural flow of work; when you have purpose, autonomy, and are engaged it’s only natural you come across pain points and want to fix them (and have the means/autonomy to fix them), and that you have ideas. When employees have a stake in what they do, they are more purpose-driven; they act as if they own part of the organisation. For me it’s not about scouting to fix things in order for the money grab; it’s more about everyone improving their flow; it’s not about targets, it’s not a separate thing we do.
I needn’t explain the cancer of rewards and the perversion of targets. Again we are not trying to achieve something like sharing, being more engaged, improving; instead we are simply being.
Of course this brings us full circle to our Google Plus discussions about control, hierarchies, short-term gain, and shareholder value; it’s this dissonance that will continue to prevent complete change.
Actually I like this focus on group outcome and swarm type work, which talks to both my posts on the future of work and measuring employees on group how they help others:
Regardless of the actual plan used, there are several reasons that may account for the growing popularity of gainsharing. First, an increasing number of firms are moving toward a team-based work design (e.g., Scarp, 1995). The basic concept of a job may be undergoing a fundamental change from a prescribed set of tasks and duties assigned to individual workers to a broad definition of expectations, including a person’s ability to perform multiple tasks and beflexible to contribute to one or more work teams depending on need (Manz & Sims, 1993). This new emphasis on flexibility and cooperative efforts is conducive to an aggregate incentive plan, such as gainsharing, that rewards employees for group outcomes (Gomez-Mejia & Balkin,1992J. While team based incentives may be used, their application is limited by the fact that teams are often transient, individuals belong to multiple teams, the performance of various
teams is likely to be interdependent, and inter-team competition may be dysfunctional to theachievement of overall corporate goals. Gainsharing is particularly well suited to a team environment because rewards are linked to the performance of the entire unit which reflect the cumulative contribution of all teams (Welbourne, Balkin, & Gomez-Mejia, in press).
A second reason for the increased use of gainsharing is dissatisfaction with other types of pay-for-performance systems. In particular, programs to reward individual performance (such as merit pay and bonuses) more often than not lead to disappointing results (e.g., Cumming, 1995; Mount, 1987; Pearce, Stevenson & Perry, 1985). Many reasons have been advanced for this dissatisfaction, most notably the difficulty in untangling an individual’s contribution from that of other employees (e.g., Ilgen & Feldman, 1983; Liden & Mitchell, 1983; Yammarino, Dubinsky & Hartley, 1987); performance measurement problems or supervisory rating errors (e.g., Cardy & Dobbins, 1993); lack of credibility because many non-performance factors (such as position in the salary range) enter into these decisions (Schwab & Olson, 1988); and social disruption engendered by increased competition and disgruntled employees who feel that they deserve better (Pearce et al., 1985; Hughes, 1986). As firms scramble to find alternative mechanisms to reward performance, gainsharing is often adopted as a "lesser evil" or as a viable option with fewer negative side effects (Gomez-Mejia & Balkin, 1992)
…some forms of gainsharing provide an operational mechanism to implementparticipative management. The desirability of employee involvement has its roots in the human relations movement as exemplified in the Hawthorne experiments of the 1920’s. Despite much lip-service to this concept over the years, participative management has been more of an academic than a practical reality (Gomez-Mejia, Balkin, & Cardy, 1995). Gainsharing represents a major exception. Many gainsharing plans contain a committee structure to elicit and evaluate employee suggestions thereby providing an efficient channel to promote employee involvement and convert it into an action plan
Participative Management…The oldest stream of theory based research on gainsharing focuses on the basic notion that inducing employees to cooperate by giving them voice and a chance to participate in important decisions regarding their jobs is likely to augment commitment to the organization, improve work motivation, and enhance overall productivity. Employees understand their jobs far better than management and tapping this knowledge through gainsharing offers an important means to increase organizational performance. This view can be traced back to the classical writings of Mayo (1945) and his followers who argued that ". . . the administrator is dealing with well-knit human groups and not with a horde of individuals. . . every social group must face two perpetual and recurrent problems of administration. It must secure for its individual and group membership: (1) the satisfaction of material and economic needs, and (2) the maintenance of spontaneous cooperation throughout the organization (p. 9) . . . the eager human desire for cooperative activity still persists in the ordinary person and can be used by intelligent and straightforward management . . . " (p. 112) Gainsharing provides a medium to accomplish this by aligning the cooperation imperative of workers (through suggestion committee structures) with the objectives of the organization (through the criteria used to trigger payoffs) while at the same time satisfying the material and economic needs of workers (through the bonus system)
Social Dilemma…One of the concerns with aggregate incentive systems such as gainsharing is the so called "free-riding" effect whereby individuals accrue the benefits of the group effort and this serves as a disincentive to individual efforts (Gomez-Mejia & Balkin, 1992a). In the terminology of Cooper, Dyck, & Frohlich (1992), gainsharing creates a social dilemma because employees can benefit from an improvement in group performance regardless of their personal contribution to that performance. In a manner akin to the participative management models, Cooper et al., argue that this social dilemma may be solved through group decision making to decide how rewards are to be allocated within the group.
This literature contributes to our understanding of gainsharing by reminding us that these plans should not be introduced (or indeed studied) as stand alone entities without simultaneously examining other organizational factors that may singularly or interactively affect their success. However, this literature suffers on three counts: First, the empirical tests, so far, leave open the question of causality. Second, the identified factors (perhaps because of their global, often amorphous nature) are difficult to measure and the theoretical constructs themselves are subject to a wide range of interpretations. Third, it tends to neglect the possibility that the gainsharing program may be introduced as a change agent to alter the conditions which have been identified as prejudicial to these plans (such as low employee identification with the firm and lack of control or empowerment).
-Theresa M. Welbourne andLuis R. Gomez Mejia
In the end gainsharing to me means giving people autonomy and meaning at work, full stop. It’s not a program, "look into my eyes there’s no such concept as gainsharing". In their everyday work employees will come across things that need enhancing and improving. To do this they can form swarm teams, they can source their networks and help each other out (they may have to ask for permission, but the employees themselves do the sourcing, forming, and executing…as we now have access to information and people). At this point they can use their autonomy to naturally fix and fill these gaps. This on its own gives them belonging, ownership, meaning and purpose. And on top of that the organisation can respond and recognise in monetary and other ways.
No program, no target, just autonomy.
Related
“I am knowledge worker”, says the Janitor
From strategic planning to purpose and resilience
Measure impact rather than outcomes and the folly of targets
People need ownership to be motivated
Involve front-line people in decisions
Value is created at the frontline not the IT department
Management must trust employees to perturb processes
Enabling opportunities for employee driven change
The era of employee empowerment is on us
How do we motivate business to devote their existence to people
The secret is creating the conditions for great inner work life
For achievable business goals we need to action behavioural goals
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