In this article, Peter Nichols discusses the use of gainsharing to reward municipal employees for cost reduction and services improvement.

As municipalities across North America pursue their efforts to improve performance, many have recognized the need not simply to involve staff at all levels in the re-engineering processes, but to adopt programs for rewarding employees for improvements that they help bring to the organization. These programs provide a motivation and incentive for staff to take an active role in cost-cutting and restructuring efforts.

Such programs include, for example, the "suggestion box" approach, where employees receive a one-time reward for successful ideas. The City of Phoenix provides rewards equal to 10% of savings (to a maximum of $2,500) that result from a suggestion. Some jurisdictions set aside "innovation pools" from which employees can be rewarded for successful initiatives to reduce costs or improve services. A number of municipalities also have adopted public recognition programs to acknowledge the contributions of employees.

These kinds of reward systems are largely geared toward individual employees. Increasingly prevalent, however, is the adoption of gainsharing programs that reward groups of employees. Gainsharing began first to appear in the 1930s and within the private sector. More recently, however, the concept has been found to be relevant as well to public sector organizations, including municipalities.

Gainsharing is a performance improvement tool that rewards employees when predefined goals are met or exceeded. Most of the programs in municipal settings focus on cost-cutting improvements that can be readily quantified, but a number of municipalities are looking at ways to expand the use of gainsharing to reward improvements in service quality and effectiveness.

Gainsharing has been used successfully in such areas as garbage collection, vehicle fleet maintenance, and water and sewage treatment activities. Typically, gainsharing programs share between 25% and 50% of savings with employees; the remaining savings accrue to the municipality. In some of the programs that have been reported, employees have received rewards of in the order of $1,000 or more annually. All employees who are part of a gainsharing unit share equally in any rewards.

The benefits of successful gainsharing include:

• improved organizational efficiency;
• increased employee understanding of how the organization works and how staff contribute to organizational performance;
• improved relations and communications between managers and employees;
• an improved organizational "culture"; and
• increased staff commitment to organizational goals.

There are a number of steps to follow in introducing a gainsharing system. The first involves the examination of various policy issues: What is the level of commitment toward pursuing a gainsharing program? What are the objectives? Who will be included? What are the potential implications vis-à-vis collective agreements? A next step includes consultation with staff, "buy-in", and planning. Following that, a detailed development of the gainsharing plan is required including the definition of performance factors, goals, and reward formulae. Then, as the program moves toward implementation, training for managers, supervisors, and employees will be necessary. And finally, the actual implementation of the program with on-going monitoring and follow-up phases.

The hallmarks of a successful gainsharing program include simplicity, commitment, and on-going involvement. Gainsharing represents only one potential component of any broad thrust toward continuous improvement, but it is significant because it goes directly to the heart of motivating and rewarding those who are in the front-line of organizational improvement.