Wage

Chpater 7. Wage-related Personnel Systems

Ⅱ. Gain Sharing System


1. Concept of Gain Sharing System

Recently, there has been a gradual increase in the expectations of employees to participate in management. This trend will continue with the sharp increase of employee intellectual levels and transfer of labor-management relations from that of rivals to cooperative and collectively-fated relations. As active counter-measures to cope with this prospect, the company can introduce a ‘Gain Sharing System’ and take control of employee wishes to participate in management.

The Gain Sharing System is introduced in group-centered sharing. It is a method by which the employer pays the employees a bonus for high achievement shown in a major organizational unit such as the overall organization, plant, or business section, etc.

2. Methods of the Gain Sharing System

High performance recognized by a Gain Sharing System can be measured mainly by profit, production, total sales, or by a mixed index. Of these, measuring by profit is most common. The amount of Gain Sharing is calculated by the sharing rate for high performance results exceeding the company target as follow:
Amount of Gain Sharing = (good result - the target) × sharing rate

When Gain Sharing is rendered as a bonus, the bonus rate is:
(1) Increasing: Pays the amount calculated by multiplying the bonus rate of Gain Sharing with the individual base pay

(2) Stair: Pays a 50% bonus for 90~100% target achievement, 70% bonus for 100~120% target achievement, etc.

(3) Flat: Simply pays 00% for target achievement
In general, companies in Korea use the flat-type or stair-type and give payments once or twice a year. The total amount paid as Gain Sharing is approximately 12% on average.

3. Effects and Problems of the Gain Sharing System

(1) Effects
The Gain Sharing System brings positive results such as improvement of productivity, increase of work concentration, reduction of extended work avoidance, cultivation of labor-management cooperation, ease of collective negotiation on wages, etc.

(2) Problems
1) Many companies do not apply a single formula to the Gain Sharing System and resort to convenient methods according to the situation.
Thus, when organizational members do not understand the target index clearly, the Gain Sharing System fails to maximize their target awareness and motivation.

2) The amount paid in the Gain Sharing System is greatly influenced by the level of the company's targets. Accordingly, conflicts may arise between two parties given that the company prefers higher targets, whereas the employees prefer lower targets.

For further questions, please
call (+82) 2-539-0098 or email bongsoo@k-labor.com

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