268 Human Resources Management for Public and Nonprofi t Organizations
must exist, and the perceived relationship between rewards and perfor-
mance should be viewed as important as the actual relationship.
To be successful, pay - for - performance must be linked to the strategic
mission of the organization, and upper - level management must support the
plan. Employees should participate in the development of the plan. This
increases their understanding, commitment, and trust in the plan. Organi-
zations must provide training to the raters and hold them accountable for
the accuracy of their ratings, and a system of checks and balances is neces-
sary (Heneman, 1992; U.S. Merit Systems Protection Board, 2006; Newlin &
Meng, 1991; Perry, 1995; Healy & Southard, 1994; Risher, 2002).Gainsharing Gainsharing is a team bonus program that measures control-
lable costs, such as improved safety records or decreases in waste or units
of output. Teamwork is encouraged, and all team members are rewarded
for controlling costs or improving productivity. Formulas are used to mea-
sure costs that are controllable, and these costs are then compared to the
costs of a historical base period. When performance improves relative to
the base period, a bonus pool is funded. When performance falls short, no
bonus pool is created. Employees keep a percentage of the bonus pool, and
the organization keeps the rest.
Not all gainsharing plans are the same. The formulas and participative
management features need to fi t each other as well as the organization. Dif-
ferent situations require different designs. However, some common critical
elements are necessary for any plan to succeed. (1) There must be a credible
and trusted development process. (2) Employees must believe that improved
performance and decreased costs will lead to bonuses; the bonuses must be
understandable and large enough to infl uence performance; and employ-
ees must recognize how their behavior can infl uence the size of the bonus.
(3) Employees need to be involved in the process; they must have infl uence
over the measures used to calculate the bonus. (4) There must be appropri-
ate measures, and they must focus on all of the controllable costs.
Measures such as units of output, materials, and supplies must be
addressed; otherwise, employees may focus on one cost, leading to its reduc-
tion but also to increases in other costs. For example, data processing clerks
may produce a greater number of records, but if the number of errors on
the records has increased, the effort has been counterproductive. Or public
works employees may be able to maintain and landscape more of the city ’ s
property in less time, but if the increased productivity results in equipment
breakdowns and expensive repairs, then that is counterproductive. The
program must be maintained; because missions and environments change,