In 1981 the General Accounting Office implored U. S. businesses to adopt gainsharing as a means of productivity, yet its usage is far from universal (Markham et al., 1992). In its simplest form, gainsharing is a team or group incentive system which provides employee bonuses based on performance improvements (Welbourne et al., 1995). Team-based incentives have the advantage of focusing independent-minded employee efforts on a common goal (Martell et al., 1992). Company benefits from gainsharing include stronger employee focus on cost reduction, quality improvement, employee involvement, improved labor relations, and more responsive managers (Rock and Berger, 1991).
When properly implemented, gainsharing integrates teamwork, communication, goal orientation and performance improvements into one system. The motivational and productivity benefits of gainsharing have the potential to enhance corporate competitiveness. For this reason, several major organizations have adopted gainsharing systems (e.g., Motorola, General Electric, 3M). However, the popularity of gainsharing is a fairly recent phenomenon. In 1986, O'Dell noted that only 13% of firms were using gainsharing, and the large majority (73%) of the gainsharing systems had only been implemented since 1980 (O'Dell and McAdams, 1987). Only four years later, the percentage of firms using gainsharing had doubled to 26%, and gainsharing had become the fastest growing nontraditional pay-for-performance system in the U.S. (Hanlon and Taylor, 1991). At this time, the majority of gainsharing systems were still found in the manufacturing sector of the economy (Markham et al., 1992), however gainsharing was rapidly growing in the service sector.
Given this sudden popularity, it is surprising that only a small number of studies have examined gainsharing in field settings (e.g., Bullock and Lawler, 1984; Bullock and Tubbs, 1991). Moreover, the published gainsharing studies have been primarily limited to manufacturing firms. This raises the question of generalizability to the growing service sector. Service industries comprise more than three-fourths of the gross national product, and nine out of ten new jobs (Zeithaml et al., 1990). Service industries have, however, begun rapidly adopting gainsharing (Markham et al., 1992).
This implies a widespread assumption within the service sector that the gainsharing benefits found in manufacturing industries are replicable in a service environment. However, this is a largely unsupported assumption. Importantly, there are differences that may make the implementation of gainsharing more difficult in service industries. In particular, there are questions regarding the objective measurement of productivity which may undermine the benefits of gainsharing in service industries. Without objectivity, the necessary trust between labor and management may not develop, which would then undermine the motivational aspects of gainsharing.
Given the remarkable growth in the service sector, and its growing adoption of gainsharing, it is important to ask if gainsharing is appropriate in a service setting. We accepted the charge proposed by Hanlon and Taylor who said, "To broaden the scope of gainsharing research, the focus should be on the question of how gainsharing operates to produce final outcomes . . ." (italics added) (1991:240). This study examined three of those processes through which gainsharing may affect firm outcomes.
We argue that the benefits of gainsharing are due to increased organizational citizenship behavior (OCB) and satisfaction with pay administration. Various authors have defined OCB as behavior that is discretionary and not explicitly recognized by the formal reward system, but which promotes the proper functioning of the organization (cf., Konovsky and Pugh, 1994; Organ, 1988; Van Dyne et al., 1994). Yet we believe that OCBs are likely impacted by rewards.
This study hopes to extend the generalizability of prior research by providing the first known quasi-experiment of gainsharing within service organizations. …