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Gainsharing Falls Victim to Tight Times

The concept of sharing unspent dollars with other employees and agencies saves governments money but is often ignored when budgets are the smallest.

There’s an interesting, if unhappy, phenomenon that seems to accompany tough economic times. Let’s call it the “missing umbrella in the rain” syndrome. The general idea is that many of the most powerful management tools -- the ones that can be of great use when government revenues are down -- fall by the wayside in hard times.

This thinking was provoked when we started looking into the state of gainsharing for state and local governments, a program in which a central government permits savings on a particular project or effort to be shared with employees, teams or the agencies that were responsible for the unspent dollars. The approach can be used in a wide variety of ways, but at its heart, “it encourages organizations to work in teams,” says Sally Selden, a professor at Lynchburg College. “Everybody benefits.”

There were quite a few gainsharing efforts in the late ’90s and the early years of this century. But a number of these programs have shut down since then -- some as a result of changes in administration, the extreme tightness of money or an unwillingness to see any savings flow to employees that could flow instead to the general fund.

It’s that latter rationale that David Ammons, professor of public administration and government at the University of North Carolina at Chapel Hill, finds faulty. “The logic of gainsharing should be at least as compelling in tough times as in good times,” he says. “Most gainsharing programs operate from new savings, so they require no special appropriation. Most share only a portion of the savings as employee bonuses, so there is still a net savings to the government.”

Montgomery County, Md., officials began a gainsharing program in 2009 with support from the unions as well as the county council and county executive branch. It focuses on teams of front-line employees who are trained to look for ways their agency or program can save money. The teams, usually with eight to 12 members, are then guided to develop full-blown proposals that are well researched and can be implemented relatively quickly.

When they’re successful, all the people involved are rewarded with bonuses, capped at $5,000 apiece. Only programs with documented savings pay the bonus, which means the program pays for itself. Half of the savings are distributed to the team, so $100,000 in savings would yield $50,000 to be distributed in bonuses.

“It’s not a quick process,” says Kaye Beckley, business operations and performance manager for the Montgomery County’s Office of Human Resources. “Bonuses are short term, but the changes in the organization are there for the long haul. That’s the opportunity.”

While many ideas are generated, only a few end up as full-blown proposals. Those have to go through an approval process. So far, about half a dozen proposals have made their way through the maze. The first was in the sign and signal shop of the Transportation Department. The idea focused on the department’s scrap metal. In the past, the county paid a trash hauler $430 to take away the scrap metal that came from sign production or discarded signs. Employees came up with the idea to sell the metal instead to a scrap metal dealer. By separating metals with resale potential from those that had no value, the sign and signal shop was able to generate $1,819 from the salvager the first time it tried out the system. Once the program went into effect, documented savings were $15,000, with $7,500 to be divided among 65 employees.

Other ideas for gainsharing programs have cropped up in discussions of payment reform in health care. There, the goal is to change the incentive for physicians so that they move away from a system in which they earn more money by providing more services to one in which they earn bigger bucks through more efficient uses of resources and providing higher quality of care. Arizona, for example, is currently working with its managed care health plans to create a gainsharing model. The state is looking for new reimbursement policies in which health plans and physicians can receive incentives to reduce emergency room utilization and readmissions. How might they accomplish this? One suggested route: Physicians could be eligible for a portion of the gainshare savings if the extension of their office hours or the addition of same-day appointments results in decreased emergency room use for their patients.

Obviously, we see gainsharing -- if implemented effectively (a very big “if”) -- as worthwhile. As such, we’re disappointed to find that its use has been on the wane. At the same time, we recognize that there are potential pitfalls that need to be addressed before any state or locality undertakes a gainsharing program:

• Some gainsharing programs produce monthly reports that, among other things, show that some people are likely to earn a bonus based on gains the program is producing. However, in the last month or two, the reports may show the gains -- and therefore the bonuses -- disappearing, and that can be very demoralizing. Says Selden: “It’s worse to create the expectation that you’re going to reap a benefit and then have that dissipate.”

• For gainsharing to work well, entities have to set up detailed processes and sometimes complex infrastructure. This can be expensive and time consuming.

• Entities that short-change training as the basis for gainsharing programs are unlikely to succeed.

• It is essential, even though it is very difficult, to get everyone -- top to bottom -- on board. That everybody, says Joseph Adler, director of the Office of Human Resources for Montgomery County, includes front-line employees, leadership, management and unions.

• At a time when employee compensation is being closely scrutinized, critics may rail at the idea that any more money should go into employees’ pockets, particularly when services are being cut. Says the University of North Carolina’s Ammons, “The whole idea goes down hard for critics who believe that governments already are entitled to their employees’ best ideas and most diligent efforts, without paying more to get them."

Caroline Cournoyer is GOVERNING's senior web editor.
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