Gain Share Agreements

It should be noted that a profit sharing plan compares the company`s current performance to its historical performance (base period). Savings over the base period determine profit or loss. This is a very important point. Since profits are measured against a historical period, employees and the company must improve to make a profit. Performance thresholds should be adjusted periodically to account for the impact of capital investment in new investments and the continuous improvement needed to meet increasingly high client requirements. Profit-benefit contracts are a method to promote better delivery and reward success. But is the devil in the details? Alan Field explains the advantages and pitfalls of these arrangements. Profit-sharing contracts are not specifically about cost savings or the provision of services at a lower cost than expected (although this may be related to the expectation of benefits). Contracts labeled as profit shares, but rewarding simply avoided costs, could indicate a fundamental misunderstanding on the part of one or more parties. One way to test this would be to see how key performance indicators (KPIs) or service level agreements (SLAs) have been expressed.

It is important to note that gain sharing does not concern marginal optimizations of an existing system, process or service. Companies should expect such slight improvements throughout the duration of the contract and not be confused with continuous improvement, transformation or innovation. Profit-benefit agreements are contractual relationships between a company and a supplier that reward innovation, productivity and profitability outside the terms of a framework contract or as a complement. These are agreements that are difficult to establish, monitor and implement effectively in traditional supplier models. For Fee for Service models, this is even more difficult, as the fee for the service can often be a deterrent due to the risk-sharing implicit in profit-sharing. Fee for service models have been the most widely used in the healthcare sector, with mixed results. To successfully establish a fee for service model agreement, the keys lie in the specificity of the contract, which lists governance and supervision, fair risk and investment responsibilities, as well as the management of the final authority. Indicate the period during which the incentive is applicable. If the share of profits is to be renewed at the end of this period, it must be determined before the conclusion of the agreement.

Indicate the nature of the refund and the specified period of time the rights to the fraction of profits are paid in part and in full. For those who don`t know, a profit-sharing approach is a way to share risk between a GCC and a supplier, where all expected savings are distributed at an agreed percentage between each organization. . . .