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La Bourse  /  Volume I  /  Nº I.03  /  Workbook — the Gainshare employee

A woman and a man seated together in a white gazebo, both writing in notebooks, daylight off the lake behind them.
Plate I.03 · Workbook — the Gainshare employeeTwo Hands, One Page.An instrument is the moment a conviction acquires a second person. Until somebody else has signed it, it is still only an opinion with a spreadsheet.

WORKBOOK — THE LUMINOUS GAINSHARE EMPLOYEE

Chapter I.03 · The First Instrument

For the person working inside a gainshare arrangement — where a defined share of verified improvement returns to the people who created it. Your scheme is an instrument. This workbook is about reading it as one, finding the terms it is missing, and asking for those terms in the language that gets them written.

YOUR SCHEME IS AN INSTRUMENT, AND IT HAS FIVE ANSWERS

The chapter says a document becomes an instrument when it answers five questions. Put your gainshare scheme against them:

The questionIn a gainshare
1CounterpartyWho owes the share — the firm, the unit, the fund? By name.
2PrincipalWhat sum is shared, and is it gross improvement or net of cost?
3TermHow long is the baseline good for before it moves?
4PriceThe share percentage, stated as a number.
5TriggerThe fact that turns the payment on, who observes it, and by when.

A scheme that cannot answer all five is a discretionary bonus wearing the word. That is not a complaint and it is not an accusation; it is a specification, and specifications can be filled in. Most schemes are missing questions three and five, and both are obtainable by asking well.

Chapter I.01 showed you that a gainshare and a shared-savings facility are the same structure with a different beneficiary. This chapter adds the part that protects you: the trigger and the remedy. A prepaid offtake is safe for the buyer because of a shortfall clause. A gainshare is safe for you for exactly the same reason, and most schemes do not have one.

PART ONE — DISCOVERY

Days 1–30: read your own instrument

Exercise 1.1 — The five answers, on your scheme (2 hours)

Get the scheme document. Not the summary, not the slide — the document. Fill in the five rows above in your own words, and mark every one you cannot complete from the text.

Then answer the three that decide whether the instrument is sound:

  1. What fact turns the payment on, and who observes it? If the answer is "management determines", you have a discretionary bonus. If it is "the verified variance against the February baseline, computed by internal audit by 31 March", you have an instrument.
  2. What happens if the firm does not pay? Most schemes are silent. Silence is the missing shortfall clause.
  3. What happens to the baseline once the gain is realised? If it resets to the improved level every period, you are on a treadmill: each gain raises the bar, the same effort returns less, and eventually nothing.

Exercise 1.2 — Find the capital you are already providing (one week)

Here is the thing this chapter gives you that the previous two did not.

A gainshare paid in arrears means you are funding the firm. Work improves in January; the gain is verified in April; the share is paid in July. For six months on average, money that is economically yours is working inside the business, and you are receiving no return on it.

That is the same structure as the prepaid offtake in the chapter — with you in the buyer's seat and no discount. Compute your own average outstanding balance:

  your expected annual share                  £S
  average months between earning and payment   m
  average capital you are providing           £S × m / 12

At an expected share of £4,800 and a six-month average lag, you are financing the firm with £2,400 at any moment, free. Across a forty-person scheme that is £96,000 of interest-free working capital, provided by the people least able to provide it.

This is not a grievance. It is a term that has never been negotiated, and naming it accurately is worth more than complaining about it precisely.

Exercise 1.3 — The appreciative team conversation (45 minutes)

Ask your team, in these words:

"Think of a time here when we improved something and the improvement stuck. What made it stick? What was written down, and who had to do nothing at all for it to keep working?"

Take notes on what was written, not on what was achieved. You are looking for the difference between an improvement that depended on somebody caring and one that was carried by a document. That difference is this chapter's subject.

PART TWO — THE ARITHMETIC

Days 31–50: compute what the terms are worth

Exercise 2.1 — Annualise the payment lag (45 minutes)

Use the chapter's correction. Money outstanding on average for half a period is not money outstanding for the period.

  interest-free capital you provide  =  £S × m / 12
  value of it, at the firm's WACC    =  that × WACC

At £4,800 of share, six months' average lag and a 9 percent WACC, you are providing £2,400 and the financing benefit to the firm is £216 a year per person. Across forty people, £8,640 a year — real money, currently unpriced.

What to do with the number. Not demand it. Ask for one of three things, in ascending order of how easy they are to grant: a shorter verification cycle (quarterly rather than annual), an interim payment on account at 50 percent of the verified running figure, or a stated interest credit on the outstanding balance. The first is usually free to the firm and worth most of the money to you, and asking for the cheapest of three is how a term gets agreed at the first meeting rather than the third.

Exercise 2.2 — Price the baseline term (60 minutes)

The single largest number in your scheme is not the share percentage. It is how long the baseline holds.

Model it. Suppose your team's improvement produces £120,000 a year of verified gain at a 20 percent share — £24,000 to the team.

The share percentage would have to be raised from 20 percent to 100 percent to compensate for an annual reset, which nobody will ever grant. Baseline term is worth five times the share percentage, and it is the term nobody negotiates.

Exercise 2.3 — The honest negatives, on your side of the table (45 minutes)

Two, and both are real.

First: a gainshare cannot pay out of a gain that was not measured, and measurement costs money. Below a certain scheme size the verification cost exceeds the share. If the scheme covers eight people and verification costs £6,000, the gain has to exceed £30,000 at a 20 percent share before anybody receives anything worth having. Compute your own floor: verification cost ÷ share percentage. Knowing it stops you asking for a scheme too small to work, which is how credibility is spent for nothing.

Second: a share of verified improvement is not a wage, and it should never be treated as one. In a year when the measured gain is genuinely zero, the correct payment is zero. A scheme that pays anyway is a bonus, and bonuses are withdrawn in bad years while contractual shares are not. The discipline is what gives the instrument its force, and it cuts both ways or it does not cut at all.

PART THREE — DESIGN

Days 51–75: the five terms to ask for

Exercise 3.1 — Draft the amendment (2 hours)

One page. Five terms, in the order they are easiest to grant.

  1. A named verifier and a date. "Computed by internal audit and published by 31 March." Costs nothing, converts discretion into obligation.
  2. A baseline term. "The baseline holds for three years from signature, and any revision is published twelve months before it takes effect." This is the expensive one and it is worth asking for first in a year when the numbers are good.
  3. An interim payment. "50 percent of the verified running figure, paid quarterly, reconciled annually." This is the shortfall clause in disguise — it caps how long your capital sits inside the firm.
  4. A published method. "The computation is written out with a worked example, and any two people applying it reach the same number." A method nobody can reproduce is a number nobody can check.
  5. A review date with both signatures. Not a right to renegotiate — a date on which both parties read the document again.

Exercise 3.2 — Write the trigger in one sentence (30 minutes)

Use the chapter's rule: flat releases.

"The share is payable if the verified measure is flat or better against the signed baseline, computed by [verifier] on [date]."

Argue for flat releases explicitly, because it protects both sides. A scheme that pays only on improvement every single period is a ratchet, and a ratchet ends in year three when a team that has genuinely optimised something can no longer clear a bar that keeps rising. Ratchets are how good schemes die, and management usually does not want that outcome either — which makes it an easy argument to win if you make it before the ratchet bites.

Exercise 3.3 — Find the uncounted gain (one week, with your team)

The highest-leverage thing you can do inside a gainshare is make a real gain countable, because an uncounted gain is never shared.

Take the five places from Chapter I.01 as you see them from the floor — waste, retention, the machine somebody tends, the supplier who answers at six, the thing your team would defend — and find the one where the improvement is real and the measure is missing. Propose the measure, not the payment. The payment follows the measure automatically once the scheme's own formula applies to it, which is a much easier conversation than asking for money.

PART FOUR — DESTINY AND DELIGHT

Days 76–90: make it hold

Exercise 4.1 — The three rots, from inside (30 minutes)

RotWhat it looks like from the floorWhat to ask for
The share becomes the payThe scheme is quietly folded into salary in a restructureThe share is stated separately on every statement
The verification becomes a formalityThe same person signs it off in four minutes each yearA different verifier named annually
The baseline driftsNobody can find the original signed documentA copy held by the employee representative, dated

Exercise 4.2 — The second owner (this month)

One other person who understands the arithmetic as well as you do. Not a sympathiser — somebody who can compute the window, the lag and the baseline effect independently.

The reason is the same as everywhere else in this volume: one person is a hobby, two is a practice. Teach them by handing them Exercise 2.2 and letting them get the answer before you show them yours.

Exercise 4.3 — Delight, and it is not the money (ongoing)

The pleasure available here is specific and worth naming, because it is what keeps people doing this work.

It is the moment in a meeting when you produce the baseline term calculation and the room goes quiet for a second — not because you have won something, but because everyone can now see a thing that was genuinely invisible five minutes ago, and nobody in the room can un-see it.

You did not bring a demand. You brought arithmetic. Those two people receive completely different meetings, and the difference is available to anybody willing to spend two hours with a scheme document and a calculator.

KNOW YOUR SCHEME — A CHECKLIST

Tick what your scheme actually has in writing.

Eleven items. Most schemes carry four or five. Each of the others is one sentence, and the ones costing the firm nothing — the verifier, the date, the published method, the copy held outside finance — are the ones to ask for first.

THE CONVERSATION, SCRIPTED

Open with the arithmetic, not the ask.

"I have been reading the scheme document properly. Two things I would like to check with you. First, the baseline — is it fixed, and if so for how long? I ask because on our own numbers the baseline term is worth about five times what the share percentage is worth, and I do not think either of us has priced it.

Second, the lag. The gain is earned in January and paid in July, so on average we are providing the business with about £2,400 a head of interest-free working capital. I am not asking for interest. I am asking whether verification could run quarterly, which I think costs very little and closes most of it.

Everything else in the scheme reads well. These are the two terms it is missing."

Why this works. It names two terms rather than a sum, it arrives with the arithmetic done, it asks for the cheap thing rather than the expensive one, and it opens by saying what is sound about the scheme — which is true, and is the condition under which the rest can be heard.

APPRECIATIVE QUESTIONS FOR YOUR TEAM

  1. When has an improvement we made stuck without anyone having to push it, and what was written down that carried it?
  2. What do we do here that clearly creates value and is currently uncounted?
  3. Which measure, if it existed, would make our best work visible to the scheme?
  4. If the baseline were fixed for five years, what would we attempt that we do not attempt now?
  5. What would it feel like to work somewhere where every one of us could compute our own share on the back of an envelope?
  6. If we could add one sentence to the scheme document this year, what should it say?
  7. Who verifies our numbers, and have we ever met them?
  8. What is the smallest change to the scheme that would make the biggest difference to how we work?
  9. How would we know if the scheme had quietly become a discretionary bonus?
  10. Who besides me understands the arithmetic well enough to check it?
  11. What would we want this scheme to still be doing ten years from now?
  12. Where else in this business would this scheme work, and who would we tell?