The role of risk sharing and risk taking under gainsharing

Despite considerable practitioner interest in gainsharing compensation programs, understanding how gainsharing works and, thus, how to improve it in practice is hampered by a lack of a theoretical foundation upon which to build empirically testable models. We use a risk-sharing framework to develop a model of gainsharing that we hope will provide this missing theoretical foundation. In our model we develop propositions that highlight the differences between group-wide and individual incentive arrangements and that establish boundary conditions for a theory of gainsharing.