Senior Professional in Human Resources (SPHR) Certification 2025 – 400 Free Practice Questions to Pass the Exam

Gain-sharing is a form of compensation that aligns employees' performance with the company's success by allowing employees to share in the financial savings generated by their collective efforts. In this scenario, since the president seeks to reward employees with a percentage of the cost savings at year-end, this initiative embodies the principles of gain-sharing. It incentivizes teamwork and productivity while directly correlating employee rewards with the financial performance of the organization.

Deferred compensation, while it pertains to payments that are delayed to a future date, does not specifically relate to cost savings initiatives. Similarly, discretionary bonuses are typically one-time payments awarded at the discretion of management, without a structured linkage to cost savings or performance metrics. Commissions are usually tied to sales or revenue generation, not overall cost savings involving the entire workforce. Therefore, gain-sharing is the most fitting classification for this type of compensation scheme, as it directly encourages a collaborative effort towards cost management and enhances employee motivation based on the organization's prosperity.