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Team or Small Group Incentive Plans
Gainsharing
The gainsharing approach is broader than the use of output and time standards. It rewards outcomes that are direct measures of the success of the department or organization, as opposed to the success of the individual employee. Gainsharing works well in a productivity environment.
In gainsharing, employees participate in teams to improve the department or organization performance and then share in the financial benefits of these improvements.
The purpose of gainsharing is to encourage employees and management to work together to meet or exceed productivity and performance standards throughout an organization. Although clear performance-reward connections can be made in these circumstances, it is difficult to make a performance-effort connection.
Scanlon plan
Gainsharing was first developed in the United States in 1937 by Joe Scanlon, a union organizer in a steel works plant. He developed a cash bonus plan where steelworkers received a portion of the total cost savings they made. The bonus is a proportion of the employee’s base pay and is paid to all eligible workers in a plant or facility.
Employees are paid a bonus if costs remain below pre-established standards. The standards are set by studies of past cost averages.
Ways to reduce costs are developed by a series of committees throughout the organization and by a plant-wide screening committee that reviews and implements changes.
Standard used
A number of different performance measures can be used in gainsharing, but all share a common dimension: a baseline standard must be established to determine where the work unit or organization is "at the present time." Improvements in future measures of performance are then shared with employees. The standards used may be reductions in costs or improvements in productivity, depending upon the plan.
| Scanlon plan | uses a financial measure only; the typical cost standard is labor cost as a percentage of sales |
|---|---|
| Rucker plan | uses value added for each dollar of payroll costs measured by the difference between sales income from goods produced and the costs of materials, supplies, and services consumed in production |
| Improshare | uses a single measure of productivity; the focus is on hours saved in producing a given output. Production standards are developed from past production records. |
Although these plans differ in detail, all of them:
- rely on a definition of productivity improvements wholly measured by some time period
- pay bonuses for savings
Further, most depend upon labor-management cooperation, which represents a change in the relationship between management and labor.
Deferred plans
These plans put the rewards to be distributed in the hands of a trustee, and distribution is delayed until some event occurs. This type of plan may be tied to a retirement plan.
Combination plans distribute part of the profit share as earned and defer distribution of the balance.
Memory Jogger
You are implementing a gainsharing plan in your organization. Your first step will be to establish a: