Business
Gain sharing is an approach taken by businesses and the aim is to promote communication, teamwork, alignment and involvement, thereby improving the performance of that organization or business. It is an incentive technique that compensates workers on the basis of the organization’s improvement. It involves two major aspects: one, a feedback and financial measurement system that checks the organization’s performance and then shares the gains in terms of bonuses according to some predetermined formula and two, a focused system of involvement that eradicate barriers to improving the company’s performance (Robert, M., 2003).
Basically, there are four types of productivity gain sharing programs. 1. The Scanlon plan. 2. The Improshare plan. 3. The Rucker plan. 4. The customs plan. The customs plan is rarely applied, so the first three are the most popular among businesses. The difference between these four gain sharing plans is in the way the bonuses are calculated; otherwise they are similar in some other ways. The Scanlon plan is the oldest of the four plans are remains the most widely applied. It is the ratio between total payroll expenses and total sales. It is a ratio between the historical labor cost and production sales value.
The Rucker plan is almost similar to the Scanlon plan, except that it uses the net value of sales. It deducts or adds the inventory charges and also subtracts the outside purchased services and/or materials. It can be stably applied in a manufacturing industry because of their need to improve variables of production such as reduction of scrap, labor and consumption of energy. Essentially, it helps to track the value added to production. The Improshare plan is applied to measure relationship changes between time/input and the output. It is less affected by changes in capital equipment and technology, production mix, wage or price increases and sales volume. It is the easiest to understand and apply.
The Scanlon plan has been identified as the most progressive approach. It is the oldest but remains dominant over the other approaches devised in its aftermath. It has a number of unique features that make it the most preferred by organizations. The first feature is its philosophy of cooperation. It makes sure that the employers and employees get rid of the attitudes that prevent the employees from having a feeling that they own the organization collectively. The second feature is that of identity. This involves the employees understanding the organization’s policies regarding the mission and purpose, prices, costs and other policies directly touching on the customers.
Thirdly, there is competence. It requires that employees are competent enough to help steer the organization’s productivity to greater levels. The competence should be at all levels. Fourth, there is the involvement feature. This is a scenario where the employees, with their sense of ownership, can give suggestions on the best way to go about the business operations so as to achieve the ultimate goal of the organization. These suggestions can be presented to the departmental committees which may then relay them to the executive committee (Davis, P. & Larry, S., 2008).
The fifth feature is that of the gain sharing formula. Normally, if the employee suggestions are implemented and gains realized as a result of its implementation, then the employees are entitled to up to 75% of the gains. Assuming the normal monthly payroll costs to sales ratio is 50%, if the total sales stand at $500000, the payroll costs should be at $250000. If the firm implements a suggestion by an employee and the resulting in payroll costs of $200000 a month when sales were $450000, the payroll cost should be $225000. The savings that can be attributed to that implementation is $25000. The employees are entitled to 75% of the $25000, which is about $18750 and the remaining 25% goes to the firm.
References
Davis, P. & Larry, S. (2008) Scanlon EPIC Leadership: Where the Best Ideas Come Together.
Melbourne: Scanlon Foundation.
Robert, M. (2003) Gain Sharing- A Team Based Approach to Driving Organizational Change.
Melbourne: WorldatWork.
