Download - Mir Process
-
7/30/2019 Mir Process
1/30
PRODUCTIVITY BARGAINING
Productivity bargaining is a form of collective bargaining in whichincreases of pay are secured in return for changes in working
practices which allow labour productivity to be raised.
Collective bargaining refers to the process of bilateral negotiations
between representatives of management and labour representatives no
such issues as wages, wage grades, working conditions and other welfareamenities. At the end of negotiations both the parties sign an agreement
which has a stipulated duration.
THE COLLECTIVE BARGAINING HAS CERTAIN
DISADVANTAGES:
a) The issues involved in collective bargaining are not always fully
understood by all the members concerned. In the words of Prof.
Lupton
b) Collective bargaining does not always take into account the effect onoverall economy and industry, of the wage agreements whether at
local or national level.
c) The bargaining is not realistically oriented to the performance. No
mention is made of the productivity at the industry or at the plant levelduring the course of collective bargaining. It fails to obtain full union
and worker co-operation to promote productivity, remove restrictive
practices, re-development of labour in different craft. It fails to relate
wage increase directly to change in the value of jobs in terms ofincreased effort or responsibility.
d) Collective bargain is subject to political and social pressures and when
wage increases are un-accompanied by productivity increases, it gives
rise to inflationary tendencies. This is often reflected in terms of
enhanced prices for products and services and as such the community
has to bear the brunt of this inflationary tendencies. While the
productivity gain, if any, is absorbed as profits, without in any way
directly benefiting the consumers, wage increases are reflected as cost
-
7/30/2019 Mir Process
2/30
increases in case of no change in productivity.
Quoting the experience of Steel industry, Owen Smith observes:
Traditional bargaining techniques were employed by Steel company of
Wales. When using this method, both sides behave rather as if they are atan
auction, with much importance being attached to finding the highest point
to
which employers will go and the lowest point below which trade unions
will
not go. In both cases, it is usually assumed that existing employment
levels will be maintained. More important, both sides leave thenegotiating table uncertain as to the practicability of an agreement, let
alone its life expectancy. This does not mean that either side need be
dishonourable, but that short-run considerations transcend the long-term
need to anticipate productivity changes with both the waged structure and
any increases in earnings. Existing anomalies in a wage structure mightgrow worse as this type of negotiation proceeds and underpaid workers
will become more resentful of their overpaid colleagues. It has already
been established that, within limits, such a behaviour pattern will
probably always exist in a collective bargaining situation; the
introduction of measuring techniques will minimize this tendency.
e) When once the agreement is broken it is damaged beyond repair.
f) Collective bargaining does not take into account the consumers
interest in terms of reduced of or steady price levels. It does not
provide an effective check when either of the parties violates the
agreement. It is essential that any bilateral agreement should be
protected under law and any attempt by either of the parties to raise
disputes seeking to re-open existing agreements should not beconsidered.
NEED FOR PRODUCTIVITY BARGAINING
When the employers found that the increased productivity is theresult of technological change and because of sophisticatedequipment. So some employers argue that if the increased
productivity is not due to increased effectiveness of working of
-
7/30/2019 Mir Process
3/30
employees but due to better equipment, all the benefits shouldaccrue to capital alone.
They also consider the fact that the workers should also equally co-operate in the change, as otherwise it will not bear full fruits to themanagement.
It will not be possible to achieve these changes without theconsequent industrial strife if the management is unwilling to share
the gains of increased productivity.
Financial incentives if applied injudiciously can lead towidespread discontent and fall in morale.
HISTORY OF PRODUCTIVITY BARGAINING
The origin of productivity bargaining can be traced to the economicdifficulties experienced by Britain in the sixties. With wages and prices
more and more under government control, a lead was taken by ESSOs
refining affiliate, viz., ESSO Oil Company Limited in this new field.
ESSO took a close look at the wages, job classifications, overtime
practices and other practices and offered wage increases and other fringe
benefits in return for unions acceptance forincreased productivity andchanges in The object of the negotiations was to improve the basic
efficiency of the companies operations while evolving a moresatisfactory method of answering labours needs. In practice, Productivity
Bargaining in England has succeeded in raising the ratio of productive tonon-productive time spent on the job by maintenance and process
workers at several large factories. It has enabled capital intensive
production and distribution facilities to go to shift working and reduced
the time lost due to dispute arising from cumbersome wage structures.
work practices.
CHARACTERISTICS OF PRODUCTIVITY
BARGAINING Productivity bargaining is a type of collective bargainnning In this method workers wages & benefits are linked to
productivity
-
7/30/2019 Mir Process
4/30
Without such productivity bargaining agreements workers may notrealize the importance of raising productivity for organizational
survival and growth.
In this ,a standard productivity index is finalized throughnegotiations, if they are able to exceed the standard productivitynorms, workers will get substantial benefits.
Productivity bargaining requires an explicit link between changesin work practices and changes in compensation
The real impact of productivity bargaining is in the attitude of theemployees they have.
ADVANTAGES OF PRODUCTIVE BARGAINING. It provides solutions to many of the typical problems of industrial
relations.
It closes gap between rate of pay and actual earnings. It enables demarcation difficulties to be eliminated and reduced It concentrates decisions at the level of the company and factory
GUIDELINES FOR THE ASSESSMENT OF
INCREASED PRODUCTIVITY
Productivity refers to the ratio of output and input i.e., it is the efficiency
with
which inputs are utilized and spent in achieving the output
Productivity =OutputInput
Or more precisely, productivity is the ratio of production to one of thefactorsof production viz, Land, Labour, Capital, etc. Thus we can arrive at
different
producrivity ratios for different factors of production. A distinction must
be
made between production and productivity. The former relates to the
production or volume of output whereas the latter refers to the ratio of
efficiency of utilization of different factors of production. That higher
-
7/30/2019 Mir Process
5/30
productivity implies higher and higher standard of living for the workersand
the community is a forgone conclusion.
1st GUIDELINE
It should be shown that the workers are contributing towards
the achievement
of constantly rising levels of efficiency. Where appropriate,
major changes in
working practice or working methods should be specified in
the agreement.
The objective of efficiency agreements is to make possible the constant
raising of efficiency; this will require close and continuing co-operation
between managements and workers so as to achieve and maintain the
highest standards in the use of both equipment and manpower. The
secondsentence has special reference to agreements which specify major
changes
in working practice to which workers have agreed. Such changes shouldalways be spelled out if there is any possibility that commitments in more
general terms will lead to difficulties of interpretation or will not be given
fullexpression in practice.
2nd GUIDELINE
Measurements of efficiency should be based on the applicationof relevant
indices of performance or work standards.
Management should devise and use appropriate yardsticks for measuring
the
contribution of workers of all kinds towards achieving rising levels of
efficiency and develop an information system which makes full use of the
data obtained as a result. For many manual operations work-studied
standards are applicable and should be used, but work measurement can
-
7/30/2019 Mir Process
6/30
also be applied to a wide range of clerical and other non-manual work.For
other situations it will be necessary to use more broad based indicators of
performance, if necessary on a group basis.
3rd GUIDELINE
A realistic calculation of all the relevant costs of the
agreement and of the
gain attributable in the workers contribution should normally
show that the
effect is to reduce the total cost of output or the cost ofproviding a given
service.
Relevant costs may include, for example, the cost of redundancy
payments
or a proportion of consultants fees where they are an integral part of anagreement, and these should be apportioned as necessary over a
reasonable
period rather than charged only to the first year following the agreement.Thegains attributable to the workers contribution may result from more
effectiveworking methods, the fuller utilization of existing capital equipment, the
adaptation of working practices to enable full and prompt use to be made
of
new equipment and reduced capital investment (if for example revised
scheduling and shift working make possible a smaller transport fleet).
Thereference to a reduction in cost assumes a calculation for the purpose of
which unrelated costs, e.g., the price of raw materials, are left out of
account.
4th GUIDELINE
There should be effective controls to ensure that projected increases in
efficiency are achieved and that higher pay or other improvements are
made
-
7/30/2019 Mir Process
7/30
only when such increases are assured.
In order to observe this guideline, managements must operate effective
controls, including an information system which makes it possible toestimate
in advance and subsequently monitor the extent to which increases theefficiency are in fact being achieved. In so far as the information system
shows that progress exceeds or falls short of the original projection, some
adjustment may have to be made. In any case, due allowance should be
made for the accrual of some of the achieved gain to the consumer.
Particular care also needs to be taken to distinguish the contribution of
workers from other sources of more efficient working.
5th GUIDELINE
There should be clear benefits to, the consumer by way of a
contribution to
stable or lower prices.
This guideline is of particular importance in areas of rapid economic
expansion, since the most needs to be made of opportunities to reduceprices
in these areas in order to contribute as much as possible to raising the real
incomes of the community as a whole. In some cases the community may
benefit by an improvement in quality while prices remain un-changed or
by
the use of the gains to complete more effectively in export markets.
6th GUIDELINE
An agreement applying to one group of workers only should
bear the cost of
consequential increases to other groups, if any have to be
granted.
-
7/30/2019 Mir Process
8/30
An example would be if supervisors have to be given a pay increase toprevent the disappearance of a differential as a result of a pay increase
granted to the workers whom they supervise. The need for consequential
increases unrelated to increases in efficiency should, however, be reducedas
much as possible by enabling other groups of workers to conclude theirown
efficiency agreements or by including them within the scope of the
original
agreement.
7th GUIDELINE
Negotiators should avoid setting levels of pay or conditions
which might have
undesirable repercussions elsewhere.
Where large increases in pay are shown to be justified, negotiators should
consider the possibility of staggering the increases over a period of time
or,
alternatively, of a non-recurring lump sum payment. Failure to do so,
mightraise expectations for future increases which could not be fulfilled and
might
also, because of the exceptional size of the increases, have repercussions
which would eventually rebound on the undertaking granting the originalincrease.
REQUIREMENTS OF PRODUCTIVITY
BARGAINING
The fundamental requirement of productivity bargaining is that a sincere
-
7/30/2019 Mir Process
9/30
attempt must be made to raise productivity through positive increase inefforts.
The bargain should aim at reduction in unit costs or at least try to de-
escalatethespiraling price increases. A careful application of Productivity
techniquesfor improving over-all performance is essential to achieve this.
A systems approach can help considerably in designing a productivity
agreement. The inputs in the form of changes in operational procedures,
reorganization
of workers or work-place are to be clearly and unambiguously
spelt out and a schedule of completion of such inputs stage by stage
shouldbe clearly defined. The output in the form of increased productivity and
rewards should be worked out on the basis of guidelines discussed earlier.
The most important limb of a system is its control points. The system
should
constantly check whether the output as envisaged is achieved or not. It isthus useful at times to implement the system in stages, in which case we
may
draw from experience gained in preceding stages.
When a productivity agreement is signed covering only part of the
workers in
the plant, a question arises as how to compensate those workers who are
not
covered in these agreements. One possibility is to grant pay rises to only
such of those staff who are covered under the agreement. But obviously
this
would not be very conducive to harmonious industrial relations. The
PIBs
guidelines suggests that all rewards must result from the direct savings
accruing out of implementation of the agreement. Thus all the workersmay
be partly compensated through this change, the rest being given after theother set of workers are brought into the purview of the agreement.
In large plants or companies with more than one plant, if a productivity
agreement is envisaged forming part of a single or a few sections or
plants, it
is desirable to relate pay increases to the overall improvement of the plant
rather than that achieved in the particular section or plant. If a job
evaluation
-
7/30/2019 Mir Process
10/30
is simultaneously carried out, it can help to reduce the disparities in wagestructure and ensure that increases in earning do not distort the existing
wage structure.
The reward for increased Productivity may also take the shape ofnonfinancial
perquisites such as improved status, free grants or more welfareamenities, though it may be difficult to tell this idea immediately.
Consumers must also have a share in the benefits of increased
productivity,
in the form of lower prices or stable price levels. If an agreement provides
also for the growth of the organization in terms of re-equipping through
sophisticatedequipments and as a consequence the productivity improves
enormously, then it would be wrong for all the benefits to be enjoyed bythe
workers and owners of the company. A reasonable share must be
provided
for the community as a whole.
It is essential that all the implications of a productivity agreement areunderstood by all the levels of management. This calls for educating all
of
them through negotiations and other means.
There must be suitable organizational set up with qualified personnel to
undertake productivity measurement collection and proceedings of
relevant
information, etc., within the company itself. Also other aspects such as
maintenance, safety and protective measures which are incidental to
productivity increase must be taken care of in course of agreement.
DIFFICULTIES IN INTRODUCING A
PRODUCTIVITY BARGAIN
Productivity bargain is a more through attempt to achieve productivity
rise in
the company and increased earnings to the workers than what is
attemptedwith conventional collective bargaining. However there are several
difficulties
to be encountered while introducing a productivity bargain in a company:
i) The chief difficulty is to get over the inter and intra union rivalry.
-
7/30/2019 Mir Process
11/30
Speaking at a recent seminar on Multiplicity of Trade Unions and itsEffect on Industrial Relations and Productivity on June 15, 1972, the
President Mr. V.V. Giri reiterated the slogan of one union in one
industry and said that multiplicity of trade unions is neither conduciveto the promotion of good industrial relations nor did it help increase
production and productivity so essential to national prosperity. Itweaken the power of collective bargaining and reduces the
effectiveness of workers in securing their legitimate rights.
ii) The management must spend considerable time and effort to keep the
required information ready and this calls for an effective information
system. Also this information must be circulated in advance, so that
the union can check the information and get all the clarificationsrequired.
iii) Alternate avenues of employment must be ensured for redundant
labour to ensure productivity without tears. This would call for
expenditure for retraining labour in new skills.
iv) There must be a continuous appraisal of the job evaluation system,
since the skill requirements vary from time to time. There would also
be difficulties arising out of the subjective elements of a job evaluation
system and the irrational conceptions of individuals about their own
importance.
v) The management must realize the productivity agreements are not
solely intended to reduce labour costs, but have wider benefits also
and as such should try to maximize the potential benefits from
productivity bargaining.
vi) Greater knowledge of management and unions about the productivity
techniques, its concepts and implications leads to removal ofhesitation and hostility by both sides towards productivity agreements.
CONCLUSIONS
1. Productivity Bargaining is different from collective Bargaining,
even though both have some similarities.2. Mutually accepted guidelines/models help in sharing the gains
of productivity equitably.
-
7/30/2019 Mir Process
12/30
3. Introduction and implementation of productivity bargainingagreements involve considerable preparation.
-
7/30/2019 Mir Process
13/30
GAIN SHARING
-
7/30/2019 Mir Process
14/30
Introduction:-
Gainsharing is a system ofmanagement used by a business to increase
profitability by motivating employees to improve their performance
through involvement and participation. As their performance improves,
employees share financially in the gain (improvement).
Gainsharings goal is to improve performance and eliminate waste (time,
energy, and materials) by motivating employees to work smarter as ateam rather than just working harder.
Definition
Gainsharing is a program that returns cost savings to theemployees, usually as a lump-sum bonus. It is a productivity
measure, as opposed to profit-sharing which is a profitability
measure.
An employment arrangement in which an employee benefits fromhis or her contribution to improved performance of the
organization.
For example, a hospital might offer physicians a share of any cost
reductions in patient care attributable to actions taken by physicians. Gainsharing attempts to motivate employees through financial rewards.
An incentive plan in which employees or customers receivebenefits directly as a result of cost-saving measures that they
initiate or participate in the companys gainsharing program tiesbonuses directly to team performance
Employee motivational technique where compensation is given formeasurable performance gains in such areas as sales, customer
satisfaction, and cost reductions. The compensation is often given
to employee teams for achieving specified goals.
Gainsharing history
http://simple.wikipedia.org/wiki/Systemhttp://simple.wikipedia.org/wiki/Managementhttp://simple.wiktionary.org/wiki/involvementhttp://simple.wiktionary.org/wiki/participationhttp://simple.wikipedia.org/w/index.php?title=Employees&action=edit&redlink=1http://simple.wiktionary.org/wiki/financialhttp://simple.wiktionary.org/wiki/financialhttp://simple.wikipedia.org/w/index.php?title=Employees&action=edit&redlink=1http://simple.wiktionary.org/wiki/participationhttp://simple.wiktionary.org/wiki/involvementhttp://simple.wikipedia.org/wiki/Managementhttp://simple.wikipedia.org/wiki/System -
7/30/2019 Mir Process
15/30
One of the first Gainsharing plans dates back to the 1930's. In the 1930's alabor leader and MIT Lecturer Joe Scanlon, preached that the worker
had much more to offer than just a "pair of hands" (manual labor).
Scanlon believed that the person closest to the problem often has the bestand simplest solution. Also, if the worker is involved in the solution hewill make the solution work.
In an effort to help a troubled company, Scanlon and the company owner
asked employees' for their ideas and suggestions to help reduce waste andlower cost. Many improvements were made. The company became more
successful. Joe was asked to save other companies who had barely
survived the depression. He eventually became the Acting Director of the
Steelworkers Research Department and used his skills in creating joint
labor/management improvement committees to help the war effort forWWII.
After the war Joe became a lecturer at MIT and went on to develop a
system for organizational development and gainsharing that becameknown as the Scanlon Plan.
As the Scanlon Plan developed a method to measure (calculate) gains
(improvements) was created. The monetary gains were then shared with
all employees. This calculation represents the bonus (monetary incentive)element of Gainsharing. This concept addresses the principle of equity.
"It is fair to share." Everyone in a company makes a contribution to the
organization's success. Why limit bonuses to the select few? People
typically take pride in their work and have a strong desire to be respectedfor what they do. By sharing the company is communicating an important
message to the work force: "We all contribute. That contribution isrespected. Let's share in the financial benefits."
Gainsharing today
Today, companies use Gainsharing to both measure performance and
reward employees when it improves. Companies use a pre-determined
calculation (formula) to share the savings with all employees. The goalsof a companys Gainsharing plan depend on its cost structure and long-
term competitive strategy and are tailored to fit the industry
(manufacturing, service, or corporate). Information regarding the
measures, formula, and gains (savings) is regularly and openly shared
with all employees. Since the monetary gains are shared with employees,
http://simple.wikipedia.org/w/index.php?title=Scanlon_Plan&action=edit&redlink=1http://simple.wikipedia.org/wiki/Measurehttp://simple.wikipedia.org/wiki/Formulahttp://simple.wikipedia.org/wiki/Formulahttp://simple.wikipedia.org/wiki/Measurehttp://simple.wikipedia.org/w/index.php?title=Scanlon_Plan&action=edit&redlink=1 -
7/30/2019 Mir Process
16/30
people develop more of a sense of ownership for their work and thecompany. People have a better understanding of how they influence thecompany's success.
Gainsharing develops the work culture
It should be noted that in a Gainsharing plan, the company's current
performance is compared to its historic performance (baseline period).
The savings above the baseline period determine the gain or loss. This is
a very important point. Since gains are measured in relationship to ahistorical period, employees and the company must improve in order to
make a gain. Performance thresholds must be corrected periodically for
the effects of capital investment in new equipment as well as for thecontinuous improvement needed to meet ever higher customer demands.
When people do their work differently they must change. However, as
everyone one knows, it is difficult for people to change. On the other
hand, do people like money? Most people would say, "Yes." Therefore,
Gainsharing can be a very powerful tool. Gainsharing promotes the needfor continuous improvement and eliminates employees' sense ofentitlement.
The employee involvement element
A very important part of a successful Gainsharing plan is the employee
involvement element of Gainsharing. In order to foster a culture of
positive change, a successful Gainsharing plan needs to incorporate a
structure system of employee involvement. It is common for Gainsharing
plans to have a "team-based" suggestion system in place.
How does a team-based suggestion system work? First, teams are formed
in order to gather suggestions from employees on ways to improve, (inother words, suggestions on how to work "smarter"). To avoid
unnecessary bureaucracy, most companies ask managers/supervisors to
lead departmental teams whose goals mesh with the overall objectives ofa companys Gainsharing plan. The teams are permanent groups. The
teams meet on a regular basis to discuss the ideas and suggestions. They
make decisions on approving or declining the ideas. Also the teams are
given limited spending authority to approve and implement the
suggestions. Suggestions that are approved by a team, but are beyond
their spending authority, are advanced to a higher level in the
http://simple.wikipedia.org/wiki/Culturehttp://simple.wikipedia.org/wiki/Teamhttp://simple.wikipedia.org/wiki/Suggestionhttp://simple.wikipedia.org/wiki/Suggestionhttp://simple.wikipedia.org/wiki/Teamhttp://simple.wikipedia.org/wiki/Culture -
7/30/2019 Mir Process
17/30
organization for final approval. Unlike a traditional suggestion system, ateam-based system does not provide individual monetary rewards. This is
because everyone works together and shares in the gain together.
Gainsharing is not an individual incentive plan.
The bonus calculation element
In terms of the calculation, a Gainsharing plan may have from one to six
key performance measures. The most effective Gainsharing plans have
relatively few performance goals because employee understanding ofthem is necessary for success. Examples of measures include
productivity, quality, waste, spending, and customer service which are all
factors employees can control. The gains (savings) from each measure arecalculated separately. Then gains and losses from each measure are added
to determine the total gain. A portion of the total gain goes to the
company and a portion is shared with all employees. Generally, from10% to 50% of the gain is shared with employees. The percent of the gain
shared with employees depends on employee controllability and
importance of the measure to the organization. The pool is distributed to
all participants, typically on a monthly or quarterly frequency. The
frequency of payouts depends on the employee line-of-sight (employees
ability to identify what they do today to earn a payout at the end of the
Gainsharing period). Companies with unskilled and semi-skilled
employees typically have plans calling for payouts at shorter intervalsthan those with highly skilled workers.
Gainsharing implementation
It is very important to note that the development and implementation of a
Gainsharing plan involves employees and that its goals are within
employee control. An employee committee called the "Design Team"
helps to make policy decisions on issues such as the plan's measures,employee eligibility, frequency of payout, and method of communication.
Next the design team gets upper management approval before
implementation. After approval, the Design Team is responsible for
conducting meetings with all employees to communicate the details of theplan. Follow-up training should also take place.
-
7/30/2019 Mir Process
18/30
Elements of Gainsharing
Element Gainsharing
Purpose
To drive performance of an organization by promoting
awareness, alignment, teamwork, communication and
involvement.
Application
The plan commonly applies to a single facility, site, orstand-
alone organization.
Measurement
Payout is based on operational measures (productivity,quality, spending, and service), measures that improvethe line of sight in terms ofwhat employees do and
how they are compensated.
FundingGains and resulting payouts are self-funded based onsavings generated by improved performance.
Payment targetPayouts are made only when performance hasimproved over a historical standard or target.
Employeeeligibility
Typically all employees at a site are eligible for planpayments.
Payout frequency
Payout is often monthly or quarterly. Many plans have
a year-end reserve fund to account for deficit periods.
Form of Payment
Payment is cash rather than deferred compensation.
Many organizations pay via separate check to increase
visibility.
Method of
distribution
Typically all employees receive the same % payout or
cents per hour bonus.
-
7/30/2019 Mir Process
19/30
Plan development
Employees often are involved with the design and
implementation process.
Communication
A supporting employee involvement and
communication system is an integral element of
Gainsharing and helps drive improvement initiatives
There are three major types of gainsharing:
Scanlon plan:This program dates back to the 1930s and relies on committees to
create cost-sharing ideas. Designed to lower labor costs withoutlowering the level of a firm's activity. The incentives are derived as
a function of the ratio between labor costs and sales value ofproduction (SVOP).
Rucker plan:This plan also uses committees, but although the committee
structure is simpler the cost-saving calculations are more complex.
A ratio is calculated that expresses the value of production requiredfor each dollar of total wage bill.
Improshare:Improshare stands for "Improved productivity through sharing" and
is a more recent plan. With this plan, a standard is developed that
identifies the expected number of hours to produce something, and
-
7/30/2019 Mir Process
20/30
any savings between this standard and actual production are sharedbetween the company and the workers.
[3]
Features of each gainsharing plan include:
Strategic objectives-
Most successful gainsharing programs utilize clearly
communicated objectives. Common objectives include: improving
safety, reducing operating costs, enhancing productivity and
quality, and reducing materials and/or energy usage.
Employee involvement-
Involving employees should be an important consideration
in gainsharing plans. The Scanlon and Rucker plans utilize a
multitiered employee-involvement program that consists of a
suggestion system and one or more committees to identify and
solve operational problems. Although Improshare doesn't requirean involvement program, plans having an involvement vehicle tendto be more successful than those that do not.
Employees covered by gainsharing plans-
There is wide variability in the employee groups covered by
gainsharing plans. Some organizations have established plans that
cover all employees, while other plans have focused on production
and indirect labor. One of the most difficult decisions to make isdesignating which employee groups should be included in
gainsharing. In the decision process, organizations must consider
the tradeoffs between including those groups of employees who
can impact the measurement formula the most, and including all
employees to develop esprit de corps.
Typical elements of a Gainsharing plan include the following:
http://en.wikipedia.org/wiki/Profit_sharing#cite_note-2http://en.wikipedia.org/wiki/Profit_sharing#cite_note-2http://en.wikipedia.org/wiki/Profit_sharing#cite_note-2http://en.wikipedia.org/wiki/Profit_sharing#cite_note-2 -
7/30/2019 Mir Process
21/30
Gains and resulting payouts are self-funded. The plan commonly applies to a single plant, site, or stand-alone
organization. However, some organizations have levels of sharing
across multiple locations or corporation-wide. Performance is typically measured across
departments/units/functions. Measures are commonly narrower and controllable by employees
rather than being an organization-wide measure of profits.
However, some organizations have measures as broad as profits. Payout is often monthly or quarterly. Many plans have a year-end reserve fund to account for deficit
periods.
Employees are involved with the design process. All employees are eligible for plan payments. The bonus is often paid as an equal percentage of compensation or
equal cents per hour worked, rather than paid on the basis of
individual performance.
A supporting employee involvement system is part of the plan inorder to drive improvement initiatives.
How does Gainsharing work? The typical Gainsharing organizationmeasures performance and through a pre-determined formula shares thesavings with all employees. The organization's actual performance is
compared to baseline performance (often a historical standard) to
determine the amount of the gain. Employees have an opportunity to earn
a Gainsharing bonus (if there is a gain) generally on a monthly or
quarterly basis. Gainsharing measures are typically based on operational
measures (productivity, spending, quality, customer service) which are
more controllable by employees rather than organization-wide profits.
Gainsharing applies to all types of business that require employeecollaboration and is found in manufacturing, health care, distribution, and
service, as well as the public sector and non-profit organizations. Typicalelements of a Gainsharing plan include the following:
When does Gainsharing work best?Works best when company performance levels can be easily quantified
and in a work environment that is based on openness and trust. A
supporting system of employee involvement will significantly enhance
-
7/30/2019 Mir Process
22/30
the long term effectiveness of the plan. Requires managementcommitment, training and frequent and ongoing communications.
What is the best way to implement Gainsharing?Executives and managers must be educated in order to develop a clear
understanding of the Gainsharing philosophy and the management style
required for success. If an organization moves forward with a plan, it is
best to form a team of employees to work on various elements of the
project. The team is involved in preparing many of the rules of the planand final approval for the plan details from top management. The team is
then responsible for presenting and communicating the plan details.
Supervisors and managers are trained in the relationship of their role
toward the plan. Teams are formed and trained in order to work on
performance enhancement initiatives. It's best to have an expert on
Gainsharing to guide and facilitate the process in order to work throughthe pitfalls and to avoid payout out of false gains.
Advantages
Helps companies achieve sustained improvement in keyperformance measures
Rewards only performance improvement Payouts are self-funded from savings generated by the plan Aligns employees to organization goals Fosters a culture of continuous improvement Enhances employee focus and awareness Increases the feeling of ownership and accountability Enhances the level of involvement, teamwork and cooperation Supports other performance improvement efforts and helps
promote positive change Promotes morale, pride, and more positive attitudes toward the
organization
Disadvantages
Measures are narrower than organization-wide profit and thereforegains may be paid even though profits may be down.
Requires a participative management style
-
7/30/2019 Mir Process
23/30
Requires that management openly shares information related toperformance measures
Employees may question or challenge management decisions thatmay adversely impact a gain.
Increases the level of organizational stress since everyone has moreof a financial stake in the organization's success
Applies best to and a work environment that requires teamworkand collaboration rather that individual entrepreneurship
Paid on the basis of group performance rather than individual merit
Our experience in designing and studying many gainsharing plans
suggest six factors must be addressed in creating an effective
gainsharing program.
Utilization of an easy-to-understand:- Formula that tracks those
variables which directly affect an organization's strategic performance.
Employees must have an impact on formula's elements.Regular program evaluation (at least annually) :- This can include
developing metrics to assess program performance, creating procedures
for revising the bonus formula and using a process for communicating theprogram's changes.
Employee involvement during design, implementation and periodic
evaluation:- Organizations that solicit employee input regarding program
design tend to have programs that outperform systems designed without
such contributions.
A base reward system that pays at the current market level:-
Gainsharing is not a substitute for paying salaries below the market level.
It is designed for and works best when augmenting a base salary system
that reflects market conditions.A subject-matter expert to guide the design process:-Gainsharingsystems are not do-it-yourself programs. Success requires an expert who
has successfully designed these types of reward systems. Organizations
that think the process is as simple as reading a book usually encounter
significant problems.Stable product/service lines:- Organizations that have relatively stable
product/service lines or an ability to develop a stable formula tend to havethe highest success rate. Rapidly changing product/service lines and
unstable baselines will result in wide payout variations, which tends to
-
7/30/2019 Mir Process
24/30
undermine employee confidence in the program.
Types of measurement formulas
There are two distinct types of gainsharing measurement formulas:physical and financial.
Physical formulas :- reward employees for improving the relationship
between physical units of output and input (e.g., Improshare). This type
of formula affords many advantages because it's based on easily
understood variables within the employee's direct control. The downside
of using this type of formula is that it can pay bonuses during periods of
shrinking or nonexistent profit.
Financial formulas :-are based on an organization's overallprofitability. Employees become eligible to receive a bonus only when
the organization makes a profit. The Rucker and Scanlon plans use thistype of formula. Since financial formulas are affected by factors beyond
an employee's direct control (e.g., inflation, government regulations,
taxation, pricing decisions), they are distorted by the relationship between
effort and reward. This can have a deleterious effect on employees'
motivation (see figures 2 and 3).
In some organizations, the three textbook formulas don't track and rewardthe variables required for competitive advantage. In these instances, it
may be appropriate to develop a customized formula that meets an
organization's special needs. When developing a formula, you should
consider the following guidelines:Create a formula that can be administered easily.
Develop a formula that adapts to changing environmental conditions.
Before installing a formula, do simulations or modeling to identify how
the bonus is affected by changes in volume, selling price, market share,
etc.
The baseline:-Baselines are used as a starting point for calculating improvements.
Organizations use either permanent, dynamic, rolling or targetedbaselines. Permanent baselines remain constant during the plan's lifetime.
This provides employees with an added advantage because their bonuses
reflect improvements made during previous periods. Dynamic baselines
-
7/30/2019 Mir Process
25/30
are revised on an intermittent basis (usually early) according to theperformance level achieved in the previous measurement period. Plans
that utilize dynamic baselines have problems maintaining bonus levels
because employees must generate new improvements constantly.
Rolling baselines calculate the average performance for a specific numberof periods. The length of time typically varies from four to six weeks. For
example, if a company utilizes a four-week rolling average as it begins
the first week of month two, the first week of month one is dropped.
Targeted baselines are used when no appropriate baselines are available.
This can occur when a new product or technology is introduced or when
work processes are significantly changed, making the existing baseline
invalid.
The employee bonusThe percentage of savings shared with employees varies depending on the
gainsharing plan utilized. Generally, plants that only measure labor
productivity share the greatest percentage of savings with employees.
Traditionally, the Scanlon plan (labor-only formula) returns 75 percent ofthe gain to employees. Improshare usually returns 50 percent of the gain
to employees, while the Rucker Plan varies greatly.
When determining the bonus share, management should consider the
capital intensity of the business, frequency of baseline changes and
expected motivational impact. Capital-intensive industries usually pay outsmaller shares to employees. Plans that frequently change the baseline
require larger productivity improvements for employees to receive a
bonus. Typically, these types of plans provide employees with a larger
share.
In most plans, organizations pay out bonuses either weekly, monthly,
quarterly or annually. Most organizations reward employees monthly.When deciding on payout frequency, consider the availability of data,
motivational intent desired, administrative costs and environmental
uncertainty (uncertainty in the environment can cause considerable
payout variations).
Organizations can divide employees' share of gains as follows:
Percent of income-
-
7/30/2019 Mir Process
26/30
The bonus pool translates into a percentage of salaries, with eachemployee receiving an equal percentage of compensation. This method is
used in about 75 percent of the plans.
Equal shares-
Every employee receives the same dollar amount.
Hours worked-
The bonus is paid in terms of dollars per hour worked and applied
to employees accordingly.
Advantages of productivity gainsharingOrganizations that have successfully implemented productivity-
gainsharing plans report a number of benefits. Many of theseorganizations believe it has significantly improved organizationalcommunications, especially between labor and management, and between
different interdependent functional units. Since gainsharing supports a
true pay-for-performance culture, employees tend to see their prosperity
linked directly to the organizations. This tends to increase their
commitment to the organization.
Since gainsharing plans measure changes in critical relationships between
inputs and outputs, employees must understand the variables-that theycan control-which affect organizational performance. Many gainsharing
plans create an esprit de corps between interdependent work groups, and
between labor and management, which usually reduces conflict, improves
cooperation between related work units and benefits labor-management
relations.
It's not uncommon for these quality-of-worklife benefits to have a
positive effect on absenteeism, turnover and tardiness. Also, most
companies report considerable reductions in their cost drivers (e.g., laborcosts, product/service quality, purchased goods or services). Lastly,
gainsharing plans motivate employees to improve the performance of key
success factors within an organization.
Is gainsharing right for you?Listed below are seven variables that should be considered when
assessing the feasibility of gainsharing.
Fit with strategy and ongoing operational initiatives-
-
7/30/2019 Mir Process
27/30
An organization's strategy is the vehicle of change. Gainsharing isviable only when it supports the business strategy and is integrated with
ongoing operational initiatives.
Alignment with existing culture-
Gainsharing is not an overlay. It must be consistent with the
organization's existing beliefs and values.
Commonality with the prevalent leadership style of management
Gainsharing requires a participatory leadership style. Supervisors
and managers must not be threatened by increased employee
empowerment. Management must be receptive to suggestions for
improvement and be willing to act on those suggestions.
Capabilities of the information-reporting system-
Gainsharing plans can tax an organization's information system.
Successful plans require accurate, timely and appropriate information tocalculate the bonus and track the plan's performance.
Type of product/service mix-
Plan complexity increases exponentially as the product/service mix
becomes greater. It is, therefore, more difficult to implement gainsharing
principles in an organization with a wide range of product/service lines.
Interdependence of the work force-
Gainsharing works best in organizations that have highly
interdependent processes.
Potential to absorb additional output-
The basic premise behind gainsharing is to improve the ratio of
inputs to outputs. Typically, organizations focus on increasing outputs. If
your organization competes in a market that cannot utilize additionaloutput of products/services, productivity gains can become personnel
displacements.
Implementation issuesSince no two organizations are alike, there is no map that can be used to
design and implement gainsharing in all environments. Listed below are
several broad steps that should be considered when designing and
implementing a gainsharing program.Conduct a readiness assessment-
-
7/30/2019 Mir Process
28/30
A readiness assessment answers two important questions: Isgainsharing a fit within my organization, and what are the requirements
for a successful transition to gainsharing?
In most instances, the readiness assessment should start with a review of
your operations.
This can include an analysis of the current physical layout and process
flows, existing productivity measures, historical information on resources
used, key cost drivers, input/output variables that measure productivity,
capital investment plans and assessment of the degree employees can
impact profitability.
It is not advisable to install gainshar-ing in an environment where large
capital investments are planned, which can affect the capital-labor ratio
and makes the baseline unreliable.
In addition to the operations review, you should conduct an assessmentthat identifies how a gainsharing program will affect your organization's
architecture. We believe architecture is composed of three elements:
technology (i.e., the equipment, data and applications used); organization
(i.e., administrative control systems, structure, human resource systems,
culture and employee competencies); and process (i.e., work processes
and physical layout).
Design gainsharing program-
Typically, this begins with the formation of a design team. Ourexperience suggests a cross-functional design team-represented by human
resources, training, finance, operations and the union, if applicable-with
significant employee representation a must for success.
Unless the design team has considerable gainsharing experience, werecommend you conduct education on gainsharing principles, including:
the history of gainsharing; successful case studies/plant visits;
benefits/risks; features of each gainsharing plan; and a blueprint for
design/implementation.
After completing the training, the design team should get down to thenuts and bolts, and develop the objectives of the gainsharing program,
identify which groups will be covered by the plan and design the plan's
key features (e.g., employee-involvement vehicles, productivity baseline,
-
7/30/2019 Mir Process
29/30
bonus formula, bonus payout). Before selecting which plan to implement,we recommend highly that the design team simulate the Scanlon, Rucker
and Improshare plan formulas based on historical data while using a
variety of input/output measures.
One of the most critical components that organizations frequently ignoreis the evaluation strategy of the gainsharing plan. This should include
metrics to measure the plan's effectiveness, timetables for ongoing
measurement and the establishment of a committee or team that has the
authority to review and modify the plan.
After the plan has been designed fully, decide the scope of initial
introduction. Specifically, will the plan be introduced on a pilot basis, orwill full implementation take place? The optimal time to implement
gainsharing is when demand for the organization's products or services
exceeds current production levels. Avoid new product introductions or
implementing technology with long learning curves. Also, avoid
introduction during peak times or labor negotiations.Maintenance-
Gainsharing plans must be flexible enough to respond to changingmarket conditions. The last key task that the design team should tackle is
clarifying maintenance roles and responsibilities.
This is a ticklish issue. For a plan to succeed, employees must understand
and have confidence in the plan. Whenever a plan is modified, employees
tend to be skeptical. They assume that management has a hidden agenda.Plan modifications usually occur because of changes in the
product/service mix or capital investments (i.e., new technologies).
One way to mitigate the perception of tampering is to include a section in
the gainsharing policy on plan evaluation and modification. The policyshould describe who will review the plan, circumstances under which the
plan can be modified and a process for modifying the plan.
Always include employees in the review process. The utilization of a
gainsharing policy should reduce employee mistrust. And some
organizations document how and why decisions to modify the plan weremade, what assumptions were made and what conditions existed that
necessitated the change, reporting the results to em-ployees.
-
7/30/2019 Mir Process
30/30
The following summarizes many of the elements of a Gainsharing
plan which have been discussed.
Gains and resulting payouts are self-funded based on savingsgenerated by improved performance.
The plan commonly applies to a single plant, site, or stand-aloneorganization. However, some organizations have levels of sharing
across multiple locations or corporation-wide.
Performance is typically measured across departments, units, orfunctions.
Measures are typically based on operational measures(productivity, quality, spending, customer service) and are more
controllable by employees rather than an organization-widemeasure of profits.
Payouts are often monthly or quarterly. Many plans often have a year-end reserve fund to account for
deficit periods. Employees often are involved with the design process. All employees are eligible for plan payments. The bonus is often paid as an equal percentage of compensation or
equal cents per hour worked, rather than paid on the basis of
individual performance. A supporting employee involvement system is part of the plan in
order to drive improvement initiatives. Plans are often reviewed at least annually and adjustments may be
made that make sense for both the company and employees.
The keys to successful implementation are simplicity and employeeinvolvement
Simplicity - Employee understanding is necessary for them to bemotivated by it.
Involvement - The more employees are involved in a plan's design,the more ownership they will take in it.