Pay for Organizational or Unit Performance Why Organizational
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Pay for Organizational or Unit Performance Why Organizational- or Unit-based Pay? • Overarching Rewards to Link Interdependent Teams to a Common Fate • Share Money saved (labor savings) or Cash Produced (profits) with employees due to their efforts. Promotes Cohesion/Cooperation between various groups - Ex: labor/management. • Share risks of success (upside and downside) with employees to give firm “shock absorber” when business experiences a decline in profits/revenues. MGMT 4030 - Managing Employee Reward Systems
Gainsharing Definition of Gainsharing • Basis of Pay is a subunit of a firm such as a business unit, division or department. • Employee Involvement is an essential feature of gainsharing. – Gainsharing represents a substantial organizational intervention and change in culture. MGMT 4030 - Managing Employee Reward Systems
Gainsharing Definition of Gainsharing (continued) • Basis of employee involvement is the implementation of continuous employee suggestions - employees form suggestion teams • “Work smarter, not harder” • Gains from the improved work methods are shared with the employees. • Example: Scanlon Plan (most popular plan) MGMT 4030 - Managing Employee Reward Systems
Gainsharing Operational features of Gainsharing • Production Committee - involves front line employees who develop suggestions • Screening Committee - overarching committee that evaluates production committee suggestions. • Bonus - Monthly check for cash given to employees based on beating historical cost formula • Bank - A portion of the bonus is banked for times when no bonus is declared. • Union involvement in design of gainsharing - critical for successful implementation of plan. MGMT 4030 - Managing Employee Reward Systems
Gainsharing Formulas Scanlon Formula Payroll, Materials and Payroll Costs Overhead Costs by Product Net Sales or or Production Value Single Ratio Multicost Ratio MGMT 4030 - Managing Employee Reward Systems
Gainsharing Drawbacks to Gainsharing • Weak Line of Sight (true of all organization or business unit pay plans) • Rigid Bonus Formulas - employees resist change of bonus formulas • Excluded workers - managers? Temps? Part-time? • Efficient Units Penalized - Inefficient units start from a lower base of improvement • Union Resistance - May not trust Management’s intentions and view gainsharing as a “speed-up” or excuse to layoff workers. MGMT 4030 - Managing Employee Reward Systems
Most Favorable Conditions for Gainsharing • Smaller Units (less than 500 employees) • New plants or inefficient ones that are at low point on learning curve. • Management committed to employee involvement. • Corporate cultures that value employee participation and cooperative labor relations • Fairly stable product market • Significant potential for meaningful rewards MGMT 4030 - Managing Employee Reward Systems
