Pay for Organizational or Unit Performance

1
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.

2
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.

3
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)

4
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.

5
Gainsharing Formulas

• Scanlon Formula
• Payroll, Materials
  and
• Payroll Costs Overhead Costs by Product
• Net Sales Net Sales
• or or
• Production Value Production Value
• Single Ratio Multicost Ratio

6
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 Managements
  intentions and view gainsharing as a speed-up
  or excuse to layoff workers.

7
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