GAINSHARING
Gainsharing remains one of best kept secrets in reward
“The 20th century has been a hothouse of management fads . . . In the meantime one truly big idea has bubbled along since the 1940s, never receiving the accolades we regularly bestow on more modest insights. And it’s surprising considering this one has all the elements of a blockbuster. Its watchwords read like an abstract of 50 years’ worth of business hot buttons: employee participation, management-labour co-operation, collaborative problem-solving, team work, trust, gainsharing, open-book management and servant leadership.”
This is the view expressed in a recent edition of WorldatWork Journal that examines the introduction of a gainsharing programme into US finance organisation, Watermark Credit Union.
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The gainsharing scheme examined by Dow Scott of Loyola University, Paul Davis of the Scanlon Leadership Network and Watermark Credit Union’s Chuck Cockburn is one of the first and most popular forms of its kind, known as the “Scanlon plan”. In simple terms, it’s a way for managers to use the knowledge of employees to improve productivity and for the employees to share in the subsequent profits.
Although too early to determine the success of the plan’s introduction, the authors describe how the plan was conceived and the early stages of implementation.
Scanlon principles and processes
In practice, the Scanlon philosophy recognises a number of assumptions that include:
The needs of key stakeholders such as investors, customers and employees should be integrated and balanced.
Change is a given and it is a fundamental duty of management to help organisational change.
Productivity improvements and innovation are not the exclusive purview of management, engineering or R&D, but must come from all employees in the organisation.
To tap this potential, employees must be given the opportunity to participate or contribute their ideas and have the information and competence to make this possible.
Four key principles
Scanlon plans also incorporate four principles that provide a foundation for realising the philosophy. These are equity, participation, identity and competency (EPIC) and are described in more detail below.
1. Identity
The “Identity” principle asserts that each organisation must have clarity of purpose and offer a unique set of services and products to survive. Each person in the organisation must understand the business and how he or she contributes to its success.
As a result, management must not only educate employees in the technical requirements of their jobs, but also help employees understand the wants and needs of customers, the strengths and weaknesses of competitors, and the contribution that investors make to the organisation’s success.
In practice, the identity section of Watermark’s plan was developed to explain the company’s vision and why there was a compelling need to change to reach that vision.
The plan’s identity section describes:
the history of the credit union movement and Watermark
Watermark’s business strategy, board of directors and organisation structure
how capital affects the credit union, customers (i.e. members) and employees
why Watermark needs to change to survive.
2. Participation
At Watermark, the system was designed to gain information from employees at the lowest possible level and to aid this, two types of committee were introduced.
Firstly, a series of elected review committees evaluate and process suggestions from their work areas while a screening committee examines all suggestions forwarded by the review committees.
Every Watermark employee is represented by a review committee and is given the opportunity to provide input and influence decisions.
The screening committee is comprised of a mix of appointed and elected members. Senior management appoints members based on the potential member’s expertise while review committees elect an equal number of members to represent different groups throughout Watermark.
The review committee and the screening committee are empowered to form improvement teams that conduct research or implement an approved suggestion over a fixed period of time.
All incentives awarded following the financial return resulting from successful suggestions are paid to all employees so it is in every employee’s best interest to help develop and implement a suggestion regardless of who initially made it.
3. Equity
Equity is defined as a fair and just return among key stakeholders, the organisation, its members, and employees, for the investments they make in the organisation and balancing the interests of these stakeholders is critical to the long-term success of a Scanlon plan.
But equity does not mean “equal” in a Scanlon organisation and the report states that because different groups make different contributions they may receive different rewards.
At Watermark, the gainsharing bonus pool generated by productivity improvement is divided evenly between the company and its employees. In total, 80% of the employees’ share is paid out each quarter, with 20% held in a reserve account. The payout to individual employees is based on a percentage of their earnings during that quarter.
4. Competency
This principle assumes continuous improvement requires continuous learning and for employees to contribute ideas that have the potential of increasing productivity, they must be more knowledgeable than employees in traditional organisations.
In order to achieve this, the case study company provides numerous development opportunities including tuition assistance, access to an online university and leadership development.
Implementating the process
The Scanlon implementation process is designed to:
adapt the Scanlon principles and process to meet the specific needs of the company
help employees understand the specific features of the plan
build employee and management commitment to the Scanlon principles and processes
build internal competency
develop a written plan documenting how the Scanlon principles and processes will be practiced.
This is a traditional approach and the one that was followed at Watermark, starting at the top and cascading through the organisation.
General consensus
After studying the ideas related to the Scanlon plan, the company’s senior managers voted on two questions:
Is there a compelling need for change?
Should Watermark try to develop the Scanlon plan?
Both questions were affirmed and a “mandate for change” document was drafted and presented to all employees who voted on whether to proceed with implementation, with over 80% agreeing.
Design stage
A design team was put together that consisted of six appointed and eight elected members and after five months a strategy was presented and voted upon. Again the vote was positive with over 85% approval.
Once approved, the implementation process began with staff receiving training on:
Scanlon history and EPIC principles
the suggestion system
an introduction to business literacy.
In addition, all team and committee members received training on:
active team participation
leading and working in teams
reviewing and screening committee roles and responsibilities.
Reviewing the plan
Some companies have a further vote after a period of time in which the plan has operated but Watermark chose instead to review it every six months for the first two years and annually thereafter.
It is currently coming up to the first review and is processing an average of 29 suggestions a month.
In order to identify the suggestions with the greatest impact, the company has developed a prioritisation matrix with the results made public.
A final word
The article concludes: “In summary, management believes that implementing a Scanlon plan will enable Watermark to use the untapped knowledge, creativity and resourcefulness of its employees. Employees will participate in making decisions and suggestions. They will learn that they can make a difference, and they will share in the gains realised. Employees will be able to align their goals with the company’s goals and view themselves as stakeholders. The productivity increase will result in the lower expense to-asset-ratio needed for Watermark to achieve its long-term plans for growth and profitability.”
Want to know more?
Title: "Scanlon principles and processes: Building excellence at Watermark Credit Union", by Dow Scott, Paul Davis and Chuck Cockburn, WorldatWork Journal, first quarter 2007.
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