The characteristics of a earnings-sharing plan are as follows: In 1991, a study conducted by the U.S. General Accounting Office of 76 companies found that the average earnings-sharing enterprise improved its productivity by 17% in the first year. Examples of successful earnings sharing programs include the Scanlon plan which is essentially the forerunner of all earnings sharing programs. It is an employee incentive program that reduces costs that correlate incentives with the ratio of production costs to the value of production. Simply put, in a Scanlon plan, the higher an employee`s output relative to their hourly wage, the higher their additional incentives. For example, an employee who works five hours a day at an hourly rate of $20 will receive $100 in compensation for a day`s work. Suppose his job is to repair the windshields of pickup trucks, which he does at the average rate of six trucks per hour. However, with a Scanlon plan, the employee can increase their production rate to eight trucks per hour, bringing home an additional incentive on top of the usual $100 they earn. In the absence of such a profit-sharing plan, an employee who works on an hourly wage basis has little motivation to perform better. In fact, such an employee may try to manipulate their timesheet by reducing their performance to display more hours for the same amount of work done.
A Scanlon plan eliminates the possibility of such violations by actually incentivizing employees to perform better. It also serves as a basis for the development of workers` production skills. Earnings sharing (GS) and profit sharing (PS) are two performance pay systems used by organizations to reward employees who perform better at the group, unit or organizational level (Rynes, Gerhart, & Parks, 2005). The ultimate goals of the GS and PS plans are to improve certain aspects of organizational productivity and to improve employees` attitudes towards fairness, collaboration and teamwork. Successful compensation plans at the group, unit and organizational level involve the concept of shared destiny. Common destiny is an integral part of performance management at the group, unit and organizational level (Werther, Ruch & McClure, 1986). The performance of an organization is seen as a direct function of the joint efforts of all its members. The margin of success for an organization therefore results from the fact that the opposite relationship between management and employees is replaced by cooperation and collaboration.
Employees who feel involved in the company contribute to the success of the company. Take as an example the operation of earnings sharing, a company that manufactures rigid and steerable differential axles for tractors. Based on its records, the company found that every good $1,000,000 product performance required 10,000 hours of work. Under the profit-sharing system, the next $1,000,000 in axle power and delivery was produced with only 9,000 hours. If the average rate of pay is $10 per hour, the 1,000 hours saved is worth $10,000. This is a gain that must be shared equitably between the workforce and the company. Earnings sharing is a collective incentive plan in which all members of a group share the “profit” of an organization. The typical earnings sharing organization measures performance and shares savings with all employees using a predetermined formula.
The actual performance of the organization is compared to the baseline performance (often a historical norm) to determine the amount of profit. Gains Sharing, Gain Sharing, Gain Share or Gainshare is a system that companies use to try to get their employees to become more productive. It is a management system to increase profitability by motivating employees to increase their performance through participation and participation. As productivity increases, so do the company`s profits. Workers then contribute financially to the improvement. A successful earnings sharing program relies on two factors: formulation and training. A solid formula based on a careful study of the company`s past performance is the level at which profit is measured and payment is made. There is no single profit-sharing scheme. Each program is tailor-made to meet the needs of a single business. Not only is productivity and quality included in the formula, but other costs such as the cost of workers` compensation or reducing delivery times for shipping can also be added. And for the program to work, all levels of the workforce must be informed of their respective roles in profit-sharing through appropriate training methods. Or think of a company that makes heat exchangers for off-road construction machinery.
An analysis showed that the value added of production was about 40%. That said, for every $1,000,000 delivery, $400,000 in manufacturing value-added. The rest was the cost of materials. A earnings sharing program has been put in place to enable employees to work more efficiently, carefully inspect heavily bolted and welded radiators, shorten installation times, monitor temperature control, and speed up box and shipping times. The workforce produced the next $1,000,000 output with a value added of only $350,000 with a savings of $50,000 that was divided equally between the workforce and the business. Despite the success of profit-sharing, some companies are still reluctant to adopt the program. One of the reasons for this is described by Peter Drucker in Managing for the Future. He says, “Inertia has undermined more companies than incompetence, bad leaders or the inability to manage finances well.” There are three main types of earnings sharing programs – this leads to a second important difference between GS and PS plans. Profit-sharing programs are always implemented in conjunction with some form of participatory management (e.g. B a suggestion system), while SP plans generally do not have a participatory system (Lawler, 1988). This may be due to the way PS ED plans allocate additional compensation.
Employees have less influence on PS plans because they are rewarded for changes to externally targeted criteria that are not under their control. After the war, Joe became a lecturer at MIT and developed a system of organizational development and profit-sharing that became known as the Scanlon Plan. However, profit sharing does not lead to significant improvements if management is not closely involved. Sharing earnings not only helps reduce manufacturing costs, but can also allow a company to reduce costs due to its poor quality. For example, a company that manufactures bearings with solid lubricant cages had low labor costs (about 10%) but high costs of poor quality. An analysis of company records revealed that for every $1,000,000 delivery, $200,000 was directly attributable to the cost of deterioration, scrap metal and customer returns. By implementing a profit-sharing program, the workforce was able to ensure proper thermal hardening of the sliding compound and ensure equipment maintenance more quickly. The cost of poor quality was reduced to $150,000 over the next $1,000,000 in shipments, and the $50,000 profit was split between labour and business. Professor Scanlon eventually became acting director of the USW`s research department. He used his skills to create joint committees to improve work and management to make the military more effective during World War II.
An interesting paradox is the study of the impact of GS and PS programs on organizational performance. Lawler (1988) wrote that facilitators of the success of GS plans involve a climate of trust between work and management; and Kim (1999) noted that success depends on the financial health of the company and its ability to make reward payments. Similarly, PS plans work best in companies that have shown an increase in stock prices over the past two years (i.e., making a profit) (Kruse, 1993). . . . .