Increasing Productivity with Scanlon Plan

If you were asked to develop a plan for your organization that would substantially increase productivity and significantly reduce absenteeism, turnover, and grievances, where would you turn? To save yourself a time-consuming search, you might look at the Scanlon Plan. Executives experienced in administering the plan say that they can demonstrate higher motivation and commitment to organizational goals in employees, reduced tensions in labor-management relations, and increased productivity and profit.

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The Scanlon Plan is the brainchild of the late Joseph N. Scanlon, a union official who became an instructor at the Massachusetts Institute of Technology. Scanlon devised a system in which the people who actually do the work and know it best can have the opportunity to find ways to do it more efficiently, and to be rewarded if indeed more efficiency results. The plan differs from a suggestion system in that Scanlon rewards are distributed to the entire group involved in the work rather than to an individual who originates the idea.

In profit sharing, by contrast, work¬ers may receive a bonus without know¬ing why they are getting it or without having participated in the decisions or plans that led to the increased profit. For example, irrespective of produc¬tivity, the sale of a division may pro¬duce a large profit that is reflected in the year-end bonus. Very often, too, there is such a time lag between con¬tribution to profits and distribution of a bonus for that contribution that workers don’t see the connection.
Workers in a Scanlon Plan receive monthly or quarterly bonuses that are directly tied to improvements in effi¬ciency.

To illustrate (a bit simplistically), the normative cost of labor in a typical month to manufacture a prod¬uct is $40,000. If suggestions from employees are adopted that reduce the labor costs to $38,000, the bonus dis¬tributed for one month is $2,000.

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The first step in instituting cost-saving methods is the departmental production committee, which meets at least once a month. Consisting of rep¬resentatives of the work force and management, it reviews employees’ suggestions on decreasing waste, im¬proving procedures, scheduling, and any other changes that might lead to higher productivity or lower costs.

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Each month or quarter, depending upon the schedule of bonus payments, the plant- or office-wide screening committee meets. This, too, is com¬posed of labor and management representatives. Members of this committee consider the minutes of each lower-level production committee meeting, record all suggestions accepted by the production committees, and review those that were rejected. Management may reserve the right to accept or reject any suggestion, no matter what a production committee has decided.

In addition, the screening commit¬tee discusses anything that might af¬fect the plan, such as problems in the sales force or strikes that may slow distribution. And it reviews the fig¬ures for the period just ended to fix the bonus or deficit.
In some organizations, the entire bonus goes to the production force. In others, 75% goes to the workers, 25% to the company. Usually, a portion of the bonus is put aside to cover periods in which there may be deficits. If the plan calls for such a reserve fund, part or all of it may be distributed at, say, the end of 12 months— as an addi¬tional bonus after all the deficits are covered.

Proponents of the Scanlon Plan claim that this kind of bonus-sharing encourages initiative and collabora¬tion among employees. The plan, they say, reduces resistance to change, since change is advocated bilaterally by labor and management instead of being dictated from on high. Most im¬portant, perhaps, is that people who make a special effort are rewarded for that effort.

Why, then, in the 40 years since its inception, hasn’t the Scanlon Plan be-some widely accepted by American in¬dustry? For one reason, the plan doesn’t work well in organizations ;hat offer individual incentive plans, such as piecework.
But other reasons fall in the cate¬gory of speculation. Some executives apparently feel that, where a union exists, a Scanlon Plan seems to give it more “legitimacy.” Other unionized companies say that the Scanlon Plan has eased their relationships with the bargaining units and brought the union closer to the problems and objectives of management. But, they tress, the union must be in on the initial phases of approving a Scanlon Plan.

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Bringing the union into the plann¬ing is a delicate issue with manage-lent and labor. Union leaders on the committee may be leery about being indentified with management. Management may be equally uncomfortable about the possible identification. Even where a union is not an issue, some managers feel that, under a Scanlon Plan, they may be giving up leir prerogatives. After all, they are used to judging the feasibility of ideas.

Under the Scanlon Plan, employees on the production and screening communities also have votes. Some executives experienced in the an report that it may cause some comfort for managers: Employees gin to put pressure on management be more effective and do a better job planning.

One encounters skepticism in some executives who say the plan sounds too good to be true. And, indeed, in some ceses this has been so. In one company, verse circumstances beyond the control of management resulted in two years without a bonus being distributed. It nearly wrecked the plan.

What may actually be the most significant inhibitor is the relative lack of specific or hard data. A few companies have trumpeted their success stories with the plan. But others decline to publicize their experience, saying that ! Scanlon Plan has provided a competitive edge, the extent to which they 1 keep to themselves, thank you.

Source : Thomas Quick. Training Magazine. January 1979.

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