One major group incentive pay
system is the “Gain Sharing” plan, though with few variations. Belcher Jr. (1994:241) describe Gain sharing
as:
Group incentive system that provides
participating
employees
with incentive payment based on
improved
company performance, whether it be for
increased
productivity, increased customer satisfa-
tion,
lower costs, or better safety records.
Gain sharing was developed to
enable employees benefit financially from productivity improvement resulting
from the suggestion system. Besides serving as an incentive, gain sharing
reflects a management philosophy that emphasizes employee involvement.
Armstrong (2006: 726) defined Gain
sharing as a:
Formula-based company (sic) or factory wide
bonus plan
that provides for employees to share
in the
financial gains resulting from increase in
added
value or another measure of productivity.
The link
between their efforts and the payout can
usefully
be made explicit by involving them in
analyzing
results and identifying areas for improvement.
Dessler (2007) defined gain sharing as: “an incentive plan that engages
employees in a common effort to achieve productivity objectives and share the
gain.
Gain sharing encourages group
synergy, consequently increase in productivity is not as a result of
individual’s or members of the group working harder, but as a result of
employees working more smartly, identifying means to perform efficiently
without increasing physical effort.
According to Robbins and
Judge(2007: 120) Gain sharing is “a formular-based group incentive plan that
rewards work teams that help reduce costs by sharing the saving with team
members.
The different variations of gain
sharing are:
§
The Scanlon plan
§
The Rucker plan and,
§
Improshare
The Scanlon plan was the first
gain sharing concept developed by Joseph Scanlon in the USA in 1935. It was
first practiced as employee involvement system with a pay element. Scanlon
believed that employees should exercise self-direction and self -control if they are committed to company
objectives and that employees will accept and seek out responsibility if given
opportunity, this is in line with theory y management style.
As currently practiced, Scanlon
plans have four (4) basic features as follows:
- Philosophy of cooperation
- Identity
- Competence
- Involvement system
The philosophy recommends that
managers and workers should do away with “us” and “them” attitudes that
normally inhibit employees from developing a sense of ownership in the company.
The second feature, “identity” stipulates that management must/should clearly ,
articulate its mission or purpose, and employees must understand how the
business operates in terms of customers, prices, and costs. The third features
“competence” the plan
demands a high level of
competence from employees at every level. The fourth and final feature
“involvement system”. This demands that employees present improvement
suggestion to the appropriate departmental-level committee, which transmits the
valuable ones to the executive level committee who determines which suggestion
to implement. (Markham et:al 1992).
v
The Rucker Plan: This was developed in 1933 by
Allan, W. Rucker; it is similar to Scanlon plan, because it also emphasizes
employee involvement and provides monetary incentives to encourage employee
participation. Rucker plan use a value-added formular to measure productivity.
Value-added is the difference between the value of the sales price of a product
and the value of materials purchased to make product (Martocchio, 1998 and
Dessler, 2007). The basic difference between Scanlon and Rucker plans is the
formular used to determine employee bonus.
v
Improshare: This was invented by Mitchell Fein
in 1973; it simply means, “improved productivity” through sharing. It measures
productivity physically instead of in terms of financial saving, as in the case
of Scanlon and Rucker plans. The Improshare bonus is based on a labour hour
ratio formular. A standard is established by analyzing historical accounting
data to estimate the number of labour hours needed to complete a product.
Productivity is then measured as a ratio of standard labour hour and actual
labour hour.
Addressing the
issue of at risk-pay, Dessler (2011) opined that At Risk Variable Plan is a pay
plan that put some portion of the employees’ weekly, monthly, or yearly pay at
risk. If the employees meet or exceed their goals, they earn back not only the
portion of their pay that was at risk, but also an incentive. If they fail to
meet their goals, they forego some of the pay they would normally have earned.