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Pay for Organizational or Unit Performance. Why Organizational- or Unit-based Pay? Overarching Rewards to Link Interdependent Teams to a Common Fate

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Pay for Organizational or Unit Performance

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Pay for organizational or unit performance l.jpg

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.

MGMT 4030 - Managing Employee Reward Systems


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Gainsharing

Definition of Gainsharing

  • Basis of Pay is a subunit of a firm such as abusiness unit, division or department.

  • Employee Involvement is an essential feature of gainsharing.

    • Gainsharing represents a substantial organizational intervention and change in culture.

MGMT 4030 - Managing Employee Reward Systems


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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)

MGMT 4030 - Managing Employee Reward Systems


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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.

MGMT 4030 - Managing Employee Reward Systems


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Gainsharing Formulas

Scanlon Formula

Payroll, Materials and

Payroll CostsOverhead Costs by Product

Net Sales Net Sales

or or

Production Value Production Value

Single Ratio Multicost Ratio

MGMT 4030 - Managing Employee Reward Systems


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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 Management’s intentions and view gainsharing as a “speed-up” or excuse to layoff workers.

MGMT 4030 - Managing Employee Reward Systems


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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

MGMT 4030 - Managing Employee Reward Systems


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