In order to motivate employees to improve performance, work responsibility and overall effectiveness of the company, different systems of incentives are used. Among the most popular motivating systems are gain sharing systems, which provide incentive payments associated with better company performance to participating employees. The measures of company performance can be different: higher productivity, higher customer satisfaction, better safety records, decreased costs, etc (Martocchio, 2009). Essential components of all gain sharing systems are incentives, system of employee involvement and leadership philosophy, promoting better participation, communication and trust in the company (Martocchio, 2009). The most common systems of gain sharing are Rucker, Improshare and Scanlon plans (Martocchio, 2009), which emerged in the early period of gain sharing idea development. Various modifications and combinations of these plans are nowadays used to increase employee motivation and involvement at the market.
Scanlon gain sharing plan is based on the idea of financial rewards to employees for improving productivity. This plan focuses on teamwork aimed at generating creative ideas, and under this plan the company should implement a suggestion system, with a special labor-management committee organized to review and evaluate the suggestions (Martocchio, 2009). Involvement of employees and successful productivity ideas are financially rewarded – the employees whose ideas became reality, should receive monthly bonuses. There should also be a production committee, the function of which is to communicate the principle of the suggestion system to the employees, and to gather new suggestions. In Scanlon gain sharing plan, effectiveness of new improvements is evaluated basing on the relation of labor costs to total sales value of production (Martocchio, 2009). The smaller Scanlon value is, the better performance it reflects. If Scanlon ratio has decreased, it means that the company’s labor effectiveness has improved, and savings on labor costs can be distributed as bonuses.
Rucker gain sharing plan uses the same idea as the Scanlon plan, but is based on different productivity measures. According to Rucker system, the value added to the product or service should be the measure of productivity (Martocchio, 2009). The company should establish a standard value for the Rucker plan ratio, which is calculated as the relation of added value to total employment costs (Martocchio, 2009). If this value after a given period of time is greater than the established standard, then employees of the company should receive a bonus equal to the difference of added value according to the standard ratio (given the same total employment costs and actual value added).
One more popular gain sharing plan is Improshare (Improved Productivity through Sharing). This plan uses the number of labor hours and not their dollar value like the other two plans. For Improshare, standard labor hour ratio formulas are developed basing on previous accounting data (Martocchio, 2009). The relation of current and projected labor hours is then measured, and weekly incentives are paid if the ratio exceeds 1. This plan allows to establish a direct relationship between productivity and bonuses, which positively affects motivation. However, Improshare does not encourage cooperation and communication, which might hinder the growth of overall company effectiveness.
Rucker gain sharing plan is easier to implement as it uses aggregated data and can cover all employees, while Scanlon gain sharing plan is closely related to the activity of the committees, and is more individualistic, because only the teams or employees who suggested a good performance improvement initiative will be receiving the bonuses. Scanlon approach might be good for a diverse company where there are many different departments or branches, and these departments are not overly large. Rucker plan would better work for the companies employing a large number of workers performing similar type of work; for service sector, Rucker plan might also work better because for services, there is a great emphasis on customer interaction, and the processes are less formalized than for the majority of product companies. Improshare is optimal for the companies where the role of labor is high in the final product or service costs, and where it is possible to establish a clear relationship between labor hours and results. Rucker and Scanlon plans also promote teamworking and innovation, which should further help to improve the overall performance of the company.
Martocchio, J.J. (2009). Strategic Compensation. Pearson Education.