The article made me think of a book I read by Barry and Irving Bluestone, published in 1992, Negotiating the Future. In their book, the Bluestones promoted gainsharing as a way to bridge the divide between labor and management, including the inequities in wages referenced in Turnasella’s article. A signiﬁcant contribution of the book was referencing unionized companies as the best companies for gainsharing.
Many will say that gainsharing is a radical idea. But remember: The ﬁrst gainsharing program was the “Scanlon Plan,” which was enacted in a unionized shop during the Great Depression of the 1930s.
I then thought about the movement in our country toward socialism, a system that, according to the media, is being embraced by young workers, including college undergraduates. It looks like capitalism is getting a bad rap.
As I understand it, socialists want greater equality in wages between labor and management, as well as active I participation by workers in company decision-making. Yet, I believe socialism is compatible with gainsharing programs. (For the purpose of this article, I lump together gainsharing with profit sharing and employee stock ownership plans — ESOPs.) What better way, then, to have management and workers work together to develop ways to increase productivity or reduce costs and then share the increased profits?
At the minimum, this is a good first step. Profitability is important for job security. Even the legendary union leader Samuel Gompers said, “The best company for the union worker is one that makes a profit.” Gainsharing plans tend to spread the wealth among labor and management.
So, let’s ask this question: If gainsharing is such a great idea, why haven’t more companies embraced it? And, why should companies in the micro-socialism world be any different? I believe you can have a great product or service, but if you cannot get it into customers’ hands, what is its value? The same applies to gainsharing plans.
The following are my suggestions for the successful implementation of gainsharing programs. These seven steps are based on my experience and I offer an example to illustrate them.
- Start out selling an idea, not a canned program. People inherently dislike using someone else’s program and will often try to shoot it down.
- Give workers the “veto” power to decide whether they want to participate in the program. There are no hard feelings if workers decide not to get involved. This is the best way to ensure employee commitment to the project.
- Create a task force of employees and management to work together to develop the program. Remember the saying: “People support what they help to create.”
- It is essential for the CEO to support the endeavor. Gainsharing programs are nontraditional compensation programs. They have been around for a long time. But only a handful of companies embrace them. So you do not want to be blindsided by an angry CEO who philosophically does not support gainsharing.
- No money is given to workers unless the CFO validates the savings or increased profits. This is the CEO’s failsafe to ensure fiscal viability of the program.
- Employees determine savings or profits based on agreed upon guidelines. This encourages the employees’ acceptance of findings, rather than having to believe management.
- Gainsharing programs are a great risk to management and workers. Executives cannot always control the outcome of the program. Therefore, executives must be willing to risk lower results than desired. Also, to be successful, gainsharing requires active employee involvement in its design and implementation. Not all executives may welcome this level of employee input. Finally, employees must be willing to participate in a program where there is no guarantee of any additional payments — payouts based on achieving projections.
An Illustration of Gainsharing
In the early 1980s, I developed a gainsharing program for a hospital’s five medical-surgical units. The top nursing executive asked me, as the corporate vice president for human resources, to help develop a career-ladders program to motivate her staff. I countered with the idea of developing a program that would give nursing personnel a tangible reward (i.e., money) if excellence in patient care was achieved. She liked the idea and asked what I had in mind. Alas, I did not have a specific plan in mind, but suggested we could design one. The nursing executive opted to take the risk.
The next step was to consult with the nursing managers. They also liked the possibility of staff earning extra money, but wanted more information. How would we do it? Again, we had to explain that we didn’t yet have a plan, but that we wanted to see what we could come up with. They agreed to help us out.
Then we met with a cross-section of nursing personnel. They had the same questions and reactions. We gave them the right to refuse to work with us, referring to it as their “veto power.” We felt this would clearly send the message that we were not trying to “railroad” them. What better way to secure support than to allow employees to walk away from something with no hard feelings? But like the nursing executive and managers, they were willing to give it a try.
Before we began planning, I had to secure the CEO’s approval to move forward. He initially did not like the idea. He wondered: Why should we give nurses more money for something they should be doing? I managed to persuade him by assuring him that no additional money would be given unless the CFO validated the savings. I also explained how the company would beneﬁt in the long term.
With the CEO’s sanction, we convened a task force of a cross-section of nursing staff and spent the next eight months designing the program. The goal of our program was to improve patient care and be able to document our progress and the savings we achieved.
The group decided to have the ﬁve medical-surgical units compete against each other. The units would be evaluated against four criterions, each worth up to 25 points, for a maximum score of 100. The criterions were:
- Attendance at in-service educational programs
- Reduction in absenteeism and lateness
- Nursing documentation
- Patient satisfaction
The group decided that members from the task force would do the scoring and tabulate the results. This gave the employees greater comfort that the results would be valid and not gerrymandered by management. Members of the winning unit (a unit was deﬁned as all professional and ancillary nursing personnel, including part-time staff) would each receive a $50 gift certiﬁcate. (Remember, this was in the mid-1980s.)
The contest was held every month for 18 months. The results were very positive. Morale and patient care improved. The company was able to reduce expenses due to lower replacement costs from reduction in absenteeism and lateness. Absenteeism was reduced by 20% and lateness by 33%. The cost of the gift certiﬁcates came from these savings.
But then the nursing executive left the hospital. While I expected the new nursing executive to continue the program, the program was terminated. I was shocked. What happened?
Ironically, it was the former nursing executive who gave the best reason. She told me that she became nervous before the program was implemented. She realized she could not control the results. What would happen if the scores were low? We were measuring patient care, so her job could have been in jeopardy. Fortunately, the scores were high. But her reason gave me a window on why her successor canned it and perhaps why other executives ﬁnd reasons not to implement gainsharing programs: Executives do not want to risk their positions, especially on something they cannot control.
This also helped me understand why the other nursing executives at the three other divisional hospitals were not interested in developing a similar program at their sites. It was too risky for them.
Another possible reason was the executive’s ego. Some executives do not want to “share the platform” or decision-making with the rank and ﬁle. “We hire the best and brightest managers in this company,” one CEO told me. “Therefore, we do not need to listen to employees.”
Unfortunately, I have found this “command and control” mentality still prevalent in corporate America.
My conclusion is gainsharing programs are not without risk. Perhaps the “Scanlon Plan” was ﬁrst tried because the company was facing bankruptcy and they didn’t have much to lose. Furthermore, someone once said that signiﬁcant change rarely occurs in the absence of economic pain.
As our country struggles with deciding which is better for us — capitalism, socialism or micro-socialism — perhaps we can learn from the Bluestones and other management scholars and revisit the merits of gainsharing plans.
About the Author
Michael Markowich is a retired HR innovator, consultant, speaker, author and adjunct professor.