PRODUCTIVITY BARGAINING Productivity bargaining is a form of collective bargaining in which increases of pay are secured in return for changes

in working practices which allow labour productivity to be raised. Collective bargaining refers to the process of bilateral negotiations between representatives of management and labour representatives no such issues as wages, wage grades, working conditions and other welfare amenities. At the end of negotiations both the parties sign an agreement which has a stipulated duration.

THE COLLECTIVE BARGAINING HAS CERTAIN DISADVANTAGES:

a) The issues involved in collective bargaining are not always fully understood by all the members concerned. In the words of Prof. Lupton b) Collective bargaining does not always take into account the effect on overall economy and industry, of the wage agreements whether at local or national level. c) The bargaining is not realistically oriented to the performance. No mention is made of the productivity at the industry or at the plant level during the course of collective bargaining. It fails to obtain full union and worker co-operation to promote productivity, remove restrictive practices, re-development of labour in different craft. It fails to relate wage increase directly to change in the value of jobs in terms of increased effort or responsibility. d) Collective bargain is subject to political and social pressures and when wage increases are un-accompanied by productivity increases, it gives rise to inflationary tendencies. This is often reflected in terms of enhanced prices for products and services and as such the community has to bear the brunt of this inflationary tendencies. While the productivity gain, if any, is absorbed as profits, without in any way directly benefiting the consumers, wage increases are reflected as cost

increases in case of no change in productivity. Quoting the experience of Steel industry, Owen Smith observes: Traditional bargaining techniques were employed by Steel company of Wales. When using this method, both sides behave rather as if they are at an auction, with much importance being attached to finding the highest point to which employers will go and the lowest point below which trade unions will not go. In both cases, it is usually assumed that existing employment levels will be maintained. More important, both sides leave the negotiating table uncertain as to the practicability of an agreement, let alone its life expectancy. This does not mean that either side need be dishonourable, but that short-run considerations transcend the long-term need to anticipate productivity changes with both the waged structure and any increases in earnings. Existing anomalies in a wage structure might grow worse as this type of negotiation proceeds and underpaid workers will become more resentful of their overpaid colleagues. It has already been established that, within limits, such a behaviour pattern will probably always exist in a collective bargaining situation; the introduction of measuring techniques will minimize this tendency. e) When once the agreement is broken it is damaged beyond repair. f) Collective bargaining does not take into account the consumers interest in terms of reduced of or steady price levels. It does not provide an effective check when either of the parties violates the agreement. It is essential that any bilateral agreement should be protected under law and any attempt by either of the parties to raise disputes seeking to re-open existing agreements should not be considered.

NEED FOR PRODUCTIVITY BARGAINING

When the employers found that the increased productivity is the result of technological change and because of sophisticated equipment. So some employers argue that if the increased productivity is not due to increased effectiveness of working of

employees but due to better equipment, all the benefits should accrue to capital alone. They also consider the fact that the workers should also equally cooperate in the change, as otherwise it will not bear full fruits to the management. It will not be possible to achieve these changes without the consequent industrial strife if the management is unwilling to share the gains of increased productivity. Financial incentives if applied injudiciously can lead to widespread discontent and fall in morale.

HISTORY OF PRODUCTIVITY BARGAINING

The origin of productivity bargaining can be traced to the economic difficulties experienced by Britain in the sixties. With wages and prices more and more under government control, a lead was taken by ESSOs refining affiliate, viz., ESSO Oil Company Limited in this new field. ESSO took a close look at the wages, job classifications, overtime practices and other practices and offered wage increases and other fringe benefits in return for unions acceptance for increased productivity and changes in The object of the negotiations was to improve the basic efficiency of the companies operations while evolving a more satisfactory method of answering labours needs. In practice, Productivity Bargaining in England has succeeded in raising the ratio of productive to non-productive time spent on the job by maintenance and process workers at several large factories. It has enabled capital intensive production and distribution facilities to go to shift working and reduced the time lost due to dispute arising from cumbersome wage structures. work practices.

CHARACTERISTICS OF PRODUCTIVITY BARGAINING

Productivity bargaining is a type of collective bargainnning In this method workers wages & benefits are linked to productivity

 Without such productivity bargaining agreements workers may not realize the importance of raising productivity for organizational survival and growth. In this ,a standard productivity index is finalized through negotiations, if they are able to exceed the standard productivity norms, workers will get substantial benefits. Productivity bargaining requires an explicit link between changes in work practices and changes in compensation The real impact of productivity bargaining is in the attitude of the employees they have.

ADVANTAGES OF PRODUCTIVE BARGAINING.

It provides solutions to many of the typical problems of industrial relations. It closes gap between rate of pay and actual earnings. It enables demarcation difficulties to be eliminated and reduced It concentrates decisions at the level of the company and factory

GUIDELINES FOR THE ASSESSMENT OF INCREASED PRODUCTIVITY

Productivity refers to the ratio of output and input i.e., it is the efficiency with which inputs are utilized and spent in achieving the output Productivity =Output Input

Or more precisely, productivity is the ratio of production to one of the factors of production viz, Land, Labour, Capital, etc. Thus we can arrive at different producrivity ratios for different factors of production. A distinction must be made between production and productivity. The former relates to the production or volume of output whereas the latter refers to the ratio of efficiency of utilization of different factors of production. That higher

productivity implies higher and higher standard of living for the workers and the community is a forgone conclusion.

1st GUIDELINE
It should be shown that the workers are contributing towards the achievement of constantly rising levels of efficiency. Where appropriate, major changes in working practice or working methods should be specified in the agreement.
The objective of efficiency agreements is to make possible the constant raising of efficiency; this will require close and continuing co-operation between managements and workers so as to achieve and maintain the highest standards in the use of both equipment and manpower. The second sentence has special reference to agreements which specify major changes in working practice to which workers have agreed. Such changes should always be spelled out if there is any possibility that commitments in more general terms will lead to difficulties of interpretation or will not be given full expression in practice.

2nd GUIDELINE
Measurements of efficiency should be based on the application of relevant indices of performance or work standards.
Management should devise and use appropriate yardsticks for measuring the contribution of workers of all kinds towards achieving rising levels of efficiency and develop an information system which makes full use of the data obtained as a result. For many manual operations work-studied standards are applicable and should be used, but work measurement can

also be applied to a wide range of clerical and other non-manual work. For other situations it will be necessary to use more broad based indicators of performance, if necessary on a group basis.

3rd GUIDELINE
A realistic calculation of all the relevant costs of the agreement and of the gain attributable in the workers contribution should normally show that the effect is to reduce the total cost of output or the cost of providing a given service.
Relevant costs may include, for example, the cost of redundancy payments or a proportion of consultants fees where they are an integral part of an agreement, and these should be apportioned as necessary over a reasonable period rather than charged only to the first year following the agreement. The gains attributable to the workers contribution may result from more effective working methods, the fuller utilization of existing capital equipment, the adaptation of working practices to enable full and prompt use to be made of new equipment and reduced capital investment (if for example revised scheduling and shift working make possible a smaller transport fleet). The reference to a reduction in cost assumes a calculation for the purpose of which unrelated costs, e.g., the price of raw materials, are left out of account.

4th GUIDELINE
There should be effective controls to ensure that projected increases in efficiency are achieved and that higher pay or other improvements are made

only when such increases are assured. In order to observe this guideline, managements must operate effective controls, including an information system which makes it possible to estimate in advance and subsequently monitor the extent to which increases the efficiency are in fact being achieved. In so far as the information system shows that progress exceeds or falls short of the original projection, some adjustment may have to be made. In any case, due allowance should be made for the accrual of some of the achieved gain to the consumer. Particular care also needs to be taken to distinguish the contribution of workers from other sources of more efficient working.

5th GUIDELINE
There should be clear benefits to, the consumer by way of a contribution to stable or lower prices.
This guideline is of particular importance in areas of rapid economic expansion, since the most needs to be made of opportunities to reduce prices in these areas in order to contribute as much as possible to raising the real incomes of the community as a whole. In some cases the community may benefit by an improvement in quality while prices remain un-changed or by the use of the gains to complete more effectively in export markets.

6th GUIDELINE
An agreement applying to one group of workers only should bear the cost of consequential increases to other groups, if any have to be granted.

An example would be if supervisors have to be given a pay increase to prevent the disappearance of a differential as a result of a pay increase granted to the workers whom they supervise. The need for consequential increases unrelated to increases in efficiency should, however, be reduced as much as possible by enabling other groups of workers to conclude their own efficiency agreements or by including them within the scope of the original agreement.

7th GUIDELINE
Negotiators should avoid setting levels of pay or conditions which might have undesirable repercussions elsewhere.
Where large increases in pay are shown to be justified, negotiators should consider the possibility of staggering the increases over a period of time or, alternatively, of a non-recurring lump sum payment. Failure to do so, might raise expectations for future increases which could not be fulfilled and might also, because of the exceptional size of the increases, have repercussions which would eventually rebound on the undertaking granting the original increase.

REQUIREMENTS OF PRODUCTIVITY BARGAINING

The fundamental requirement of productivity bargaining is that a sincere

attempt must be made to raise productivity through positive increase in efforts. The bargain should aim at reduction in unit costs or at least try to deescalate thespiraling price increases. A careful application of Productivity techniques for improving over-all performance is essential to achieve this. A systems approach can help considerably in designing a productivity agreement. The inputs in the form of changes in operational procedures, reorganization of workers or work-place are to be clearly and unambiguously spelt out and a schedule of completion of such inputs stage by stage should be clearly defined. The output in the form of increased productivity and rewards should be worked out on the basis of guidelines discussed earlier. The most important limb of a system is its control points. The system should constantly check whether the output as envisaged is achieved or not. It is thus useful at times to implement the system in stages, in which case we may draw from experience gained in preceding stages. When a productivity agreement is signed covering only part of the workers in the plant, a question arises as how to compensate those workers who are not covered in these agreements. One possibility is to grant pay rises to only such of those staff who are covered under the agreement. But obviously this would not be very conducive to harmonious industrial relations. The PIBs guidelines suggests that all rewards must result from the direct savings accruing out of implementation of the agreement. Thus all the workers may be partly compensated through this change, the rest being given after the other set of workers are brought into the purview of the agreement. In large plants or companies with more than one plant, if a productivity agreement is envisaged forming part of a single or a few sections or plants, it is desirable to relate pay increases to the overall improvement of the plant rather than that achieved in the particular section or plant. If a job evaluation

is simultaneously carried out, it can help to reduce the disparities in wage structure and ensure that increases in earning do not distort the existing wage structure. The reward for increased Productivity may also take the shape of nonfinancial perquisites such as improved status, free grants or more welfare amenities, though it may be difficult to tell this idea immediately. Consumers must also have a share in the benefits of increased productivity, in the form of lower prices or stable price levels. If an agreement provides also for the growth of the organization in terms of re-equipping through sophisticatedequipments and as a consequence the productivity improves enormously, then it would be wrong for all the benefits to be enjoyed by the workers and owners of the company. A reasonable share must be provided for the community as a whole. It is essential that all the implications of a productivity agreement are understood by all the levels of management. This calls for educating all of them through negotiations and other means. There must be suitable organizational set up with qualified personnel to undertake productivity measurement collection and proceedings of relevant information, etc., within the company itself. Also other aspects such as maintenance, safety and protective measures which are incidental to productivity increase must be taken care of in course of agreement.

DIFFICULTIES IN INTRODUCING A PRODUCTIVITY BARGAIN

Productivity bargain is a more through attempt to achieve productivity rise in the company and increased earnings to the workers than what is attempted with conventional collective bargaining. However there are several difficulties to be encountered while introducing a productivity bargain in a company: i) The chief difficulty is to get over the inter and intra union rivalry.

Speaking at a recent seminar on Multiplicity of Trade Unions and its Effect on Industrial Relations and Productivity on June 15, 1972, the President Mr. V.V. Giri reiterated the slogan of one union in one industry and said that multiplicity of trade unions is neither conducive to the promotion of good industrial relations nor did it help increase production and productivity so essential to national prosperity. It weaken the power of collective bargaining and reduces the effectiveness of workers in securing their legitimate rights. ii) The management must spend considerable time and effort to keep the required information ready and this calls for an effective information system. Also this information must be circulated in advance, so that the union can check the information and get all the clarifications required. iii) Alternate avenues of employment must be ensured for redundant labour to ensure productivity without tears. This would call for expenditure for retraining labour in new skills. iv) There must be a continuous appraisal of the job evaluation system, since the skill requirements vary from time to time. There would also be difficulties arising out of the subjective elements of a job evaluation system and the irrational conceptions of individuals about their own importance. v) The management must realize the productivity agreements are not solely intended to reduce labour costs, but have wider benefits also and as such should try to maximize the potential benefits from productivity bargaining. vi) Greater knowledge of management and unions about the productivity techniques, its concepts and implications leads to removal of hesitation and hostility by both sides towards productivity agreements.

CONCLUSIONS
1. Productivity Bargaining is different from collective Bargaining, even though both have some similarities. 2. Mutually accepted guidelines/models help in sharing the gains of productivity equitably.

3. Introduction and implementation of productivity bargaining agreements involve considerable preparation.

GAIN SHARING

Introduction:Gainsharing is a system of management used by a business to increase profitability by motivating employees to improve their performance through involvement and participation. As their performance improves, employees share financially in the gain (improvement). Gainsharings goal is to improve performance and eliminate waste (time, energy, and materials) by motivating employees to work smarter as a team rather than just working harder.

Definition Gainsharing is a program that returns cost savings to the

employees, usually as a lump-sum bonus. It is a productivity measure, as opposed to profit-sharing which is a profitability measure. An employment arrangement in which an employee benefits from his or her contribution to improved performance of the organization. For example, a hospital might offer physicians a share of any cost reductions in patient care attributable to actions taken by physicians. Gain sharing attempts to motivate employees through financial rewards. An incentive plan in which employees or customers receive benefits directly as a result of cost-saving measures that they initiate or participate in the companys gainsharing program ties bonuses directly to team performance Employee motivational technique where compensation is given for measurable performance gains in such areas as sales, customer satisfaction, and cost reductions. The compensation is often given to employee teams for achieving specified goals.

Gainsharing history

One of the first Gainsharing plans dates back to the 1930's. In the 1930's a labor leader and MIT Lecturer Joe Scanlon, preached that the worker had much more to offer than just a "pair of hands" (manual labor). Scanlon believed that the person closest to the problem often has the best and simplest solution. Also, if the worker is involved in the solution he will make the solution work. In an effort to help a troubled company, Scanlon and the company owner asked employees' for their ideas and suggestions to help reduce waste and lower cost. Many improvements were made. The company became more successful. Joe was asked to save other companies who had barely survived the depression. He eventually became the Acting Director of the Steelworkers Research Department and used his skills in creating joint labor/management improvement committees to help the war effort for WWII. After the war Joe became a lecturer at MIT and went on to develop a system for organizational development and gainsharing that became known as the Scanlon Plan. As the Scanlon Plan developed a method to measure (calculate) gains (improvements) was created. The monetary gains were then shared with all employees. This calculation represents the bonus (monetary incentive) element of Gainsharing. This concept addresses the principle of equity. "It is fair to share." Everyone in a company makes a contribution to the organization's success. Why limit bonuses to the select few? People typically take pride in their work and have a strong desire to be respected for what they do. By sharing the company is communicating an important message to the work force: "We all contribute. That contribution is respected. Let's share in the financial benefits."

Gainsharing today
Today, companies use Gainsharing to both measure performance and reward employees when it improves. Companies use a pre-determined calculation (formula) to share the savings with all employees. The goals of a companys Gainsharing plan depend on its cost structure and longterm competitive strategy and are tailored to fit the industry (manufacturing, service, or corporate). Information regarding the measures, formula, and gains (savings) is regularly and openly shared with all employees. Since the monetary gains are shared with employees,

people develop more of a sense of ownership for their work and the company. People have a better understanding of how they influence the company's success.

Gainsharing develops the work culture

It should be noted that in a Gainsharing plan, the company's current performance is compared to its historic performance (baseline period). The savings above the baseline period determine the gain or loss. This is a very important point. Since gains are measured in relationship to a historical period, employees and the company must improve in order to make a gain. Performance thresholds must be corrected periodically for the effects of capital investment in new equipment as well as for the continuous improvement needed to meet ever higher customer demands. When people do their work differently they must change. However, as everyone one knows, it is difficult for people to change. On the other hand, do people like money? Most people would say, "Yes." Therefore, Gainsharing can be a very powerful tool. Gainsharing promotes the need for continuous improvement and eliminates employees' sense of entitlement.

The employee involvement element

A very important part of a successful Gainsharing plan is the employee involvement element of Gainsharing. In order to foster a culture of positive change, a successful Gainsharing plan needs to incorporate a structure system of employee involvement. It is common for Gainsharing plans to have a "team-based" suggestion system in place. How does a team-based suggestion system work? First, teams are formed in order to gather suggestions from employees on ways to improve, (in other words, suggestions on how to work "smarter"). To avoid unnecessary bureaucracy, most companies ask managers/supervisors to lead departmental teams whose goals mesh with the overall objectives of a companys Gainsharing plan. The teams are permanent groups. The teams meet on a regular basis to discuss the ideas and suggestions. They make decisions on approving or declining the ideas. Also the teams are given limited spending authority to approve and implement the suggestions. Suggestions that are approved by a team, but are beyond their spending authority, are advanced to a higher level in the

organization for final approval. Unlike a traditional suggestion system, a team-based system does not provide individual monetary rewards. This is because everyone works together and shares in the gain together. Gainsharing is not an individual incentive plan.

The bonus calculation element

In terms of the calculation, a Gainsharing plan may have from one to six key performance measures. The most effective Gainsharing plans have relatively few performance goals because employee understanding of them is necessary for success. Examples of measures include productivity, quality, waste, spending, and customer service which are all factors employees can control. The gains (savings) from each measure are calculated separately. Then gains and losses from each measure are added to determine the total gain. A portion of the total gain goes to the company and a portion is shared with all employees. Generally, from 10% to 50% of the gain is shared with employees. The percent of the gain shared with employees depends on employee controllability and importance of the measure to the organization. The pool is distributed to all participants, typically on a monthly or quarterly frequency. The frequency of payouts depends on the employee line-of-sight (employees ability to identify what they do today to earn a payout at the end of the Gainsharing period). Companies with unskilled and semi-skilled employees typically have plans calling for payouts at shorter intervals than those with highly skilled workers.

Gainsharing implementation
It is very important to note that the development and implementation of a Gainsharing plan involves employees and that its goals are within employee control. An employee committee called the "Design Team" helps to make policy decisions on issues such as the plan's measures, employee eligibility, frequency of payout, and method of communication. Next the design team gets upper management approval before implementation. After approval, the Design Team is responsible for conducting meetings with all employees to communicate the details of the plan. Follow-up training should also take place.

Elements of Gainsharing
Element Gainsharing To drive performance of an organization by promoting awareness, alignment, teamwork, communication and involvement. The plan commonly applies to a single facility, site, or standalone organization. Payout is based on operational measures (productivity, quality, spending, and service), measures that improve the line of sight in terms of what employees do and how they are compensated. Gains and resulting payouts are self-funded based on savings generated by improved performance. Payouts are made only when performance has improved over a historical standard or target. Typically all employees at a site are eligible for plan payments.

Purpose

Application

Measurement

Funding

Payment target Employee eligibility

Payout is often monthly or quarterly. Many plans have Payout frequency a year-end reserve fund to account for deficit periods. Payment is cash rather than deferred compensation. Many organizations pay via separate check to increase Form of Payment visibility. Method of distribution Typically all employees receive the same % payout or cents per hour bonus.

Employees often are involved with the design and Plan development implementation process. A supporting employee involvement and communication system is an integral element of Gainsharing and helps drive improvement initiatives

Communication

There are three major types of gainsharing:

Scanlon plan: This program dates back to the 1930s and relies on committees to create cost-sharing ideas. Designed to lower labor costs without lowering the level of a firm's activity. The incentives are derived as a function of the ratio between labor costs and sales value of production (SVOP).

Rucker plan: This plan also uses committees, but although the committee structure is simpler the cost-saving calculations are more complex. A ratio is calculated that expresses the value of production required for each dollar of total wage bill.

Improshare: Improshare stands for "Improved productivity through sharing" and is a more recent plan. With this plan, a standard is developed that identifies the expected number of hours to produce something, and

any savings between this standard and actual production are shared between the company and the workers.[3]

Features of each gainsharing plan include:

Strategic objectivesMost successful gainsharing programs utilize clearly communicated objectives. Common objectives include: improving safety, reducing operating costs, enhancing productivity and quality, and reducing materials and/or energy usage. Employee involvementInvolving employees should be an important consideration in gainsharing plans. The Scanlon and Rucker plans utilize a multitiered employee-involvement program that consists of a suggestion system and one or more committees to identify and solve operational problems. Although Improshare doesn't require an involvement program, plans having an involvement vehicle tend to be more successful than those that do not. Employees covered by gainsharing plansThere is wide variability in the employee groups covered by gainsharing plans. Some organizations have established plans that cover all employees, while other plans have focused on production and indirect labor. One of the most difficult decisions to make is designating which employee groups should be included in gainsharing. In the decision process, organizations must consider the tradeoffs between including those groups of employees who can impact the measurement formula the most, and including all employees to develop esprit de corps. Typical elements of a Gainsharing plan include the following:

Gains and resulting payouts are self-funded. The plan commonly applies to a single plant, site, or stand-alone organization. However, some organizations have levels of sharing across multiple locations or corporation-wide. Performance is typically measured across departments/units/functions. Measures are commonly narrower and controllable by employees rather than being an organization-wide measure of profits. However, some organizations have measures as broad as profits. Payout is often monthly or quarterly. Many plans have a year-end reserve fund to account for deficit periods. Employees are involved with the design process. All employees are eligible for plan payments. The bonus is often paid as an equal percentage of compensation or equal cents per hour worked, rather than paid on the basis of individual performance. A supporting employee involvement system is part of the plan in order to drive improvement initiatives.

How does Gainsharing work? The typical Gainsharing organization measures performance and through a pre-determined formula shares the savings with all employees. The organization's actual performance is compared to baseline performance (often a historical standard) to determine the amount of the gain. Employees have an opportunity to earn a Gainsharing bonus (if there is a gain) generally on a monthly or quarterly basis. Gainsharing measures are typically based on operational measures (productivity, spending, quality, customer service) which are more controllable by employees rather than organization-wide profits. Gainsharing applies to all types of business that require employee collaboration and is found in manufacturing, health care, distribution, and service, as well as the public sector and non-profit organizations. Typical elements of a Gainsharing plan include the following: When does Gainsharing work best? Works best when company performance levels can be easily quantified and in a work environment that is based on openness and trust. A supporting system of employee involvement will significantly enhance

the long term effectiveness of the plan. Requires management commitment, training and frequent and ongoing communications. What is the best way to implement Gainsharing? Executives and managers must be educated in order to develop a clear understanding of the Gainsharing philosophy and the management style required for success. If an organization moves forward with a plan, it is best to form a team of employees to work on various elements of the project. The team is involved in preparing many of the rules of the plan and final approval for the plan details from top management. The team is then responsible for presenting and communicating the plan details. Supervisors and managers are trained in the relationship of their role toward the plan. Teams are formed and trained in order to work on performance enhancement initiatives. It's best to have an expert on Gainsharing to guide and facilitate the process in order to work through the pitfalls and to avoid payout out of false gains. Advantages

Helps companies achieve sustained improvement in key performance measures Rewards only performance improvement Payouts are self-funded from savings generated by the plan Aligns employees to organization goals Fosters a culture of continuous improvement Enhances employee focus and awareness Increases the feeling of ownership and accountability Enhances the level of involvement, teamwork and cooperation Supports other performance improvement efforts and helps promote positive change Promotes morale, pride, and more positive attitudes toward the organization

Disadvantages

Measures are narrower than organization-wide profit and therefore gains may be paid even though profits may be down. Requires a participative management style

Requires that management openly shares information related to performance measures Employees may question or challenge management decisions that may adversely impact a gain. Increases the level of organizational stress since everyone has more of a financial stake in the organization's success Applies best to and a work environment that requires teamwork and collaboration rather that individual entrepreneurship Paid on the basis of group performance rather than individual merit

Our experience in designing and studying many gainsharing plans suggest six factors must be addressed in creating an effective gainsharing program. Utilization of an easy-to-understand:- Formula that tracks those variables which directly affect an organization's strategic performance. Employees must have an impact on formula's elements. Regular program evaluation (at least annually) :- This can include developing metrics to assess program performance, creating procedures for revising the bonus formula and using a process for communicating the program's changes. Employee involvement during design, implementation and periodic evaluation:- Organizations that solicit employee input regarding program design tend to have programs that outperform systems designed without such contributions. A base reward system that pays at the current market level:Gainsharing is not a substitute for paying salaries below the market level. It is designed for and works best when augmenting a base salary system that reflects market conditions. A subject-matter expert to guide the design process:-Gainsharing systems are not do-it-yourself programs. Success requires an expert who has successfully designed these types of reward systems. Organizations that think the process is as simple as reading a book usually encounter significant problems. Stable product/service lines:- Organizations that have relatively stable product/service lines or an ability to develop a stable formula tend to have the highest success rate. Rapidly changing product/service lines and unstable baselines will result in wide payout variations, which tends to

undermine employee confidence in the program. Types of measurement formulas There are two distinct types of gainsharing measurement formulas: physical and financial. Physical formulas :- reward employees for improving the relationship between physical units of output and input (e.g., Improshare). This type of formula affords many advantages because it's based on easily understood variables within the employee's direct control. The downside of using this type of formula is that it can pay bonuses during periods of shrinking or nonexistent profit. Financial formulas :-are based on an organization's overall profitability. Employees become eligible to receive a bonus only when the organization makes a profit. The Rucker and Scanlon plans use this type of formula. Since financial formulas are affected by factors beyond an employee's direct control (e.g., inflation, government regulations, taxation, pricing decisions), they are distorted by the relationship between effort and reward. This can have a deleterious effect on employees' motivation (see figures 2 and 3). In some organizations, the three textbook formulas don't track and reward the variables required for competitive advantage. In these instances, it may be appropriate to develop a customized formula that meets an organization's special needs. When developing a formula, you should consider the following guidelines: Create a formula that can be administered easily. Develop a formula that adapts to changing environmental conditions. Before installing a formula, do simulations or modeling to identify how the bonus is affected by changes in volume, selling price, market share, etc.

The baseline:Baselines are used as a starting point for calculating improvements. Organizations use either permanent, dynamic, rolling or targeted baselines. Permanent baselines remain constant during the plan's lifetime. This provides employees with an added advantage because their bonuses reflect improvements made during previous periods. Dynamic baselines

are revised on an intermittent basis (usually early) according to the performance level achieved in the previous measurement period. Plans that utilize dynamic baselines have problems maintaining bonus levels because employees must generate new improvements constantly. Rolling baselines calculate the average performance for a specific number of periods. The length of time typically varies from four to six weeks. For example, if a company utilizes a four-week rolling average as it begins the first week of month two, the first week of month one is dropped. Targeted baselines are used when no appropriate baselines are available. This can occur when a new product or technology is introduced or when work processes are significantly changed, making the existing baseline invalid.

The employee bonus

The percentage of savings shared with employees varies depending on the gainsharing plan utilized. Generally, plants that only measure labor productivity share the greatest percentage of savings with employees. Traditionally, the Scanlon plan (labor-only formula) returns 75 percent of the gain to employees. Improshare usually returns 50 percent of the gain to employees, while the Rucker Plan varies greatly. When determining the bonus share, management should consider the capital intensity of the business, frequency of baseline changes and expected motivational impact. Capital-intensive industries usually pay out smaller shares to employees. Plans that frequently change the baseline require larger productivity improvements for employees to receive a bonus. Typically, these types of plans provide employees with a larger share. In most plans, organizations pay out bonuses either weekly, monthly, quarterly or annually. Most organizations reward employees monthly. When deciding on payout frequency, consider the availability of data, motivational intent desired, administrative costs and environmental uncertainty (uncertainty in the environment can cause considerable payout variations). Organizations can divide employees' share of gains as follows: Percent of income-

The bonus pool translates into a percentage of salaries, with each employee receiving an equal percentage of compensation. This method is used in about 75 percent of the plans. Equal sharesEvery employee receives the same dollar amount. Hours workedThe bonus is paid in terms of dollars per hour worked and applied to employees accordingly.

Advantages of productivity gainsharing

Organizations that have successfully implemented productivitygainsharing plans report a number of benefits. Many of these organizations believe it has significantly improved organizational communications, especially between labor and management, and between different interdependent functional units. Since gainsharing supports a true pay-for-performance culture, employees tend to see their prosperity linked directly to the organizations. This tends to increase their commitment to the organization. Since gainsharing plans measure changes in critical relationships between inputs and outputs, employees must understand the variables-that they can control-which affect organizational performance. Many gainsharing plans create an esprit de corps between interdependent work groups, and between labor and management, which usually reduces conflict, improves cooperation between related work units and benefits labor-management relations. It's not uncommon for these quality-of-worklife benefits to have a positive effect on absenteeism, turnover and tardiness. Also, most companies report considerable reductions in their cost drivers (e.g., labor costs, product/service quality, purchased goods or services). Lastly, gainsharing plans motivate employees to improve the performance of key success factors within an organization.

Is gainsharing right for you?

Listed below are seven variables that should be considered when assessing the feasibility of gainsharing. Fit with strategy and ongoing operational initiatives-

An organization's strategy is the vehicle of change. Gainsharing is viable only when it supports the business strategy and is integrated with ongoing operational initiatives. Alignment with existing cultureGainsharing is not an overlay. It must be consistent with the organization's existing beliefs and values. Commonality with the prevalent leadership style of management Gainsharing requires a participatory leadership style. Supervisors and managers must not be threatened by increased employee empowerment. Management must be receptive to suggestions for improvement and be willing to act on those suggestions. Capabilities of the information-reporting systemGainsharing plans can tax an organization's information system. Successful plans require accurate, timely and appropriate information to calculate the bonus and track the plan's performance. Type of product/service mixPlan complexity increases exponentially as the product/service mix becomes greater. It is, therefore, more difficult to implement gainsharing principles in an organization with a wide range of product/service lines. Interdependence of the work forceGainsharing works best in organizations that have highly interdependent processes. Potential to absorb additional outputThe basic premise behind gainsharing is to improve the ratio of inputs to outputs. Typically, organizations focus on increasing outputs. If your organization competes in a market that cannot utilize additional output of products/services, productivity gains can become personnel displacements.

Implementation issues
Since no two organizations are alike, there is no map that can be used to design and implement gainsharing in all environments. Listed below are several broad steps that should be considered when designing and implementing a gainsharing program. Conduct a readiness assessment-

A readiness assessment answers two important questions: Is gainsharing a fit within my organization, and what are the requirements for a successful transition to gainsharing? In most instances, the readiness assessment should start with a review of your operations. This can include an analysis of the current physical layout and process flows, existing productivity measures, historical information on resources used, key cost drivers, input/output variables that measure productivity, capital investment plans and assessment of the degree employees can impact profitability. It is not advisable to install gainshar-ing in an environment where large capital investments are planned, which can affect the capital-labor ratio and makes the baseline unreliable. In addition to the operations review, you should conduct an assessment that identifies how a gainsharing program will affect your organization's architecture. We believe architecture is composed of three elements: technology (i.e., the equipment, data and applications used); organization (i.e., administrative control systems, structure, human resource systems, culture and employee competencies); and process (i.e., work processes and physical layout). Design gainsharing programTypically, this begins with the formation of a design team. Our experience suggests a cross-functional design team-represented by human resources, training, finance, operations and the union, if applicable-with significant employee representation a must for success. Unless the design team has considerable gainsharing experience, we recommend you conduct education on gainsharing principles, including: the history of gainsharing; successful case studies/plant visits; benefits/risks; features of each gainsharing plan; and a blueprint for design/implementation. After completing the training, the design team should get down to the nuts and bolts, and develop the objectives of the gainsharing program, identify which groups will be covered by the plan and design the plan's key features (e.g., employee-involvement vehicles, productivity baseline,

bonus formula, bonus payout). Before selecting which plan to implement, we recommend highly that the design team simulate the Scanlon, Rucker and Improshare plan formulas based on historical data while using a variety of input/output measures. One of the most critical components that organizations frequently ignore is the evaluation strategy of the gainsharing plan. This should include metrics to measure the plan's effectiveness, timetables for ongoing measurement and the establishment of a committee or team that has the authority to review and modify the plan. After the plan has been designed fully, decide the scope of initial introduction. Specifically, will the plan be introduced on a pilot basis, or will full implementation take place? The optimal time to implement gainsharing is when demand for the organization's products or services exceeds current production levels. Avoid new product introductions or implementing technology with long learning curves. Also, avoid introduction during peak times or labor negotiations. MaintenanceGainsharing plans must be flexible enough to respond to changing market conditions. The last key task that the design team should tackle is clarifying maintenance roles and responsibilities. This is a ticklish issue. For a plan to succeed, employees must understand and have confidence in the plan. Whenever a plan is modified, employees tend to be skeptical. They assume that management has a hidden agenda. Plan modifications usually occur because of changes in the product/service mix or capital investments (i.e., new technologies). One way to mitigate the perception of tampering is to include a section in the gainsharing policy on plan evaluation and modification. The policy should describe who will review the plan, circumstances under which the plan can be modified and a process for modifying the plan. Always include employees in the review process. The utilization of a gainsharing policy should reduce employee mistrust. And some organizations document how and why decisions to modify the plan were made, what assumptions were made and what conditions existed that necessitated the change, reporting the results to em-ployees.

The following summarizes many of the elements of a Gainsharing plan which have been discussed.

Gains and resulting payouts are self-funded based on savings generated by improved performance. The plan commonly applies to a single plant, site, or stand-alone organization. However, some organizations have levels of sharing across multiple locations or corporation-wide. Performance is typically measured across departments, units, or functions. Measures are typically based on operational measures (productivity, quality, spending, customer service) and are more controllable by employees rather than an organization-wide measure of profits. Payouts are often monthly or quarterly. Many plans often have a year-end reserve fund to account for deficit periods. Employees often are involved with the design process. All employees are eligible for plan payments. The bonus is often paid as an equal percentage of compensation or equal cents per hour worked, rather than paid on the basis of individual performance. A supporting employee involvement system is part of the plan in order to drive improvement initiatives. Plans are often reviewed at least annually and adjustments may be made that make sense for both the company and employees.

The keys to successful implementation are simplicity and employee involvement

Simplicity - Employee understanding is necessary for them to be motivated by it. Involvement - The more employees are involved in a plan's design, the more ownership they will take in it.