Gain Sharing

Looks at the cost components and identifies savings over which employees have more impact.Compared to profit sharing, where employees may not feel they have much impact on profits, employees can impact savings. 3 types differentiated by their focus on either cost savings or some measure of revenue.

Scanlon PlanRucker PlanImproshare

Questions

1.Compare the operations of two schemes. Does the nature of the business affect the way the schemes work.

TYPES OF SCHEMES

1. Scanlon Plan BP Exploration Plan2. The Ingersoll Rand Scheme EIT(Employee Involvement Teams) Bonus Committee

Scanlon Plan

• A group cost savings plan designed to lower labor costs without lowering the level of the firm’s activity.

• Incentives are derived as a function of the ratio between labor costs and sales value of production(SVOP).

• SVOP includes sales revenue and value of goods in inventory

Rucker Plan

• A group cost savings plan in which cost reductions due to employee efforts are shared with the employees. It involves a more complex formula than a Scanlon plan for determining employee incentive bonuses.

• A ratio is calculated that expresses the value of production required for each dollar of the total wage bill.

• ImproshareIMproved PROductvity through SHARing

The Ingersoll Rand Scheme

Elements:1. Increase in the productivity,

measured as the labor cost percentage of sales

2. Savings on waste, measured by the reduction in spoilage and scrap

3. Savings on supply costGain sharing Bonus paid on quarterly

basis as a basis of salary.(No bonus on absenteeism)

•EITs & EIT Steering Committee

•Bonus Committee

GAIN SHARING

A technique that compensates

workers based on improvements in

the company's productivity.

INTRODUCTION

• Gain sharing, in one form or another, has been around since the 1930's.

• Gain sharing is a bonus incentive system designed to improve productivity through employee involvement, with the gains from "working smarter" shared between the employer and the employees according to a predetermined formula.

• Gain sharing offers industry the opportunity to improve plant performance and boost productivity while reducing costs attributed to poor quality (e.g., waste, spoilage, rejects, and customer returns).

• There are approximately 2,500 companies using gain sharing.

IT INCLUDES

(1) a financial measurement and feedback system to monitor company performance and distribute gains in the form of bonuses when appropriate, and

(2) a focused involvement system to eliminate barriers to improved company performance.

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

GAINSHARING BONUS

• Profits is low – increase in cost of supplies but no increase in price of finished good.

• Increase in organization performance, quality, productivity and cost reduction.

• Introduction of SCANLON PLAN and RUCKER & OTHER PLAN.

• Feedback from staff and less mistakes• Regular briefing and Group Discussion

• Increasing productivity, measured as the labor cost percentage of sales.

• Saving on waste , measured by the reduction in spoilage and scrap.

• Saving on supply cost• No bonus will be paid on any reason ,

including sickness

Q. A major Fire occurs on one of the BP North Sea Platform causing it to be closed down for 4 weeks. This badly affects the output over that particular bonus period. An investigation shows that the fire resulted from freak weather conditions.

Should the gainsharing bonus be affected?

Scanlon Plan

• Incentives are derived as a function of the ratio between labor costs and sales value of production(SVOP).

• SVOP includes sales revenue and value of goods in inventory

Rucker Plan

• A group cost savings plan in which cost reductions due to employee efforts are shared with the employees. It involves a more complex formula than a Scanlon plan for determining employee incentive bonuses.

• The Rucker plan is a form of gainsharing that utilizes a bonus formula based on value added (which is defined as sales minus raw materials and services) rather than net sales, revenue, or sales value of production (which are used in the Scanlon plan)

Rucker Plan

ImproshareIMproved PROductvity through SHARing

• Gain sharing plan – standard time to produce an acceptable level of outcome is identified.

• Any savings that arise from producing that outcome in a shorter time frame is shared by the firm and the worker.

Agenda for Employee involvement schemes IT Meeting at Ingersoll / BP

What is …?

A list of meeting activities in the order in which they are to be taken up, beginning with the call to order and ending with adjournment.

Functions

• It forces the meeting leader or group to think out what needs to be accomplished

• Provided ahead of time (as it should be), the agenda lets people know what to expect and allows them to prepare as necessary

• It provides a blueprint or path for the meeting to follow

• It reminds people of what there is left to cover if time gets to be an issue

Format

• Organization Name – Ingersoll / BP • Group Meeting Agenda - Setting up

productivity committees • Location – Office board room• Date - 27/07/2010• Starting and Ending Time – 9:10 am to 10 :25

am

A Typical Agenda

• Welcome/open meeting • Approve minutes of the previous meeting • Matters arising from the previous meeting • A list of specific points to be discussed —

– Setting up productivity committees – discuss current performance & ideas to make improvements

– Targets set up for oil production, labour costs – Discuss safety and environmental issues which were tailored to a

particular asset– How to save on waste, supply costs by reduction in spoilage , scrap– Understand costing aspects, operational & motivational difficulties

• Any other business (AOB) — allowing a participant to raise another point for discussion.

• Arrange/announce details of next meeting • Tea and biscuits • Close meeting

Presented By :Kanchan SharmaRicha AgrawalRajni AgnihotriChaitayna KantDhaval Jain