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How unions view gainsharing
How Unions View Gainsharing Timothy L. Ross, Larry L. Hatcher, and Dan B. Adams
15 T i m o t h y L. Ross is t h e d i r e c t o r of t h e BG P r o d u c t i v i t y a n d G a i n s h a r i n g I n s t i t u t e at Bowling Green State University in Ohio. Larry L. H a t c h e r is an assistant p r o f e s s o r of p s y c h o l o g y at W i n t h r o p College in R o c k Hill, S o u t h Carolina. N o w an A r i z o n a resident, D a n B. A d a m s is a r e t i r e d vice p r e s i d e n t of Owens-Illinois o f Toledo, Ohio, a n d has w o r k e d actively in the g a i n s h a r i n g area for several years.
What is it that unions like about gainsharing? What aspects do they oppose? And why are unions moving from a neutral position to active support of gainsharing plans? The goal is to break down workers' natural mistrust o f bosses, and then get workers to begin telling the company h o w jobs can be speeded up and made more " p r o d u c t i v e " in other words, h o w to get the work out with fewer people. The companies want to break down the "communications barrier" between boss and worker so they can turn worker against worker, getting people to tell them who's not beb,g "productive" enough. 1 his quotation is from the policy b o o k of a major American trade union. It paints a dark picture of the attitudes of some national unions toward group participation productivity plans. According to this view, quality of work life (QWL) and other employee participation plans are used to create the illusion that workers have more control over the
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1. This quotation, from the 1981-82 Policy of~the United Electrical, Radio and Machine Workers of America (UE), was supplied to the authors in response to the study request for information on various types of plans.
workplace while in fact the workers' only real source of p o w e r - t h e local union-is bypassed and undermined. In the end, the union's power and influence is weakened, and the participation plan becomes a new power structure within tbe organization, biased toward the company's point of view and unresponsive to the real needs of the workers. Is such a perspective representative of most national and international unions? We will discuss research dealing with this question. We will outline the concerns of high-ranking union officials about one type of cooperative effort, productivity gainsharing plans. We will discuss what aspects of the plans they find objectionable, what they find attractive. Finally, we will recommend how to address the union's concerns in a manner that is straightforward and ultimately in the best interest of the company, the employees, the union itself, and most importantly, the U.S. as a competitor in international fi'ade.
Business Horizons ] July-August 1985
What Is Productivity Gainsharing? ment has a committee or team that
when employers discuss having a consists of employees and a super- plan. Probably the majority of ainsharing is a generic term which has been used to re- visor. This committee solicits and unions are in this category. 3. Decentralized policy with nafer to the Scanlon Plan, the reviews the ideas empIoyees conRucker® Plan, Improshare®, any tribute on ways to cut costs, reduce tional union support. National number of individual company-de- waste, streamline operations, and in union officials other than the presiveloped programs, and even some other ways improve productivity. dent advocate worker participation. profit-sharing plans. In any of these The team may implement accept- These officials support and advise systems, the productivity of em- able suggestions costing less than a interested locals. At this time, the ployees is measured using one or given amount; it forwards other, United Steel Workers and the more of a large number of available more expensive ones to a larger United Auto Workers appear to calculations. At the end of a set plant-wide review committee of em- best represent this position. 4. Support from the president. time period (often a month), the ployees, management, and union officials. Both the departmental The president goes on record as employees are paid a bonus if their teams and the larger plant-wide advocating worker participation, productivity has exceeded some committee spend time researching staff support is available to assist targeted level. The size of the bonus ideas, informing employees about and train local officers, and moveincreases as their productivity inthe company's situation, and setment is made toward integrating creases, and the bonus is usually ting goals related to the plan and worker participation With collective paid as a p~rcent of their wages. In company performance. bargaining and other union activian average company this bonus may Although it is not u n c o m m o n ties. Few unions fit this mold, with range from 5 percent to 15 percent, to find a plan with much less the Communication Workers of but often it is rauch higher, at least employee involvement than is outAmerica perhaps coming closest. t~or short periods. Although some It is significant that most unions plans cover only certain groups of lined above, such involvement is essential if employees are to identake a position of decentralized employees, such as direct labor, it is tify with the plan and are to supneutrality. Supporting a new form more common to see all employees port it during times when bonuses of labor-management Cooperation in a factory or company working are not being earned. can involve risks for high-ranking under a plan. union officials; their predisposition With some plans, the calculation to delay or avoid taking a stand is used to measure productivity is Four Positions Taken b y Unions understandable. quite narrow and assesses only stanThe recent increase in the numn their study on worker particidards-based performance. Other ber of gainsharing plans being impation and American unions, c9mpanies use broader calculations, plemented has provided considerKochan, Katz, and Mower deincluding basing bonuses on profits able information about how the or even return on investment. Most scribed four stands taken by naplans will influence the unions ingainsharing plans are kept separate tional unions on worker participavolved. Our survey sought to idention processes: 2 from the union contract. tify the specific aspects of gainI. General opposition. The genInterest in and application of sharing that unions will favor, as gainsharing have accelerated greatly eral opposition to such plans is well as those that unions likely will in recent years. Firms that install clearly stated by national union leaders. Local unions are dis- oppose. gainsharing are of four types: (1) Those that are interested in couraged, but not prevented, from The Survey making compensation more con- participating. tingent on organizational perfor2. Decentralized neutrality. Nahe respondent could evalumance; tional leaders do not take a stand ate, using a 4-point scale, (2) Those in financial trouble; either for or against worker particithe importance of nine rea( 3 ) T h o s e that include gain- pation, and leave the decision to sons that unions may favor gainsharing as part of wage concessions; the local unions. They do not pro- sharing systems a n d nine reasons and vide significant staff support to that unions may oppose such sys(4) Those that are already-suc- locals that do get involved but may tems. Additional items could be cessful and adopt gainsharing as offer guidelines on how to respond added, if necessary. Other items part of their management philosoobtained information about the rephy. spondent and assessed the respon2. Thomas A. Kochan, Harry C. Katz, and Gainsharing plans vary widely in Nancy R. Mower, "Worker Participation and dent's familiarity with various gainthe degree to which employees may American Unions: Threat or Opportunity?" sharing plans. The survey was kept School of Management working paper get involved. Most commonly (as Sloan #1526-84, Massachusetts Institute of Tech- as simple as possible in hopes of with the Scanlon Plan) each depart- nology, Cambridge, Mass., 1984: 24..25. increasing the response rate.
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How Unions View Gainsharing
"Supporting a new form of labor-management cooperation can involve risks for high-ranking union officials; their predisposition to delay or avoid taking a stand is understandable." 17 Responses were obtained from I7 of the larger American trade unions, including the UAW, the United Rubber Workers, the International Ladies Garment Workers Union, the United Brotherhood of Carpenters and Joiners of America, the International Union of Tool, Die, and Mold Makers, the International Brotherhood of Boilermakers, the International Association of Machinists, the Teamsters, and the International Union of Bricklayers and Allied Craftsmen, as well as other smaller unions. In most cases, the director of research and education for the union or a research staff member completed the survey. First and second requests were sent to numerous other unions, but even an inducement of a recently published book on gainsharing could not generate a response from these.
Why Unions May Oppose Gainsharing or each item, the percent of respondents indicating that the reason was " i m p o r t a n t " or "very important" was determined. Results are tabulated in Table 1. Let us examine the five most important reasons for opposition. 1. Management may try to substitute it for wages. A basic principle of gainsharing is that the gainsharing bonus should serve as an extra incentive for improving pro-
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ductivity, separate from the basic the spirit of cooperation by laying compensation package. It is gen- off employees after productivity erally recommended that the gain- gains are made, will manipulate the sharing plan be kept out of collec- bonus calculation to suit its needs, tive bargaining negotiations on pay. or will attempt to change the rules As the survey responses reveal, of the plan at some later date. If most unions are not interested in management adopts such actions, replacing any part of their mem- the plan is likely to be shortlived. bers' paycheck with a bonus that Normally, before the plan is incan vary in amount. Gainsharing is stalled, specific ground rules are generally used openly for this rea- established to decrease such possison only when part of a conces- bilities. 3. Peer pressure to perform may sionary package. Most gainsharing firms offer wages that are competi- increase. In a typical gainsharing tive for the area. Hence, although firm, all jobs are " o n standard" in unions may fear such a practice, the sense that performance during gainsharing rarely is a substitute for the base period must be exceeded to earn bonus. This means that wages. 2. Management cannot be anyone who performs inadequately trusted. Pervading much of the hurts everyone's chance of earning writing on union and management a bonus. Some unions fear that cooperative efforts is the concern workers will complain when others by the union that it is not being are not doing their jobs properly, dealt with in good faith. There is a creating divisiveness in the work fear that management will violate force and placing unfair pressure on Table 1 Reasons That Unions May Oppose Gainsharing (percent marking "important" or "very important") Percent
1. Management may try to substitute it for wages 2. Management cannot be trusted 3. Peer pressure to perform may increase 4. Bonus calculations are not understood or trusted 5. Union influence is undermined 6. l~ncreasedproductivity may reduce need for jobs 7. Grievances may go unprocessed 8. Gainsharing is incompatible with union goals 9. Employees really do not want more involvement
94 88 77 76 66 64 64 57 20
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employees too old to perform at top levels. It has been our experience, however, that the pressure exerted to correct substandard performance is focused not so much on fellow workers as on management. 4. Bonus calculations are not understood or trusted. In addition to a concern that the c o m p a n y will juggle the figures, some unions hold that gainsharing bonus calculations are inadequate measures of employee performance. According to an International Association of Machinists' research report : The relationship between a worker's productivity and the b o n u s . . , is very remote. Not only that, but rhany factors beyond the workers" control, including production processes, .demand, management efficiency, and quality of materials, help determine the extent o f savings. Total sales, for instance, may be affected by seasonal demand for the product or by the marketing skills o f the firm. Since most low to middle income families budget their income to the hilt, tit is difficult to make adjustment for unexpected declines in income. 3 One way to minimize lack of trust in the bonus calculations is to have them tied to the factory's or company's financial reports so that the same figures are used for bonus as are used for tax and corporate .report purposes. Thus they can be attested to by the public auditors. The marketing skills of the firm can be sharpened by including the sales and marketing force in the gainsharing plan, as many firms have done. 5. Union influence is undermined. In one scenario, the union could lose power if the workers come to see the employee involvement system (for example, the teams that review employee ideas) as a more effective way to handle issues that are normally channeled 3."Profit Sharing and Group Incentive Plans," IAM Research Report, Vol. 7, No. 2, International Association of Machinists and Aerospace Workers, Spring 1979: 3.
through the grievance procedure. Management gets credit for bettering the workers' condition, and the union is increasingly bypassed. Research, however, has shown that involvement in such plans typically does not cause members to evaluate their unions more negatively.* In most installations, a strong attempt is made to presm-,,e the union contract provisions. Additional reasons for opposition. Although not included as an item on this survey, one of the major obstacles to gainsharing may be the view that such worker involvement plans are used as tools against the organized labor movement. Two laid-off UAW members recently noted: "Quality of Work Life (QWL) programs are quickly becoming the single most important management technique being used to thwart unionization. In addition to greater productivity, nonunion firms see QWL as being decisive in keeping unions out. ''s Labor leaders see managerial opposition to union organizing efforts in America as a major force limiting cooperative efforts and experimentation in the workplace. Unions will not embrace such plans openly until they feel that their right to represent workers is accepted. We know of no unions that were decertified after gainsharing was installed. However, in some instances unions were organized in response to management's pushing gainsharing plans for dubious reasons. Why Unions May Favor Gainsharing he findings reviewed in the preceding section represent only one side of the story. Most unions are either neutral toward or "mildly" in favor of gainsharing plans. They can see a num-
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4. Kochan: 15-20.
5. Mike Parker and Dwight Hansen, "Using Quality of Work Life Programs to Thwart Unions," Workplace Democracy, Winter 1984: 8.
ber of positive attributes in such systems. Table 2 describes the relative importance of nine reasons unions may favor gainsharing. Let us discuss briefly the top five reasons. 1. Increased recognition. A gainsharing plan can provide many opportunities for employees to receive special recognition for their contributions to company performance. Through being elected to or selected for team positions, seeing their ideas implemented, and other means, the workers find that their extra efforts are noticed and appreciated, not only by management but also by coworkers. 2. Better j o b security. Although some fear that improved productivity will result in the need for fewer employees, other unions have taken the position that a successful plan means a successful company and therefore greater j o b security. R a y m o n d Majerus, secretary-treasurer of the UAW, recently stated: Thus, it's vital that the basic job security needs o f workers are addressed when these programs are designed. We've tried to do this in a number o f situations-without success I should a d d - b y proposing that profit sharing and productivity sharing bonuses be distributed in the form o f increased paid time o f f the job rather than cash. In this way, productivity gains can be used to increase employment and enhance job security rather than reduce it. 6 Most national union officials probably accept the contention that productivity is important for long-run job security. Unfortunately, local leaders often fear that productivity increases will reduce short-run job security, and therefore they resist such plans. 3. Increased involvement in j o b activities. Although a popular line of thought holds that unions are 6. Raymond Majerus, Secretary-Treasurer UAW, "Incentive Plans: Why They Work ant Why They Don't," address to the Confereno on the Economics of Incentive, Cooperatim and Risk Sharing, New York, N.Y., March 29 1984: 5.
How Unions View Gainsharing
"Unions will not embrace such plans openly until they feel that their right to represent workers is accepted."
19 clinging tenaciously to outdated beliefs that workers really are interested only in getting more pay and better benefits, the survey results suggest otherwise. Respondents seem to recognize that many of the employees they represent want more control over the wa}, they do their jobs. A gainsharing plan may be effective in helping to achieve this goal. 4. More money. One advantage offered by a gainsharing plan that is not found with most other QWL or employee involvement systems is the potential of earning a financial bonus. A recent bulletin published by the United Brotherhood of Carpenters and Joiners of America (UBC) had this comment about Quality Circles, a system which normally does not pay a bonus:
We recommend that ira Quality Circle Program is accepted, it be
combined with some form of gainsharing plan for employees. The savings resulting from the Quality Circles must be shared with employees for two reasons. First, it is only fair that savings achieved as a result of employee suggestions and participation b~ the Circles directly benefit employees. Otherwise the program becomes a means of manipulating workers for the benefi? of the company. Second, employees rapidly lose interest if there is no incentive involved for them. 7 The article went on to recommend the use of a Scanlon Plan and noted that it has been used successfully in UBC locals. A company may find it easier to begin with a Scanlon Plan or some other " p u r e " 7."Quality Circles: How Should Unions Respond?" UBC Organizing--Industrial Bulletin, United Brotherhood of Carpenters and Joiners of America, January 1983: 4.
Table 2 Reasons That Unions May Favor Gainsharing (percent marking " i m p o r t a n t " or "very important") Perc en t
1. 2. 3. 4. 5. 6. 7. 8. 9.
Increased recognition Better job security Increased involvement in job activities More money Increased feeling of achievement of contributing to the organization Increased influence of union , Greater contribution to nation's productivity Compatibility with union goals Fewer grievances
95 94 94 94 86 70 69 64 47
gainsharing plan than to superimpose a gainsharing incentive system on a Quality Circles structure. 5. Increased feeling of achievement of contributing to the organization. This certainly doesn't suggest that the era of adversarial relationships between labor and management is over, but it does imply that unions are aware that many of their members want to have an impact on the success of their companies. A gainsharing plan, if designed with the union's concerns in mind, can be one vehicle to he!p meet these needs. Informal discussions with a number of local union members confirm tbis finding. What's in It for the Union? p to now we have discussed ways that a plan can benefit individual employees. But all equally important issue is the extent to which the union as a third pm'ty can profit from acting as a joint partner in developing and supporting the system. First, only the most productive and competitive firms will grow and offer more employees as dues-paying members. Japanese and European companies are in many cases producing better quality products at lower costs. Unionized American firms, which have been adversely affected by these pressures, can be strengthened by gainsharing.
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"Gainsharing promotes extra pay when profits make it available, but the firm is not saddled with a permanent higher wage level during times of economic downturns."
20 processes, and plans for tile future. The improved communications developed under a gainsharing plan should provide the union with better knowledge. In addition to allowing the union to better serve its members, this new sharing of information is also helpful in developing trust in management and in helping the union to see business conditions as they truly are. Firms with gainsharing are likely to take a longer view of employment than many other firms. That is, they have some ability to reduce wage costs (by reducing bonuses) and decrease the need for disruptive short-run layoffs during seasonal or cyclical business downturns. Surely such policies are in the best longrun interest of the union at both the local and international levels. Gainsharing also promotes extra pay when profits make it available, but the firm is not saddled with a permanent higher wage level during times of economic downturns. The adjustment process is automatic; the union does not have to negotiate difficult wage give-ups. Finally, a union that actively has supported a successful gainsharing plan probably will find itself in a better bargaining position during negotiations. If the plan has in fact resulted in greater productivity, less scrap, and higher quality and if these improvements can be tied to the union's participation, 8. Charles Heckscher, "A Union Response to QWL Programs," Workplace Democracy, then the union likely will be better supported in its own demands. Winter 1984: 9,
Second, the union benefits by association with a plan desired by the rank and file. Charles Hecksher, research ecdnomist for the Communication Workers' union, observed: In such cases, for unions to oppose QWL is simply a suicidal strategy. It puts us in the position o f opposing something which the workers see as good. It may, i f anything, be worse to do what many unions have done, which is to sit on the sidelines and play a "watchdog" role. That approach lets management get all the credit for improvements resulting from QWL while the union zs seen as negative, weak, and irrelevant to a process which directly benefi'ts workers in theb" daily lives. 8 By being actively involved in the gainsharing plan, the union can also raise its visibility among that 80 percent of the membership that is less active in union affairs. These members should come to see the union as a more powerful force in issues that directly influence their work life. In this way their solidarity and identification with the union are enhanced. Often, the union's effectiveness in negotiations and grievance-handling is hampered because of a lack of detailed information regarding company finances, decision-making
Likely Conditions for Cooperation ather than l"ecommending outright rejection of gainsharing plans, some national unions are finding it more advantageous to take an active part in the plan, provided that certain conditions are met. These conditions are meant to ensure that the union's power is not threatened, that the union members will not be hurt by tile plan, and that management is being honest in stating reasons for implementation. Often, the union's greatest concern will be that streamlined operations and other productivity improvements could result in layo f f s - d o i n g the same work with fewer people. The union is likely to demand some assurance that this will not happen. To maintain employee j o b security, management will have to see that the cost savings generated under the plan are not wasted. Part of the money saved should be invested in the marketing and sales organization so that sales volume keeps up with production. Ideally, gainsharing p l a n s should be installed in sites where there is a potential for an expanding market. Although a successful plan should result in more jobs in the long run, it is essential that management and the work force be flexible and imaginative in finding ways to maintain employment levels in the short run. While waiting for sales volume to develop, a firm may find
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How Unions View Gainsharing
it possible to reassign production workers to maintenance or some similar function. One manufacturer of industrial electrical products sent some of its production workers out with salesmen to help demonstrate products during times when they were not needed in the plant. Another problem arises when, during times of rapid ga'owth, some companies hire new workers for temporary bulges in production. During such volatile periods, it is best if at all possible to subcontract some work, thus affirming the company's commitment to retain the employees it takes on. All involvement should be voluntary. This condition is easily met because a gainsharing plan is by nature voluntary. Employees support the plan because they see it as being in their best interest. Union representatives should be involved in all phases of the plan development, implementation, and evaluation. Tiffs will satisfy the union's need to see to it that there are no hidden "tricks" up management's sleeve. More importantly, it should ensure the plan's success. Research has shown that systems in which the union has served as a visible and joint partner are most likely to result in improvements in the workers' views of their jobs and of their union's performance. 9 There should be some assurance that the plan will not affect the collective bargaining agreement. Keeping the plan out of the labor agreement will avoid complications and generally make life easier for management as well as the union. Most plans have a " m e m o of understanding," which specifically states what items will continue to be decided by management and which items are part of the union contract. Most unions will not accept scapegoating of the workers as a major cause of poor productivity. Support of the plan eventually should lead to changing those rules 9. Kochan: 21.
that obstruct the employees' attempts to work more efficiently. To earn a bonus under gainsharing, employees should not have to work hm'der or longer, but smarter and more consistently. Finally, some unions will expect management to open its books. Management must be willing to be more open and continue to share with the union relevant information about the organization's business. This will be especially important when presenting monthly bonus results. Sharing information on the company's performance and walking union representatives through the calculation will be basic to building and maintaining cooperation. Successful firms are normally the most willing to share. Winning the Union's Support n malay instances, the items discussed thus far will constitute necessary but not suffid e n t conditions for gaining the cooperation of the union as a joint partner in the plan. Responsibility still falls on management to convince the union that such a system is in its own best interest and, more importantly, in the best interest of the employees. Management must take the initiative in most situations. Additional steps will have to be taken to create an environment that will generate enthusiasm and make the plan a success. These steps will vary depending on the company and union, but a few general recommendations can be made. 1. Pick the right facility. If a company's long-range goal is to establish plans in several locations, it is important that things go well in the initial site. There are a number of variables to consider when making this selection, but a central one should, of course, be a good relationship between management an'd the union. 2. Be frank in discussing the costs and the payoffs. No union will risk a workplace experiment
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until it fully understands its advantages-financial and o t h e r - f o r the workers. At the same time, the plan ultimately will be harmed if the potential benefits are exaggerated. Even if the plan is successful, the union's expectations will be raised to a level that cannot be satisfied. All parties involved must understand that large amounts of effort and support are required to make the plan work, and that much time may pass before they see financial rewards. 3. Visit other gainsharing companies. Key union representatives should be taken to f i r m s - b o t h union and n o n u n i o n - w i t h active plans. (Nonunion installations are probably somewhat more common.) They should tour the facility and, if this is allowed, talk to anyone in the plant. It may be possible to arrange a meeting with the local president, who can tell what gainsharing has meant to the union. Most importantly, they should talk to the g'ainsharing plan coordinator, who holds a key position in nearly all successful gainsharing plans. Some care obviously must be exercised in site selection. The authors can provide a list of gainsharing companies to those who are unaware of any in their area. 4. Be responsive to the union's inputs. The union will be looking for evidence that its concerns are being taken seriously. In this regard, nothing is more effective than timely feedback. R a y m o n d Majerus of the UAW obsmwed: Management has to do more than simply listen to the union and its workers; it has to understand what is being said, react quickly to suggestions~proposals, and implement changes when they are warranted In a worker's eyes, quick feedback and follow-through are perhaps the most telling yardsticks o f management's c o m m i t m e n t to an incentive program. ~ o 5. Seriously consider formation of a Labor/Management Steering 10. Majerus: 7.
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"Sharing information on the company's performance and walking union representatives through the calculation will be basic to building and maintaining cooperation. Successful firms are normally the most willing to share." 22 Committee. This group can be selected by both management and the union and can develop broad ground rules' and a plan outline. When properly used, such a ~'oup is exn'emely effective in opening lines of, conamunication and laying the groundwork for a plan that both sides can live with. e we on the brink of a new ra of union-management coopm-ation? Probably not, although productivity gainsharing plans offer much promise for improvements in this area. In general, management will continue to pursue its goals of turning a profit, providing a reasonable return for shareholders, and improving employee relations. Unions will continue to strive for higher wages, benefits, and j o b security, and will still work for better conditions and workers' rights. There remains, however, the employees' interest in expanding their roles, acquiring more control
Such worker needs will not be over their jobs, having a more direct impact oil tile company's perfor- easily ignored, either b y the commance, and sharing in the benefits. pany or the union. The key is to A recent study dealing with a large develop systems that serve the sample of workers found that four needs of all three parties, systems out of five wanted substantial say that currently are being devised by over the way the work is done and the country's more progressive the quality of the work produced. firms and labor organizations. Such Even more surprising is the list of cases demonstrate that cooperative things which fewer respondents in- efforts can work when the different dicated that they wanted to influ- sides communicate openly, show all ence: when the work day begins honest regard for the other side's and ends, who should be fired or concerns, and are cognizant that hired, pay scales or wages, how the goals of employees, managecomplaints or grievances are han- ment, and unions are essentially the same. dled, and who gets p r o m o t e d ] Because of its emphasis on Such findings would indicate that workers are at least as con- establishing common goals, gaincerned about how they do their sharing has played an increasingly jobs as they are about traditional important role in this effort.~ a bread-and-butter issues. For ex- That trend will accelerate as more ample, 35 percent of the employees firms and unions become familiar not presently involved expressed with the concepts that comprise interest in becoming an active par- gainsharing. ticipant in the QWL process cur13. For more information on gainsharing, rently underway. ~ 2 11. Kochan: 8-9. 12. Kochan: 20.
see the most recent book on gainsharing by one of the authors: Brian Graham-Moore and Timothy Ross, Productivity Gainsharing (Englewood Cliffs: Prentice-Hall, 1983).
15 T i m o t h y L. Ross is t h e d i r e c t o r of t h e BG P r o d u c t i v i t y a n d G a i n s h a r i n g I n s t i t u t e at Bowling Green State University in Ohio. Larry L. H a t c h e r is an assistant p r o f e s s o r of p s y c h o l o g y at W i n t h r o p College in R o c k Hill, S o u t h Carolina. N o w an A r i z o n a resident, D a n B. A d a m s is a r e t i r e d vice p r e s i d e n t of Owens-Illinois o f Toledo, Ohio, a n d has w o r k e d actively in the g a i n s h a r i n g area for several years.
What is it that unions like about gainsharing? What aspects do they oppose? And why are unions moving from a neutral position to active support of gainsharing plans? The goal is to break down workers' natural mistrust o f bosses, and then get workers to begin telling the company h o w jobs can be speeded up and made more " p r o d u c t i v e " in other words, h o w to get the work out with fewer people. The companies want to break down the "communications barrier" between boss and worker so they can turn worker against worker, getting people to tell them who's not beb,g "productive" enough. 1 his quotation is from the policy b o o k of a major American trade union. It paints a dark picture of the attitudes of some national unions toward group participation productivity plans. According to this view, quality of work life (QWL) and other employee participation plans are used to create the illusion that workers have more control over the
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1. This quotation, from the 1981-82 Policy of~the United Electrical, Radio and Machine Workers of America (UE), was supplied to the authors in response to the study request for information on various types of plans.
workplace while in fact the workers' only real source of p o w e r - t h e local union-is bypassed and undermined. In the end, the union's power and influence is weakened, and the participation plan becomes a new power structure within tbe organization, biased toward the company's point of view and unresponsive to the real needs of the workers. Is such a perspective representative of most national and international unions? We will discuss research dealing with this question. We will outline the concerns of high-ranking union officials about one type of cooperative effort, productivity gainsharing plans. We will discuss what aspects of the plans they find objectionable, what they find attractive. Finally, we will recommend how to address the union's concerns in a manner that is straightforward and ultimately in the best interest of the company, the employees, the union itself, and most importantly, the U.S. as a competitor in international fi'ade.
Business Horizons ] July-August 1985
What Is Productivity Gainsharing? ment has a committee or team that
when employers discuss having a consists of employees and a super- plan. Probably the majority of ainsharing is a generic term which has been used to re- visor. This committee solicits and unions are in this category. 3. Decentralized policy with nafer to the Scanlon Plan, the reviews the ideas empIoyees conRucker® Plan, Improshare®, any tribute on ways to cut costs, reduce tional union support. National number of individual company-de- waste, streamline operations, and in union officials other than the presiveloped programs, and even some other ways improve productivity. dent advocate worker participation. profit-sharing plans. In any of these The team may implement accept- These officials support and advise systems, the productivity of em- able suggestions costing less than a interested locals. At this time, the ployees is measured using one or given amount; it forwards other, United Steel Workers and the more of a large number of available more expensive ones to a larger United Auto Workers appear to calculations. At the end of a set plant-wide review committee of em- best represent this position. 4. Support from the president. time period (often a month), the ployees, management, and union officials. Both the departmental The president goes on record as employees are paid a bonus if their teams and the larger plant-wide advocating worker participation, productivity has exceeded some committee spend time researching staff support is available to assist targeted level. The size of the bonus ideas, informing employees about and train local officers, and moveincreases as their productivity inthe company's situation, and setment is made toward integrating creases, and the bonus is usually ting goals related to the plan and worker participation With collective paid as a p~rcent of their wages. In company performance. bargaining and other union activian average company this bonus may Although it is not u n c o m m o n ties. Few unions fit this mold, with range from 5 percent to 15 percent, to find a plan with much less the Communication Workers of but often it is rauch higher, at least employee involvement than is outAmerica perhaps coming closest. t~or short periods. Although some It is significant that most unions plans cover only certain groups of lined above, such involvement is essential if employees are to identake a position of decentralized employees, such as direct labor, it is tify with the plan and are to supneutrality. Supporting a new form more common to see all employees port it during times when bonuses of labor-management Cooperation in a factory or company working are not being earned. can involve risks for high-ranking under a plan. union officials; their predisposition With some plans, the calculation to delay or avoid taking a stand is used to measure productivity is Four Positions Taken b y Unions understandable. quite narrow and assesses only stanThe recent increase in the numn their study on worker particidards-based performance. Other ber of gainsharing plans being impation and American unions, c9mpanies use broader calculations, plemented has provided considerKochan, Katz, and Mower deincluding basing bonuses on profits able information about how the or even return on investment. Most scribed four stands taken by naplans will influence the unions ingainsharing plans are kept separate tional unions on worker participavolved. Our survey sought to idention processes: 2 from the union contract. tify the specific aspects of gainI. General opposition. The genInterest in and application of sharing that unions will favor, as gainsharing have accelerated greatly eral opposition to such plans is well as those that unions likely will in recent years. Firms that install clearly stated by national union leaders. Local unions are dis- oppose. gainsharing are of four types: (1) Those that are interested in couraged, but not prevented, from The Survey making compensation more con- participating. tingent on organizational perfor2. Decentralized neutrality. Nahe respondent could evalumance; tional leaders do not take a stand ate, using a 4-point scale, (2) Those in financial trouble; either for or against worker particithe importance of nine rea( 3 ) T h o s e that include gain- pation, and leave the decision to sons that unions may favor gainsharing as part of wage concessions; the local unions. They do not pro- sharing systems a n d nine reasons and vide significant staff support to that unions may oppose such sys(4) Those that are already-suc- locals that do get involved but may tems. Additional items could be cessful and adopt gainsharing as offer guidelines on how to respond added, if necessary. Other items part of their management philosoobtained information about the rephy. spondent and assessed the respon2. Thomas A. Kochan, Harry C. Katz, and Gainsharing plans vary widely in Nancy R. Mower, "Worker Participation and dent's familiarity with various gainthe degree to which employees may American Unions: Threat or Opportunity?" sharing plans. The survey was kept School of Management working paper get involved. Most commonly (as Sloan #1526-84, Massachusetts Institute of Tech- as simple as possible in hopes of with the Scanlon Plan) each depart- nology, Cambridge, Mass., 1984: 24..25. increasing the response rate.
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How Unions View Gainsharing
"Supporting a new form of labor-management cooperation can involve risks for high-ranking union officials; their predisposition to delay or avoid taking a stand is understandable." 17 Responses were obtained from I7 of the larger American trade unions, including the UAW, the United Rubber Workers, the International Ladies Garment Workers Union, the United Brotherhood of Carpenters and Joiners of America, the International Union of Tool, Die, and Mold Makers, the International Brotherhood of Boilermakers, the International Association of Machinists, the Teamsters, and the International Union of Bricklayers and Allied Craftsmen, as well as other smaller unions. In most cases, the director of research and education for the union or a research staff member completed the survey. First and second requests were sent to numerous other unions, but even an inducement of a recently published book on gainsharing could not generate a response from these.
Why Unions May Oppose Gainsharing or each item, the percent of respondents indicating that the reason was " i m p o r t a n t " or "very important" was determined. Results are tabulated in Table 1. Let us examine the five most important reasons for opposition. 1. Management may try to substitute it for wages. A basic principle of gainsharing is that the gainsharing bonus should serve as an extra incentive for improving pro-
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ductivity, separate from the basic the spirit of cooperation by laying compensation package. It is gen- off employees after productivity erally recommended that the gain- gains are made, will manipulate the sharing plan be kept out of collec- bonus calculation to suit its needs, tive bargaining negotiations on pay. or will attempt to change the rules As the survey responses reveal, of the plan at some later date. If most unions are not interested in management adopts such actions, replacing any part of their mem- the plan is likely to be shortlived. bers' paycheck with a bonus that Normally, before the plan is incan vary in amount. Gainsharing is stalled, specific ground rules are generally used openly for this rea- established to decrease such possison only when part of a conces- bilities. 3. Peer pressure to perform may sionary package. Most gainsharing firms offer wages that are competi- increase. In a typical gainsharing tive for the area. Hence, although firm, all jobs are " o n standard" in unions may fear such a practice, the sense that performance during gainsharing rarely is a substitute for the base period must be exceeded to earn bonus. This means that wages. 2. Management cannot be anyone who performs inadequately trusted. Pervading much of the hurts everyone's chance of earning writing on union and management a bonus. Some unions fear that cooperative efforts is the concern workers will complain when others by the union that it is not being are not doing their jobs properly, dealt with in good faith. There is a creating divisiveness in the work fear that management will violate force and placing unfair pressure on Table 1 Reasons That Unions May Oppose Gainsharing (percent marking "important" or "very important") Percent
1. Management may try to substitute it for wages 2. Management cannot be trusted 3. Peer pressure to perform may increase 4. Bonus calculations are not understood or trusted 5. Union influence is undermined 6. l~ncreasedproductivity may reduce need for jobs 7. Grievances may go unprocessed 8. Gainsharing is incompatible with union goals 9. Employees really do not want more involvement
94 88 77 76 66 64 64 57 20
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employees too old to perform at top levels. It has been our experience, however, that the pressure exerted to correct substandard performance is focused not so much on fellow workers as on management. 4. Bonus calculations are not understood or trusted. In addition to a concern that the c o m p a n y will juggle the figures, some unions hold that gainsharing bonus calculations are inadequate measures of employee performance. According to an International Association of Machinists' research report : The relationship between a worker's productivity and the b o n u s . . , is very remote. Not only that, but rhany factors beyond the workers" control, including production processes, .demand, management efficiency, and quality of materials, help determine the extent o f savings. Total sales, for instance, may be affected by seasonal demand for the product or by the marketing skills o f the firm. Since most low to middle income families budget their income to the hilt, tit is difficult to make adjustment for unexpected declines in income. 3 One way to minimize lack of trust in the bonus calculations is to have them tied to the factory's or company's financial reports so that the same figures are used for bonus as are used for tax and corporate .report purposes. Thus they can be attested to by the public auditors. The marketing skills of the firm can be sharpened by including the sales and marketing force in the gainsharing plan, as many firms have done. 5. Union influence is undermined. In one scenario, the union could lose power if the workers come to see the employee involvement system (for example, the teams that review employee ideas) as a more effective way to handle issues that are normally channeled 3."Profit Sharing and Group Incentive Plans," IAM Research Report, Vol. 7, No. 2, International Association of Machinists and Aerospace Workers, Spring 1979: 3.
through the grievance procedure. Management gets credit for bettering the workers' condition, and the union is increasingly bypassed. Research, however, has shown that involvement in such plans typically does not cause members to evaluate their unions more negatively.* In most installations, a strong attempt is made to presm-,,e the union contract provisions. Additional reasons for opposition. Although not included as an item on this survey, one of the major obstacles to gainsharing may be the view that such worker involvement plans are used as tools against the organized labor movement. Two laid-off UAW members recently noted: "Quality of Work Life (QWL) programs are quickly becoming the single most important management technique being used to thwart unionization. In addition to greater productivity, nonunion firms see QWL as being decisive in keeping unions out. ''s Labor leaders see managerial opposition to union organizing efforts in America as a major force limiting cooperative efforts and experimentation in the workplace. Unions will not embrace such plans openly until they feel that their right to represent workers is accepted. We know of no unions that were decertified after gainsharing was installed. However, in some instances unions were organized in response to management's pushing gainsharing plans for dubious reasons. Why Unions May Favor Gainsharing he findings reviewed in the preceding section represent only one side of the story. Most unions are either neutral toward or "mildly" in favor of gainsharing plans. They can see a num-
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4. Kochan: 15-20.
5. Mike Parker and Dwight Hansen, "Using Quality of Work Life Programs to Thwart Unions," Workplace Democracy, Winter 1984: 8.
ber of positive attributes in such systems. Table 2 describes the relative importance of nine reasons unions may favor gainsharing. Let us discuss briefly the top five reasons. 1. Increased recognition. A gainsharing plan can provide many opportunities for employees to receive special recognition for their contributions to company performance. Through being elected to or selected for team positions, seeing their ideas implemented, and other means, the workers find that their extra efforts are noticed and appreciated, not only by management but also by coworkers. 2. Better j o b security. Although some fear that improved productivity will result in the need for fewer employees, other unions have taken the position that a successful plan means a successful company and therefore greater j o b security. R a y m o n d Majerus, secretary-treasurer of the UAW, recently stated: Thus, it's vital that the basic job security needs o f workers are addressed when these programs are designed. We've tried to do this in a number o f situations-without success I should a d d - b y proposing that profit sharing and productivity sharing bonuses be distributed in the form o f increased paid time o f f the job rather than cash. In this way, productivity gains can be used to increase employment and enhance job security rather than reduce it. 6 Most national union officials probably accept the contention that productivity is important for long-run job security. Unfortunately, local leaders often fear that productivity increases will reduce short-run job security, and therefore they resist such plans. 3. Increased involvement in j o b activities. Although a popular line of thought holds that unions are 6. Raymond Majerus, Secretary-Treasurer UAW, "Incentive Plans: Why They Work ant Why They Don't," address to the Confereno on the Economics of Incentive, Cooperatim and Risk Sharing, New York, N.Y., March 29 1984: 5.
How Unions View Gainsharing
"Unions will not embrace such plans openly until they feel that their right to represent workers is accepted."
19 clinging tenaciously to outdated beliefs that workers really are interested only in getting more pay and better benefits, the survey results suggest otherwise. Respondents seem to recognize that many of the employees they represent want more control over the wa}, they do their jobs. A gainsharing plan may be effective in helping to achieve this goal. 4. More money. One advantage offered by a gainsharing plan that is not found with most other QWL or employee involvement systems is the potential of earning a financial bonus. A recent bulletin published by the United Brotherhood of Carpenters and Joiners of America (UBC) had this comment about Quality Circles, a system which normally does not pay a bonus:
We recommend that ira Quality Circle Program is accepted, it be
combined with some form of gainsharing plan for employees. The savings resulting from the Quality Circles must be shared with employees for two reasons. First, it is only fair that savings achieved as a result of employee suggestions and participation b~ the Circles directly benefit employees. Otherwise the program becomes a means of manipulating workers for the benefi? of the company. Second, employees rapidly lose interest if there is no incentive involved for them. 7 The article went on to recommend the use of a Scanlon Plan and noted that it has been used successfully in UBC locals. A company may find it easier to begin with a Scanlon Plan or some other " p u r e " 7."Quality Circles: How Should Unions Respond?" UBC Organizing--Industrial Bulletin, United Brotherhood of Carpenters and Joiners of America, January 1983: 4.
Table 2 Reasons That Unions May Favor Gainsharing (percent marking " i m p o r t a n t " or "very important") Perc en t
1. 2. 3. 4. 5. 6. 7. 8. 9.
Increased recognition Better job security Increased involvement in job activities More money Increased feeling of achievement of contributing to the organization Increased influence of union , Greater contribution to nation's productivity Compatibility with union goals Fewer grievances
95 94 94 94 86 70 69 64 47
gainsharing plan than to superimpose a gainsharing incentive system on a Quality Circles structure. 5. Increased feeling of achievement of contributing to the organization. This certainly doesn't suggest that the era of adversarial relationships between labor and management is over, but it does imply that unions are aware that many of their members want to have an impact on the success of their companies. A gainsharing plan, if designed with the union's concerns in mind, can be one vehicle to he!p meet these needs. Informal discussions with a number of local union members confirm tbis finding. What's in It for the Union? p to now we have discussed ways that a plan can benefit individual employees. But all equally important issue is the extent to which the union as a third pm'ty can profit from acting as a joint partner in developing and supporting the system. First, only the most productive and competitive firms will grow and offer more employees as dues-paying members. Japanese and European companies are in many cases producing better quality products at lower costs. Unionized American firms, which have been adversely affected by these pressures, can be strengthened by gainsharing.
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"Gainsharing promotes extra pay when profits make it available, but the firm is not saddled with a permanent higher wage level during times of economic downturns."
20 processes, and plans for tile future. The improved communications developed under a gainsharing plan should provide the union with better knowledge. In addition to allowing the union to better serve its members, this new sharing of information is also helpful in developing trust in management and in helping the union to see business conditions as they truly are. Firms with gainsharing are likely to take a longer view of employment than many other firms. That is, they have some ability to reduce wage costs (by reducing bonuses) and decrease the need for disruptive short-run layoffs during seasonal or cyclical business downturns. Surely such policies are in the best longrun interest of the union at both the local and international levels. Gainsharing also promotes extra pay when profits make it available, but the firm is not saddled with a permanent higher wage level during times of economic downturns. The adjustment process is automatic; the union does not have to negotiate difficult wage give-ups. Finally, a union that actively has supported a successful gainsharing plan probably will find itself in a better bargaining position during negotiations. If the plan has in fact resulted in greater productivity, less scrap, and higher quality and if these improvements can be tied to the union's participation, 8. Charles Heckscher, "A Union Response to QWL Programs," Workplace Democracy, then the union likely will be better supported in its own demands. Winter 1984: 9,
Second, the union benefits by association with a plan desired by the rank and file. Charles Hecksher, research ecdnomist for the Communication Workers' union, observed: In such cases, for unions to oppose QWL is simply a suicidal strategy. It puts us in the position o f opposing something which the workers see as good. It may, i f anything, be worse to do what many unions have done, which is to sit on the sidelines and play a "watchdog" role. That approach lets management get all the credit for improvements resulting from QWL while the union zs seen as negative, weak, and irrelevant to a process which directly benefi'ts workers in theb" daily lives. 8 By being actively involved in the gainsharing plan, the union can also raise its visibility among that 80 percent of the membership that is less active in union affairs. These members should come to see the union as a more powerful force in issues that directly influence their work life. In this way their solidarity and identification with the union are enhanced. Often, the union's effectiveness in negotiations and grievance-handling is hampered because of a lack of detailed information regarding company finances, decision-making
Likely Conditions for Cooperation ather than l"ecommending outright rejection of gainsharing plans, some national unions are finding it more advantageous to take an active part in the plan, provided that certain conditions are met. These conditions are meant to ensure that the union's power is not threatened, that the union members will not be hurt by tile plan, and that management is being honest in stating reasons for implementation. Often, the union's greatest concern will be that streamlined operations and other productivity improvements could result in layo f f s - d o i n g the same work with fewer people. The union is likely to demand some assurance that this will not happen. To maintain employee j o b security, management will have to see that the cost savings generated under the plan are not wasted. Part of the money saved should be invested in the marketing and sales organization so that sales volume keeps up with production. Ideally, gainsharing p l a n s should be installed in sites where there is a potential for an expanding market. Although a successful plan should result in more jobs in the long run, it is essential that management and the work force be flexible and imaginative in finding ways to maintain employment levels in the short run. While waiting for sales volume to develop, a firm may find
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How Unions View Gainsharing
it possible to reassign production workers to maintenance or some similar function. One manufacturer of industrial electrical products sent some of its production workers out with salesmen to help demonstrate products during times when they were not needed in the plant. Another problem arises when, during times of rapid ga'owth, some companies hire new workers for temporary bulges in production. During such volatile periods, it is best if at all possible to subcontract some work, thus affirming the company's commitment to retain the employees it takes on. All involvement should be voluntary. This condition is easily met because a gainsharing plan is by nature voluntary. Employees support the plan because they see it as being in their best interest. Union representatives should be involved in all phases of the plan development, implementation, and evaluation. Tiffs will satisfy the union's need to see to it that there are no hidden "tricks" up management's sleeve. More importantly, it should ensure the plan's success. Research has shown that systems in which the union has served as a visible and joint partner are most likely to result in improvements in the workers' views of their jobs and of their union's performance. 9 There should be some assurance that the plan will not affect the collective bargaining agreement. Keeping the plan out of the labor agreement will avoid complications and generally make life easier for management as well as the union. Most plans have a " m e m o of understanding," which specifically states what items will continue to be decided by management and which items are part of the union contract. Most unions will not accept scapegoating of the workers as a major cause of poor productivity. Support of the plan eventually should lead to changing those rules 9. Kochan: 21.
that obstruct the employees' attempts to work more efficiently. To earn a bonus under gainsharing, employees should not have to work hm'der or longer, but smarter and more consistently. Finally, some unions will expect management to open its books. Management must be willing to be more open and continue to share with the union relevant information about the organization's business. This will be especially important when presenting monthly bonus results. Sharing information on the company's performance and walking union representatives through the calculation will be basic to building and maintaining cooperation. Successful firms are normally the most willing to share. Winning the Union's Support n malay instances, the items discussed thus far will constitute necessary but not suffid e n t conditions for gaining the cooperation of the union as a joint partner in the plan. Responsibility still falls on management to convince the union that such a system is in its own best interest and, more importantly, in the best interest of the employees. Management must take the initiative in most situations. Additional steps will have to be taken to create an environment that will generate enthusiasm and make the plan a success. These steps will vary depending on the company and union, but a few general recommendations can be made. 1. Pick the right facility. If a company's long-range goal is to establish plans in several locations, it is important that things go well in the initial site. There are a number of variables to consider when making this selection, but a central one should, of course, be a good relationship between management an'd the union. 2. Be frank in discussing the costs and the payoffs. No union will risk a workplace experiment
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until it fully understands its advantages-financial and o t h e r - f o r the workers. At the same time, the plan ultimately will be harmed if the potential benefits are exaggerated. Even if the plan is successful, the union's expectations will be raised to a level that cannot be satisfied. All parties involved must understand that large amounts of effort and support are required to make the plan work, and that much time may pass before they see financial rewards. 3. Visit other gainsharing companies. Key union representatives should be taken to f i r m s - b o t h union and n o n u n i o n - w i t h active plans. (Nonunion installations are probably somewhat more common.) They should tour the facility and, if this is allowed, talk to anyone in the plant. It may be possible to arrange a meeting with the local president, who can tell what gainsharing has meant to the union. Most importantly, they should talk to the g'ainsharing plan coordinator, who holds a key position in nearly all successful gainsharing plans. Some care obviously must be exercised in site selection. The authors can provide a list of gainsharing companies to those who are unaware of any in their area. 4. Be responsive to the union's inputs. The union will be looking for evidence that its concerns are being taken seriously. In this regard, nothing is more effective than timely feedback. R a y m o n d Majerus of the UAW obsmwed: Management has to do more than simply listen to the union and its workers; it has to understand what is being said, react quickly to suggestions~proposals, and implement changes when they are warranted In a worker's eyes, quick feedback and follow-through are perhaps the most telling yardsticks o f management's c o m m i t m e n t to an incentive program. ~ o 5. Seriously consider formation of a Labor/Management Steering 10. Majerus: 7.
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"Sharing information on the company's performance and walking union representatives through the calculation will be basic to building and maintaining cooperation. Successful firms are normally the most willing to share." 22 Committee. This group can be selected by both management and the union and can develop broad ground rules' and a plan outline. When properly used, such a ~'oup is exn'emely effective in opening lines of, conamunication and laying the groundwork for a plan that both sides can live with. e we on the brink of a new ra of union-management coopm-ation? Probably not, although productivity gainsharing plans offer much promise for improvements in this area. In general, management will continue to pursue its goals of turning a profit, providing a reasonable return for shareholders, and improving employee relations. Unions will continue to strive for higher wages, benefits, and j o b security, and will still work for better conditions and workers' rights. There remains, however, the employees' interest in expanding their roles, acquiring more control
Such worker needs will not be over their jobs, having a more direct impact oil tile company's perfor- easily ignored, either b y the commance, and sharing in the benefits. pany or the union. The key is to A recent study dealing with a large develop systems that serve the sample of workers found that four needs of all three parties, systems out of five wanted substantial say that currently are being devised by over the way the work is done and the country's more progressive the quality of the work produced. firms and labor organizations. Such Even more surprising is the list of cases demonstrate that cooperative things which fewer respondents in- efforts can work when the different dicated that they wanted to influ- sides communicate openly, show all ence: when the work day begins honest regard for the other side's and ends, who should be fired or concerns, and are cognizant that hired, pay scales or wages, how the goals of employees, managecomplaints or grievances are han- ment, and unions are essentially the same. dled, and who gets p r o m o t e d ] Because of its emphasis on Such findings would indicate that workers are at least as con- establishing common goals, gaincerned about how they do their sharing has played an increasingly jobs as they are about traditional important role in this effort.~ a bread-and-butter issues. For ex- That trend will accelerate as more ample, 35 percent of the employees firms and unions become familiar not presently involved expressed with the concepts that comprise interest in becoming an active par- gainsharing. ticipant in the QWL process cur13. For more information on gainsharing, rently underway. ~ 2 11. Kochan: 8-9. 12. Kochan: 20.
see the most recent book on gainsharing by one of the authors: Brian Graham-Moore and Timothy Ross, Productivity Gainsharing (Englewood Cliffs: Prentice-Hall, 1983).