The Anatomy of a Failure: A Non-Recommended Application of Gainsharing and Its Predictable Effects on Productivity in a Public Sector Setting

Abstract

INTRODUCTION Productivity-sharing plans have been a part of the American industrial relations scene for more than forty years (Schuster, 1984a). Productivity-sharing plans, more recently called Gainsharing plans, are organizational systems for sharing the benefits of improved productivity, cost reductions or quality in the form of regular cash bonuses (Ibid.). The basic principle upon which Gainsharing is based is that are compensated for increased productivity above an acceptable productivity level, at a predetermined participation ratio, in proportion to the increase in productivity or in accordance with an established plan (Hosni et al., 1987:363). In the private sector, increased competition, a growing nonunion economy with its cost advantages, and a change in employee values, attitudes, and work behaviors have forced employers to seek innovative methods to increase productivity and efficiency. In seeking these objectives, a growing reliance has been placed on various forms of labor-management cooperation, including among others, productivity Gainsharing plans (Lawler, 1988; Mitchell, Lewin, and Lawler, 1990. Research by Voos (1987) indicates that managers view Gainsharing programs as having a positive impact on organizational performance. Bullock and Lawler (1984) have reported that more Gainsharing plans were implemented in the early 1980s than in the prior fifty years. A survey of nearly 1600 organizations by the American Productivity Center (ACA) found that Gainsharing was being used by 13 percent of those organizations (O'Dell, 1987). At the same time, a General Accounting study of 1000 Gainsharing plans found that firms have experienced: 1) labor cost saving; 2) reduced grievances and improved labor relations; and 3) improved attendance and retention (Forbes, 1985) Although originally considered applicable only to manufacturing environments, such success has resulted in Gainsharing receiving more attention in the service and not-for-profit sectors, including government agencies and health care organizations (Kaspin, 1990). While the private sector has responded to its own competitive pressures, the public sector has been forced to face an increasingly difficult financial situation marked by a demand for more services and higher wages, rising deficits, and suppressed levels of taxation and available revenues. As a result, public sector managers have also turned to productivity improvement programs such as Gainsharing and employee involvement in an effort to accommodate the conflicting demands they face (Rosen, 1993; Greiner et al., 1981). Although private sector Gainsharing has been the subject of extensive study, the quantity and quality of research on public sector Gainsharing reflects its limited use in government settings (Rosen, 1993). This article addresses this gap by reporting on a longitudinal field study of the design, implementation, and impact of a 15-month Gainsharing pilot program in a federally owned and operated industrial facility. THEORETICAL BASIS FOR GAINSHARING The efforts made to develop a theory of Gainsharing effectiveness have come primarily in the context of the Scanlon Plan and then after years of evaluation research (Schuster, 1980; White, 1979). Frost et al. (1974) identified a general model incorporating identity, participation, and equity as supportive of the Scanlon Plan effectiveness. This model centers on the intrinsic value of participation which is reinforced by the bonus payments and employees' perceptions of being equitably rewarded for extra results (Hammer, 1988). The Scanlon elements of participation and equity have guided much of the theoretical discussions of Gainsharing. Goodman (1973) and Moore and Goodman (1973) developed a learning model to explain Scanlon Plan effectiveness and rely on expectancy theory as the causal process for productivity gains. According to this approach, for Gainsharing to work employees not only must believe that they can make suggestions (self-expectancy), but also that making suggestions or participation in the system will lead to a bonus (system expectancy). …

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