Scanlon plan
The Scanlon plan is a gainsharing program which combines leadership, total workforce education, and
widespread employee participation with a reward system linked to organization performance. It has been
used by a variety of public and private companies with varying amounts of success.[1]
Contents
Origin
Participation and Committees
Participation and High Involvement Today
Calculation of Scanlon Plan Bonus
See also
References
Origin
The first Scanlon plan was instituted by Joseph N. Scanlon (1897–1956) a steelworker, cost accountant,
professional boxer, local union president, Acting Director of the Steelworkers Research Department, and
Lecturer at the Massachusetts Institute of Technology (MIT). As the local union president of the steel mill
in which he was employed, he witnessed the depressed economy of the 1930s. His co-workers wanted
increased wages, his company had barely survived the depression. He was advised by the Steelworkers
International to see if he could harness the energy and talents of the workers to save the company. Scanlon
set up joint union/management committees to solve organizational problems. The committees became
successful and Scanlon was soon asked to help other organizations in trouble. His success led him to
become Acting Director of the Steelworker's Research Department. Scanlon became active in setting up
many labor/management committees in support of War production for WWII.
Scanlon's work with joint union/management committees convinced him of the power of cooperation and
he was an advocate of working with management in the Steelworkers. At the end of WWII the faction
advocating a cooperative approach in labor/management was displaced by those advocating a return to
traditional adversarial relations in the Steelworkers. Scanlon accepted an invitation by Douglas McGregor
to become a Lecturer at MIT where he remained until his death.[2]
At MIT, Scanlon continued to develop his ideas about labor/management cooperation and organizational
improvement. It was at MIT that the term "Scanlon Plan" was coined by accident. There were two
conferences going on at MIT and signs were needed to guide attendees. Thus those headed to Scanlon's
event were directed to the Scanlon Plan and the name stuck.
The original labor/management teams that Scanlon created did not include a bonus. Early on they were
created to save distressed companies or to encourage war production. Scanlon believed that much distrust
existed between labor and management because there was a lack of information sharing. He believed that,
given information about the company and a chance to participate in helping solve problems, the average
worker would contribute to the success of the company. Scanlon did not believe in what he called "the
economic man theory." Piece work systems and ideas about human motivation at the time reduced the
worker to something that was thought to be only motivated by money. Scanlon believed that people were
motivated by many things besides money—a chance to make a difference, pride, fellowship, etc.[3]
Eventually Scanlon included an organizational bonus system as part of the plan. Often these systems
replaced piece work systems that were common at that time. Douglas McGregor would study Scanlon's
clients to develop his Theory Y vs Theory X. Scanlon Plans were considered one of the best ways to
develop Theory Y.[4]
Scanlon's work with the Admanson Company was featured in a Life Magazine article "Every man a
Capitalist" by John Chamberlain, December 1946. His work with Lapointe was featured in a Fortune
article "Enterprise for Everyman" by John Davenport, January 1950. Time Magazine wrote that Joe
Scanlon was the most sought after consultant of his time in "Management: The Scanlon Plan, September
1955.
Two of Scanlon's colleagues carried on his work - Fred Lesieur who he had met at the Lapointe Tool
Company and Dr. Carl F. Frost at MIT. Carl Frost would take the ideas west to Michigan State University
which became a center for Scanlon thought and practice for many years. Frost would also create the
Frost/Scanlon Principles of Identity, Participation, Equity and Competence.[5] Frost's clients would create
the Scanlon Plan Association which today is the Scanlon Leadership Network, a nonprofit Network of
Organizations with Scanlon Plans. Frost worked with Herman Miller, Donnelly, Motorola, and Beth Israel
Hospital all who were in the top 50 Best Places to Work while they were practicing Scanlon methods.
Frederick G. Lesieur carried on the Scanlon Conferences at MIT until the 1980s. He consulted and
implemented Scanlon Plans widely.
Participation and Committees
The philosophy of the plan is to promote group co-operation and solving of organizational problems.
Cooperation and involvement start in the creation of the plan with a Design Team and continue once the
Plan is implemented with Production and Screening Teams.
Participation and High Involvement Today
Today there are many different ways that Scanlon Systems involve employees in Organizational problem
solving. At Donnelly the Donnelly Committee approved all changes in Personnel Policies and adjudicated
issues of fairness and equity. They even recommended pay increases. Six Sigma and Lean Practices are
often used in Scanlon Organizations as part of their improvement plans.[6]
Calculation of Scanlon Plan Bonus
Historically, the Scanlon plan bonus was calculated on the historical ratio of labor cost to sales value of
production. Scanlon believed that it was very important that employees understand how the bonus is
calculated and this method was easy for employees to understand. He felt that profit sharing as a way to
create a bonus was fine as long as everyone understood "profits." He concluded that most don't understand
how profits are calculated.
See also
Profit sharing
References
1. White, [Link] (1979). "The Scanlon Plan: Causes and Correlates of Success" ([Link]
[Link]/stable/255591). The Academy of Management Journal. 22 (2): 292–312.
Retrieved 2021-09-16. "The Scanlon Plan (SP) is a systematic approach to enhancing
organizational effectiveness through a formal participation program and a financial bonus. It
has met with varying degrees of success. The present study is an investigation of factors that
account for this variation in success."
2. Daniel Wren, (2009) "Joseph N. Scanlon: the man and the plan", Journal of Management
History, Vol. 15 Iss: 1, pp.20 – 37
3. "Gainsharing and the Scanlon Plan" by Paul Davis, The Journal of Employee Ownership
Law and Finance, Volume 9. No 1 Winter 1997
4. Scanlon EPIC Leadership: Where the Best Ideas Come Together, edited by Paul Davis and
Larry Spears, 2008 Scanlon Foundation
5. Changing Forever: The well kept secret of America's Leading Companies, Carl F. Frost,
1996 Michigan State University Press
6. The Leadership Roadmap: People, Lean and Innovation by Dwane Baumgardner and Russ
Scaffede, 2008, The North River Press
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