A number of PCI readers over the past six months have contacted me about my article “Coatings Competition from China,” published by PCI, April, 2006. They phoned or e-mailed, saying they were interested in starting a gainsharing program in some or all of their plants. Why? To improve productivity, lower per-unit costs, and compete against low-priced foreign competition. But some said they did not know how to start such a program.

What is Gainsharing?

A gainsharing plan is a group, pay-for-performance program in which employee performance-improvement, over a set threshold, is quantified and given a dollar value. Performance may be measured in terms of productivity (i.e., less down-time on the batch mixers), quality (i.e., color consistency, viscosity) or safety issues. The value, or gain, is split (hence the name) between the job shop coating company and its employees. So, for every dollar paid out in bonuses, the company saves a like amount in higher productivity labor (lower per-unit labor costs), quality (less waste and rejects) and safety (lower workman’s comp premiums).

Gainsharing plans are one of the most effective programs for motivating blue-collar and white-collar clerical workforces to better performance. In a 1983 report, the General Accounting Office of Congress conducted an investigation of programs designed to improve productivity and quality. Its report cited gainsharing programs as “...the wave of the future” because they unite an organization’s workforce in the goal of boosting operational performance, which, on the average, climbed by 17–22% annually.

Actual Results

The tables shown are examples of the results of successful gainsharing programs. In each case, the base, or threshold on which employee performance (productivity, quality and safety) is based, is 100% of their performance immediately before the gainsharing started. The performance figures reflect good product (scrap and rework has been deducted), as well as the effects of capital investment.

Table 1 shows the first 30 months’ results of a Midwestern job shop (Teflon, primarily) coater. Table 2 shows this job shop’s customer returns for a similar period, as well as customer returns for the six months prior to the plan’s start-up, for comparison. Table 3 shows similar results in four plants of AAA Industries, Inc., a galvanizing company headquartered in Joliet, IL.

It is no secret that many companies have tied executive and managerial compensation to company performance in order to motivate executives and managers to boost overall profitability. DuPont, Dow Chemical and Viking Pump (part of IDEX Corp.) are just several of many large corporations who do so. And it is no secret that a growing number of smaller producers of inks, coatings, resins, coating job shops and equipment manufacturers serving these industries all have realized what is good for the goose is good for the gander – that rolling down similar programs tying pay to performance for lower-level employees is an effective way to motivating them to improve their performance.

Bonus programs, if properly designed and implemented, create a sense of urgency in a workforce. Frederick Taylor, the Father of Scientific Management and the piece work system, said at the beginning of the last century, “You cannot expect an extraordinary day’s performance from a man receiving an ordinary day’s pay.” That is still true today.

More than 4,000 American companies now have gainsharing plans in place. They have come a long way since the first crude one, invented by Steelworker Union member Joseph Scanlan during the depression, when he tried to help save his employer’s steel company (and union jobs) from bankruptcy. Today, gainsharing plans are sophisticated programs engineered to a specific company’s cost structure, operating problems and competitive strategy. There is no one-size-fits-all.

“Ours has been highly effective in motivating employees at all levels to improve our productivity, quality and turnaround time,” said Kevin Irving, vice president of AAA Industries, the nation's leading job-shop galvanizer.

Not All Gainsharing Plans Are Successful

Not all gainsharing plans produce excellent results. There are a number of reasons why this is the case. These reasons were outlined in a 1989 American Management Association study, “Gains and Losses from Gainsharing.” For example, one of the key reasons for poor gainsharing performance is that management, eager for quick improvement, starts a plan too quickly. Management did not realize their organizations simply were not ready for a gainsharing plan.

Simply put, over-eager managements had not made a practice of communicating non-confidential operating performance statistics to their work forces. Indeed, many did not have a solid program of internal employee communications. As a result, supervision was not trained to listen to employee ideas to eliminate problems that hinder productivity, and had long ignored worker suggestions for improving operating performance.

Starting a gainsharing plan in such an environment will almost assuredly have disappointing results. Management credibility will suffer, dooming future programs to a questionable fate. On the other hand, an honest attempt to involve employees in improving productivity and better bottom-line profitability will greatly increase the chances for later success.

Simple Quiz Assesses Readiness for Plan

As a result of my experience in engineering and implementing scores of gainsharing plans across the nation, here is a list of 10 questions, whose answers will help interested coatings producers and job shops in assessing their readiness for a gainsharing program for higher employee productivity and bottom-line profits.

1. How many new programs for improving quality or productivity have you started in the past two years? Excellent: three or fewer (10 points); Average: four to seven (5 points); Poor: eight or more (zero points).

2. How many of those new programs started in the past two years are still in existence? Excellent: Substantially all of them (10); Average: About half (5); Poor: Virtually none (zero).

3. Have any employee surveys or audits been done within the past two years? Excellent: On a yearly basis (10); Average: Every several years (5); Poor: No surveys done (zero).

4. Have employees seen any changes in their day-to-day work environment, say in the spray booths or dipping tanks, because of these audits or surveys? Excellent: Vigorous follow-up of survey (10); Average: Some action taken, perhaps tardily (5); Poor: Little or no action taken – just painting a dingy lunchroom doesn’t count! (zero).

5. Are employees informed on a regular basis about plant-wide operational statistics or performance (quality, i.e., customer complaints about color consistency in inks and pigments, waste, productivity, i.e., dips per hour in job shop coating companies, on-time delivery rates, etc.)? Excellent: Frequent, periodic feedback, with statistics (10); Average: Occasional feedback, with some statistics (5); Poor: No information given to hourly employees (zero).

6. Does your senior management give employees periodic “State of the Business” addresses? Excellent: Several times a year, with statistics-productivity, quality, on-time delivery rates, etc. (10); Average: Yearly, with sparse statistical information (5); Poor: No “state of the business” addresses ever given (zero).

7. Are your supervisors and mid-managers rated on similar statistics for their performance? Excellent: Yes: Pay and bonuses tied to their specific results (10); Average: Yes: Pay and bonuses tied to overall results (5); Poor: Raises are subjective and NOT tied to such information, which is kept confidential (zero).

8. Are first line supervisors asked about their productivity and quality problems, say at first, cleaning ovens and blasters, and are their views and experiences solicited and used to solve the glitches? Excellent: Frequent, periodic problem-solving meetings held (10); Average: Their opinions rarely solicited (5); Poor: Supervisors usually blamed for problems (zero).

9. Do hourly employees have opportunities to offer suggestions to help solve operational problems? Excellent: Meetings at least once a month, at which operational statistics reviewed and employee improvement suggestions are solicited (10); Average: Infrequently used suggestion box (or similar device); no formal suggestion mechanism in use (5); Poor: Hourly workers’ ideas are ignored (zero).

10. Has your company started any type of employee involvement or participation program within the past year? Excellent: Simple program started, with full management support and good employee feedback (10); Average: Complex program started, with on-again, off-again management support and little feedback to employees; Poor: No programs of this type (zero).

Results

Score 65 to 100

Excellent - Go for it! A gainsharing program can be established with little delay, and productivity improvement will quickly be seen. Using an outside expert will help get a program off the ground rapidly. In such an environment, it takes only two to three months of preparation to install a gainsharing program. Most of this time is taken reviewing company operating statistics (customer returns, dips per hour, etc.) in order to devise a fair and equitable formula by which employee performance can be measured. Also included in this time is the effort required to make allowances for the effects of future capital investment – new equipment – and the need for continuous improvement. (Who has not had customers asking for price reductions?) The remainder of the prep time is devoted to the necessary orientation and training to acquaint all levels (executive, mid-management, and first-line supervision) to their roles in an effective program. Since the organization is acclimated to participative management, supervisory acceptance of the training should be quick.

Score 45 to 60

Whoa, wait a minute or so! At least six months’ effort is needed to boost management credibility to the point that employees believe the gainsharing will not become another “program of the month” to be dropped as executives lose interest. Solid but simple communications should be started. They should include quarterly State-of-the-Business presentations by executives and monthly departmental meetings run by first-line supervisors, for example. Quite likely, some supervisory training and a modest executive indoctrination will be necessary.

Score 40 or less

Any gainsharing program should be deferred at least a year. No bridge has ever withstood flood waters unless built on proper piers and pilings. The first step for most ink and pigment producers as well as job shop coaters in this category is to conduct a modest employee audit (of hourly, clerical and first-line supervisory personnel) to determine the realities of employee and supervisory perceptions of what might be impeding them from top productivity. To deal with reality, one must first establish what it is, and why it exists.

The problems the audit uncovers should be corrected. That may include substantial supervisory and managerial training. A modest program of downward communications (management to employees) should be introduced. The first step in the communications process would be to inform hourly workers about plant-wide performance - productivity, quality, on-time delivery performance, etc., - for at least six months. This step can be followed in the second six months by beginning upward communications efforts. Departmental meetings, during which plant-wide problems can be discussed, can quickly evolve into events during which employee input is obtained, and their efforts incorporated in the problem solving.

 

Why Bother?

Competition will stiffen in the next decade as the global economy develops. Competitors no longer will be in the next city or state, but will appear from Eastern Europe or the Pacific Rim countries, as customers use internet auctions more frequently for providers to bid on supply contracts.

To survive and prosper in this hyper-competitive environment, coatings producers and job shop coaters must motivate employees at all levels to deal successfully with growing pressures to control costs, improve quality and satisfy customers. Is your company ready for this environment?

Readers interested in additional information on gainsharing or in the PCI article cited in the text should contact the author, Dr. A.A. Imberman, Imberman and DeForest, Inc. Evanston, IL, by phone, at 847/733.007, or by e-mail, at IMBandDEF@aol.com.