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What Is the Scanlon Plan?

By Gregory Hanson
Updated May 16, 2024
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The Scanlon plan is a model for business organization. This type of organizational structure is a gain sharing program, and seeks to involve employees more directly in the processes of corporate decision-making in order to benefit from suggestions and contributions from employees. Employees are rewarded for their input and assistance through profit sharing plans, which disperse some portion of the economic benefits generated by a more engaged workforce to the members of that workforce. These plans work best in environments where employees have relatively stable, long-term attachments to a single corporation.

Joseph Scanlon, for whom this type of management plan is named, implemented the first such system in the early years of the Great Depression. His initial goal was to save enterprises threatened by the economic collapse, and to do so by drawing on the collective skill and wisdom of the entire workforce at a given firm. Early examples of the Scanlon plan were generally successful, and this approach to labor-management relations gained ground steadily in subsequent years.

A simple piece of logic is at the heart of the Scanlon plan: If all employees have a personal and tangible financial stake in the success of a corporation, they will contribute more actively to its success. This stake is usually created through a system of gain sharing. In such a system, employees are made part of the process of allocating labor and capital resources within the company. Employees then collectively share a portion of any cost savings that they are able to generate through systematic improvements or more dedicated and productive labor.

Suggestions from employees are generally filtered through committees. In a standard Scanlon plan, a series of production committees operate on the departmental level to solicit and discuss ways to improve productivity. A screening committee operates at a higher level and is made up of members of the workforce and representatives from management. This committee reviews the progress made in improving efficiency and computes the amount of additional compensation to be paid to workers as their share of these improvements.

A Scanlon plan can dramatically improve the efficiency of production and operation in a company, large or small. These plans produce gradual incremental improvement and generate results over the medium or long term rather producing rapid cost savings. Such plans are most effective when they have time to work. They also benefit greatly from real, rather than formulaic, participation from both workers and management. If both workers and management are actively committed to a Scanlon plan and stick to it over the course of multiple years the rewards can be substantial.

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Discussion Comments
By Rundocuri — On Jan 01, 2015

@raynbow- Companies that use the Scanlon Plan do have a great concept, but your friend shouldn't assume that the company that is offering him a job is successful until he checks it out. Just because it operates on the Scanlon Plan doesn't mean that it is sound.

Before your friend chooses one of the job offers, he should check out the profiles of both companies. If they are comparable, and the company with the Scanlon Plan has a good financial standing, I think he should further explore that job offer.

By Spotiche5 — On Dec 31, 2014

@raynbow- I agree with you, because the fact that the company adapted the Scanlon Plan proves that those who run it value their employees. This is often rare in today's job market, so your friend should take advantage of this offer!

By Raynbow — On Dec 30, 2014

I have a good friend who has two job offerings that he is considering, and one of the companies operates on the Scanlon Plan. I think that he should choose the job offered by the company with this plan, because it seems like the plan puts a high value on employees and their thoughts and opinions.

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