2) Create Baseline

Given that management’s decision is to continue implementation, the next step is to ascertain a fair “baseline” number that will be used to determine whether collective effort, as maximized by the plan exceeds historical standards.

The three constituencies that make up the Scanlon triangle: the customer, the shareholder, and the employees.

The three constituencies that make up the Scanlon triangle: the customer, the shareholder, and the employees.

This is a critical step to the three constituencies that make up the Scanlon triangle: the customer, the shareholder, and the employees.

In order for the calculation to be embraced by all concerned it must be perceived as fair. No responsible management team would sign up for a system that resulted in lower profits for the same performance. If, however, the gross profits (for instance) increase and that increase is directly attributable to the plan then management should have no problem sharing that gain if they want to unleash the creative power of their human resources.

It is important to remember that efficiency improvements on the floor do not necessarily guarantee increased profitability. Other factors such as volume, and pricing, which are generally controlled by management, also play significant roles. Therefore, a key to employees adopting the plan is for them to have a complete understanding of management’s strategies, including the sales strategy. Obviously, this is highly confidential information.

With the foregoing in mind, the implementation of each plan must address all of management’s requirements for confidentiality. Employees understand this and studies show that employees jealously guard the information they are given.

ISS recognizes and has a healthy respect for the importance of the calculation. Two senior and very experienced finance professionals monitor and guide this process. Their charter is clear, insure that the calculation protects the company while at the same time being fair to the employees.

Interestingly enough, the history of successful Scanlon plans reveals that while the monetary pay out is very important to employees in the early years, it gives way in importance to the quality of work life associated with successful plans. Benefits such as, enhanced job security, a feeling of making a difference and the general milieu of belonging and really being needed/valued take center stage.

It is important that the reader know that ISS strongly believes in measurement that is not only accurate but also “real.”

Go to Step 3) Build the Participation / Involvement Model