Scanlon plan

The Scanlon plan has been successfully used by a variety of public and private companies for many decades. These plans combine leadership , total workforce education, and widespread employee participation with a reward system . The Scanlon plan is a savingsharing program in which employees share in pre-established cost savings, based upon employee effort. Formal employee participation is necessary with the Scanlon Plan, as well as periodic progress reporting and an incentive formula.


The first Scanlon plan was instituted by Joseph N. Scanlon(1899-1956) 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 investigated. His success as Acting Director of the Steelworker’s Research Department.

Scanlon’s work with joint union / management committees of 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. [1]

At MIT, Scanlon continues 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 expected. Scanlon’s events were directed to the Scanlon Plan and the name stuck.

Scanlon created did not include a bonus. Early on they were created to save distressed companies or encourage war production. Scanlon believed that there was a lack of information sharing. He believed that, given the 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 on Human Motivation at the Time. Scanlon believed that people were motivated by many things besides money-a chance to make a difference, pride, fellowship, etc. [2]Eventually Scanlon included an organizational bonus system as part of the plan. They are 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. [3]

Scanfield’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 consultants on his work – Fred Lesieur who was at the Lapointe Tool Company and Dr. Carl F. Frost at MIT. Carl Frost would take the 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. [4] Frost’s customers 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 who were in the top 50 Best Places to Work while they were practicing Scanlon methods.

Fred Lesieur on Scanlon Conferences at MIT until the 1980s. He consulted and implemented Scanlon Plans widely. Dana corporation was in the top 100 Best Places to work while they had their Les Scanlon Planner.

Because the Scanlon plan was originated during the crisis of depressionit was initially assumed that it was for failing companies. However it has been instituted in Adamson Company to improve a healthy situation. Scanlon Plans have been successfully installed in Manufacturing, Retail, Health Care, Financial Services and Telecommunications. There is no central registry of Scanlon Plans and the Scanlon Plan was not copyrighted or trademarked. Scanlon Plans were implemented in at least the following organizations: Adamson, Advanced Business Graphics, Atlantic Automotive, ARaymond, Atwood, American Tape, Beth Israel Hospital, Bradford, Bridgestone-Firestone, Briggs & Stratton, Canon, Dana, ELGA, Fairchild-Burns , Ferro, Harley Davidson, Herman Miller, Hitachi Magnetics, Hron Signs, ITT, Kysor-Cadillac, Lapointe, Landscape Forms, Limerick Veterinary Hospital, Lorin, Magna-Donnelly, Martin-Marietta, Meier, Michigan Bell, Motorola, National Manufacturing, Neelon Castings, Nicholas Plastics, Pacific Cast, Pen Parker, Pohlman, Quality Containers, Raynor, S & L Plastics, Sara Lee, Sears, SGS Tool Company, Sligh, Spring, Thermatron, Thomson-Shore , TG Fluids, Trans-Matic, US Building, US Vision, Watermark Credit Union, Wescast, Westling, Wolverine Worldwide, and Xaloy. Thus Scanlon plans have been used both ways of saving firms fromeconomic collapse and its mechanism for reducing labor costs They have been installed in nonunion organizations, for profit and for small organizations.

Participation and Committees

The philosophy of the plan is to promote group co-operation and solving of organizational problems. Cooperation and involvement in the creation of a design team and continuing the plan is implemented with Production and Screening Teams.

Design Team

Scanlon Plans, unlike most other gainsharing systems, are installed using a high commitment process. The process was labeled Roadmap by Carl Frost. It begins with an exploration of Scanlon by the top leader of the organization by Scanlon Plan. If the leader feels the Scanlon Plan makes sense for his / her organization a “mandate” is drafted. The mandate explains why change is necessary. The top leader brings together the leadership and questions the following questions. 1) Is there a compelling need to change? 2) Are we able, willing and ready? 3) Can the Scanlon Plan help us to meet the mandate? The top leader asks for a secret ballot vote to proceed. Usually unless the vote is unanimous the Scanlon Roadmap does not proceed further. If the team is ready, willing and able, They explain the mandate and Scanlon Roadmap to the organization’s Middle Managers and Supervisors. They ask the entire management team to support the mandate and the Scanlon Roadmap. Usually unless 80% of the entire management team supports Scanlon by secret ballot the roadmap does not go any further. The Managers and Supervisors along with the Leadership Team then explain the mandate and Scanlon Roadmap to the entire workforce. Again a secret ballot is taken and unless 80-90% of the workforce supports the Mandate and the roadmap the process stops. This top down approach combined with multiple secret bids assures the following: 1) Top level commitment and support 2) A reason for Scanlon and change 3) Alignment of the entire management team 4) Understanding and commitment by the whole force

Assuming the organization supports the Scanlon Roadmap to Design Team is created. The Design Team is made up of both elected and appointed members. The Design Team takes the theory of Scanlon and creates a written plan for the future. Frost / Scanlon Principles of Identity, Participation, Equity and Competence. While the plan is being drafted throughout the Organization, everyone is aware of the progress of the Design Team. When the Design Team feels it has done their best work they are voting on the plan to the Organization. Unless the Design Team is unanimous in their decision to proceed. The plan is then taken to the Board of Directors for final approval. The Design Team then takes the Plan to the whole Organization and asks for a plan for a year or two. Most Organizations will require an 80-90% vote of approval. If the vote is in the making and the design team will make adjustments during the trial period. At the end of the trial period the Plan is voted on one more time and made permanent part of the culture of the Organization. (Some organizations will renew the plan after a number of years by recreating a Design Team. If the vote is in the making and the design team will make adjustments during the trial period. At the end of the trial period the Plan is voted on one more time and made permanent part of the culture of the Organization. (Some organizations will renew the plan after a number of years by recreating a Design Team. If the vote is in the making and the design team will make adjustments during the trial period. At the end of the trial period the Plan is voted on one more time and made permanent part of the culture of the Organization. (Some organizations will renew the plan after a number of years by recreating a Design Team.

Production Committee

Historically it was found that employees were often not heard. This resulted in a two tiered system of committees. The first often called “Production Committees” were made of employees and managers closest to the work. A second committee often called the “Screening or Scanlon Committees” were made up of representatives from throughout the Company or Organization. This committee is distributed throughout the organization including the clerical and officepositions. Their descriptors correspond to departmental and shift responsibilities. This committee is usually composed of one or more non-elected non-supervisory employees. The committees’ job was to identify problems which interfered with increasing productivity, reducing costs and increasing output. Small expenditure suggestions could be made immediately, while large expenditure items or suggestions were made to the second committee, which was the screening committee.

Screening Committee

Oversight capability is contained within the screening committee. The screening committee holds representatives of senior management and an equal or greater number of elected non-supervisory representatives. In Organizations with a Union, they also have a representative on the screening committee. This Committee has four main responsibilities. First it oversees the operation of the production committee. Secondly, all suggestions rejected by the production committee are reviewed by the screening committee. Third, it considers current business problems and internal and environmental issues and communicates them down throughout the organization. The final responsibility is the administration of the bonus plan. This often means communicating organizational performance.

The committee problem solving and communication structure in turn contribute to the achievement of a bonus. These benefits are shared by the entire workforce . [5]

Participation and High Involvement Today

Today there are many different ways that Scanlon Systems involves 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 Bonus Plan

One of the greatest misconceptions of the Scanlon Plan is that it is calculated by the way the bonus is calculated. Historically, the Scanlon bonus plan was computed on the historical ratio of labor cost to sales value of production. Scanlon believed that it was very important that employees understand how easy it is. He felt that profit sharing as a bonus was long as everyone understood “profits.” He concluded that most understand how profits are calculated. Today Scanlon Plans have been created that use only financial measures (like profits), operational measures (like quality) Combinations of financial measures and operational measures and no bonus at all.

Financial Incentives under the Scanlon Plan are ordinarily offered to all employees including managers and sometimes executives. In many small Scanlon organizations the bonuses are even offered to key suppliers.

Examples of actual Scanlon Plans, including how bonuses are available at Scanlon plans available for download


A great deal of research has been conducted on the Scanlon Plan. Scanlon research was conducted at MIT, Michigan State University, The American Productivity Center, and The Scanlon Leadership Network. Dr. Mike Schuster and Dr. Dow Scott have published many papers and chapters on the results of the Scanlon Plan. The Scanlon Plan has been featured in the Compensation Handbook and many articles by the World of Work (American Compensation Association). In earlier studies the Scanlon Plan could be compared to the other “named” earningsharing plans and the Scanlon Plan was found to produce higher levels of employee involvement. Scanlon Plans job satisfaction, financial literacy, commitment, financial performance, quality, and on time delivery. In studies of the Sears Scanlon Goalsharing plans, Scanlon Units were found to have higher levels of customer satisfaction, higher satisfaction and higher financial performance than control units. Most research today lumps Scanlon Plans in the field of research and development.

A 1986 General Accounting Office Report on Gainsharing noted that Organizational-based earningsharing programs are achieving high success ….

All the profitsharing efforts in the DOD report cost savings (ranging from $ 7,000 to over $ 1 Million). Some of the facilities also report indirect benefits, including decreased sick leave usage and reductions in work backlogs and overtime costs. In addition, some facilities report that the gainsharing efforts, by focusing attention on organizational barriers to productivity improvements, help provide mechanisms and incentive for solving these problems.

A 1981 General Accounting Office Report on gainsharing that the use of gainsharing programs in private industry had resulted in significant productivity improvements. Many of the firms in their review assign significant savings to their profitsharing plans. “Savings averaged 17.3 percent at $ 13 million with annual sales of $ 100 million.” At the other 11 annual sales firms were $ 110 million or more, and savings averaged 16.4 percent. ” Of the 24 companies providing financial data, with a gainsharing system in the longest showed the best performance. individual firms ranging from 13.5 to 77.4 percent.

In general, the vast majorité of the firms in this study “Expressed satisfaction With Their plans” and Believed “that the benefits Originally Anticipated Were Realized.” They expressed belief that their plans give them a competitive advantage in marketing their products or services.

A 1982 New York Stock Exchange study Reported That gainsharing programs Were one of the six fastest growing human resource activities in companies with 500 or more employees.

The gainsharing Plans Went beyond wage incentive plan by focusing On Several key factors, Including communication, cooperation entre workers and management and problem-solving teams to Improve product quality. Despite the need for a significant investment in development and implementation, the results were often dramatic and across the board. Bullock, RJ (1984). Gainsharing – A Successful Track Record, World of Work Report, 9

In 1994 the Consortium for Alternative Reward Strategies (CARS) conducted an exhaustive benchmark study of Organization Performance & Rewards. The study is available for purchase from the World of Work (American Compensation Association). Among their findings: These plans lead to change. Plans are installed to improve business performance through people rather than to attract and retain. Payouts are modest about 3% of basic pay. Median organizations earned $ 2.34 for every dollar spent on payouts. Net return on investment plan is 134 percent! Rewards themselves were just one part of a total strategy to improve performance. Communications, employee involvement, feedback and financial justification of the plans were also important.

Scanlon Plans that follow the Frost Roadmap process to help you find your way around the world. Also since the Scanlon Plan is an open-source system, there is no cost to use the process, name or ideas. The main cost is the cost of employee time in the development and maintenance of the Plan. Most Plan bonuses are self funded from the winnings that are created. This enables an organization to increase employee engagement and organizational performance and pays a bonus while generating over a 125% percent return.


The Scanlon Plan especially as practiced by Carl Frost with the Scanlon It is not unusual for an organization of 200-300 people to spend a year involving, researching, and creating a plan. The Scanlon Plan is leading dependent. It requires a high level of commitment and commitment. It requires a servant-leader-someone who is willing to develop others. Since Scanlon Plans are relatively rare it can be difficult to find a leader in a Scanlon organization. The Scanlon Plan requires Theory Y assumptions among most of the managers to be successful. Workers Workers Workers ((((((((……. ((((((((((. A Scanlon Plan also requires a great deal of training and development of employees. In Organizations with large part-time staff and / or turnover The Scanlon Plan requires a great deal of sharing information. Most Scanlon organizations are “open-book” organizations. This can be a disadvantage for organizations that prefer or require greater secrecy. While the Scanlon Plan can be changed to a new organization, it is difficult to go back. Employees like information sharing, high involvement, fair culture Scanlon creates. This can make it difficult to scan with non-Scanlon organisms. Some Scanlon organizations have become especially focused on how to get the best results. The Scanlon Plan is an organizational system. It requires an organizational unit that makes sense to employees. For example, a plant, or a self-sufficient unit, or a store, could develop a Scanlon Plan. An individual, team or department could not. While Scanlon plans have been installed in small and large organizations, very small organizations (30 or less employees) tend to not require the structure that Scanlon provides. Very large organizations may find it difficult to create the collaboration that Scanlon requires. or a self-sufficient unit, or store, could develop a Scanlon Plan. An individual, team or department could not. While Scanlon plans have been installed in small and large organizations, very small organizations (30 or less employees) tend to not require the structure that Scanlon provides. Very large organizations may find it difficult to create the collaboration that Scanlon requires. or a self-sufficient unit, or store, could develop a Scanlon Plan. An individual, team or department could not. While Scanlon plans have been installed in small and large organizations, very small organizations (30 or less employees) tend to not require the structure that Scanlon provides. Very large organizations may find it difficult to create the collaboration that Scanlon requires.

See also

  • Profit sharing


  1. Jump up^ Daniel Wren, (2009) “Joseph N. Scanlon: The Man and the Plan”, Journal of Management History, Vol. 15 Iss: 1, pp.20 – 37
  2. Jump up^ “Gainsharing and the Scanlon Plan” by Paul Davis, The Journal of Employee Ownership Law and Finance, Volume 9. No 1 Winter 1997
  3. Jump up^ Scanlon EPIC Leadership: Where the Best Ideas Come Together, edited by Paul Davis and Larry Spears, 2008 Scanlon Foundation
  4. Jump up^ Changing Forever: The Well Kept Secret of America’s Leading Companies, Carl F. Frost, 1996 Michigan State University Press
  5. Jump up^ Shuster, Michael (1983), Forty Years of Scanlon Research.
  6. Jump up^ The Leadership Roadmap: People, Lean and Innovation by Dwane Baumgardner and Russ Scaffede, 2008, The North River Press

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