Improving the Effectiveness of Gainsharing: The Role of Fairness and Participation

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information. Technology, by itself, does not create such an organization. But if the basic vision exists, the technology not only facilitates but greatly enhances its effectiveness. This is the basic message of Sproull and Kiesler's Connections, which summarizes a decade of research, their own and that of others, on computer-mediated communication.

Their framework stems from cognitive social psychology. They postulate a two-level perspective on changes resulting from the new technology: first-level effects on the efficiency of work processes--usually intended--and second-level effects--often latent or unintended--on the social system. In the latter Ideal market economies are based on the notion that workers should be paid in accordance with the value they add to their product. If they are paid more for producing more, the argument goes, they become increasingly productive. But the realities of modern market economies make that ideal difficult to realize: It is difficult to place a value on individual efforts, wage structures are rigid, and opportunities for promotion are limited. Hence, compensation has become increasingly detached from worker productivity.

To establish a stronger link between pay and productivity, firms have increasingly turned to gainsharing plans. These plans are premised on the assumption that performance will improve if workers are rewarded for increases in productivity. There are celebrated success stories that demonstrate the potential of gainsharing. The Adamson Company, whose success triggered interest in the Scanlon Plan (White, 1979), showed gains in productive efficiency of nearly 50 percent in each of the first two years of its plan (Chamberlain, 1946; Scanlon, 1947). And one of the most requested cases in Harvard's case-study holdings describes the Lincoln Electric Company, where the gainsharing plan has resulted in workers earning an average annual bonus of approximately 100 percent of regular wages over a 30-year period (Fast, 1980). Despite such successes, the gains from such plans frequently fall short of expectations (Bullock and Lawler, 1984; Kanter, 1987). Some case studies of "successful" plans report net productivity increases or bonuses that amount to less than 3 percent (Masternak, 1991; Hatcher and Ross, 1991). Furthermore, likely half of all gainsharing plans are eventually abandoned (Scanlon, 1947; White, 1979).

Current gainsharing programs, including the three explicitly discussed in this paper (the Scanlon plan, the Rucker plan, and ImProShare) have three basic elements in common.(1) First, a development phase involves the formulation and adoption of the plan for use at a particular workplace. Workers typically participate very little in this phase. Second, a distribution rule governs the allocation of rewards associated with productivity gains. Characteristically, improvements in group performance determine the total rewards to be allocated. Third, an implementation phase consists of evaluating and/or implementing worker changes, measuring productivity standards and improvements, and allocating rewards. This phase relies heavily on workers' participation, either in the form of suggestions made for improving the work process (the Scanlon and Rucker plans) or in the form of increased effort (ImProShare). The basic premise of this paper is that gainsharing plans are deficient because they constitute social dilemmas and are therefore subject to free-riding by workers. The social dilemma aspects of these plans stem from the content of the distribution rules and are exacerbated by limited worker participation in the development of the plans. The study responds directly to those calling for research into the processes involved in gainsharing (Lawler, 1975; Jenkins and Lawler, 1981)and into questions of fairness and distributive justice in organizational pay systems (Leventhal, Karuza, and Fry, 1980; Cook and Hegtvedt, 1983).

SOCIAL DILEMMAS AND GAINSHARING PLANS

A social dilemma is a situation in which individual and group incentives diverge. …