What Is the Scanlon Plan? Origin, Benefits, 6 Facts

The scanlon plan is a type of gainsharing program in which employees are motivated to improve productivity by monetary bonuses and participation in solving production problems. Click on each section below to read more information related to it. 

What Is the Scanlon Plan?

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.

What Is the Scanlon Plan?

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.

Origin of Scanlon Plan

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.

Understanding Scanlon Plan

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.

What Is the Scanlon Plan?

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.

Benefit of Scanlon Plan

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.

What Is the Scanlon Plan?

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.

Procedure of Scanlon Plan

  • Employees provide suggestions to the department level committee
  • The suggestions seek to identify ways to improve productivity
  • The department level committees then transfer the suggestions to a screening committee
  • The screening committee includes members of the workforce and the management
  • The screening committee reviews the suggestions and designs measures to improve performance
  • The screening committee periodically reviews performance and computes the amount of bonus to be paid to workmen as their share of performance improvements.

Advantages and Disadvantages of Scanlon Plans

Scanlon programs are advantageous to organizations because they encourage more employee participation in the manufacturing process and guarantee improved work quality. Despite this, it may be difficult for the typical worker to comprehend how such a system operates.

What Is the Scanlon Plan?

Scanlon programs have a tendency to link incentives to particular goals and to disregard actions that do not provide immediate benefits. Therefore, activities, such as ideation sessions, that are fundamental to the system or structure are often disregarded.

Consequently, workers are often unenthusiastic about new systems or concepts, since they see training sessions as unremunerated labour.

Moreover, the fundamental goal of the majority of profit-sharing agreements is to increase productivity. However, there are a number of circumstances in which great production is either unnecessary or detrimental.

For example, a lack of consistent orders may have a detrimental effect on businesses with high production rates (in the form of warehousing costs of unsold goods). Scanlon schemes that promote high sales or larger bottom-line profits also encourage employees to concentrate on just those goods with the highest margins.

Frequently, employees alter sales and marketing strategies to favor such items. This may drastically harm a firm’s reputation by implying to customers that the company is solely interested in selling items with bigger profit margins. Despite these flaws, though, scanlon plans continue to be popular and successful incentive programs.

A scanlon plan not only incentivizes employees to perform at their highest level, but also fosters a feeling of pride in their accomplishments. This leads to indirect advantages such as decreased staff turnover rates and, therefore, less time and money spent on training new employees.

What Is the Scanlon Plan?

Scanlon programs can aid companies in controlling wages and reducing operational expenditures during sluggish company periods.


The scanlon plan is a cost-saving, gain-sharing, productivity-encouragement plan in which any savings (agreed-upon standard labour cost per unit of output minus actual labour cost per unit of output) are divided equally between the employees and the company.

This method includes formal employee engagement in addition to periodic performance evaluations and staff reporting.

This form of gain-sharing program aims to promote more employee participation in organizational decision-making. As both workers and employers stand to profit from the plan, both parties should recognize the significance of the other’s proposals and efforts.

For such programs to be effective, there must be reasonably solid relationships between employers and workers, and employees must have a feeling of belonging to the firm.

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Pat Moriarty
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