A home-grown gain-sharing plan at Fort Wayne, Ind., foundry has all employees pulling more weight
He gets his hands as dirty as anyone else. Although Larry Sands is in charge of the shipping and receiving department for Pontiac Foundry Inc. -- a maker of nonferrous sand castings named for its location on Pontiac St. in Fort Wayne, Ind. -- his job is more production than management. He drives forklifts heavy with newly poured engine parts from the finishing area to the loading dock, and then, before packing them for shipment, he gives the aluminum, bronze, or brass pieces their final inspection. Two hours into a typical work-day, he is covered with the same fine dusting of sand as everyone -- and everything -- responsible for the sand-castings that are this $5-million jobbing foundry's bread and butter.
Still, until a year ago, Sands wasn't included in any of Pontiac's production-incentive programs -- and not just because he manages a department. Only production workers were eligible for bonus pay, due to the fact that their's were the only accomplishments that could be measured as easily as counting the output of their machines. About 20% of the work force (those who make molds or pour hot metal) participated in a group bonus system, and 35% of the others (predominantly cutters and grinders of finished castings) were individually compensated for production exceeding a "standard hour" rate. But for Sands and the other 45% of the work force (currently at 60 employees), there was only a relatively meager Christmas cash bonus that came from their annual profit-sharing distribution. This was the policy, then, until Pontiac's management replaced all of these cash-bonus programs with a gain-sharing plan. Now, whenever employees are productive enough to hold payroll and materials costs below a certain percentage of the sales dollar, everybody gets a check.
Like most productivity plans, the principle behind gain-sharing is this: Management provides employees with an incentive to make efficient use of their time and materials by letting them share in the savings. That, however, is where the similarities end. Whereas some productivity plans focus exclusively on increased production levels, with little regard for the quality of the additional goods produced, the gain-sharing plan in effect at Pontiac rewards only quality work.
While other methods may rely on wage cuts or smaller, less-frequent wage hikes, gain-sharing at Pontiac has not affected the basic pay rates of any employees with one exception: Employees who previously had been on incentive programs receive higher hourly rates to compensate for what could have been a big income loss when the gain-sharing plan was installed. And while still other plans, such as profit-sharing, distribute only the savings that reach the bottom line -- and only as much of that sum as management deems necessary -- gain-sharing incentives are calculated from the higher, more lucrative reaches of the income sheet, with a formula that leaves no room for management discretion.
This is how the plan works: Pontiac's owners -- brothers Dan, John, and Mark Weaver and their father, Delman -- subtract from the company's sales the value of any waste or shipments rejected by customers, as well as the cost of materials. Then they total their labor costs -- wages, salaries, over-time, vacation and holiday pay, insurance, and pensions. If all has gone well during the incentive period, the labor costs should account for no more, and preferably less, than 33% of value-added sales. That percentage represents an average of all labor-cost percentages recorded over the past five years of the company's half-century history, and -- believing it to be a fair proportion for both the company and its work force -- the Weavers have set it as a goal.
When the percentage hits or exceeds 33%, there is no incentive earned; nobody gets more than a regular paycheck. When the percentage falls below 33%, however, the entire amount of improvement, or gain, is distributed to hourly workers. Separate bonus checks are issued every four weeks, calculated according to each hourly worker's pay level. Salaried employees, however, are not left out. The Weavers dip into company coffers to distribute among foremen and office workers an amount equal to 20% of whatever the production workers shared. Why 20%? Because salaried workers represent about one-fifth of Pontiac's work force. As is the case with bonuses for hourly workers, the bonus checks for salaried workers are calculated according to pay level -- and usually provide a not-inconsequential boost in income.
Since gain-sharing-was installed last January, employees have pocketed an average of 25% more pay per four-week period -- with a high of 48% and a low of 1.1%. Dan Weaver estimates that even those production workers who previously participated in incentive programs are realizing, on average, 10% more than they earned from their piecework or standard-hour bonuses. To Sands, whose earnings were previously limited to his regular paycheck, it has meant an additional aftertax income of as much as $542 in one period -- nearly an extra two weeks' take-home pay -- and as little as $14.82 in another. Gain-sharing is giving him more than he ever saw in a Christmas bonus check.
An obvious question, of course, is why Pontiac spends extra money to include its workers in the gain-sharing plan, when it would be cheaper to split the production workers' share with them. "Because we've found that production workers don't want to share their incentive with people whom they think drink coffee and smoke cigarettes all day," replies Bill Jackson, the consultant whose company, W. M. Jackson & Co., of Marion, Ind., developed the gain-sharing plan that is utilized at Pontiac Foundry and 50 other diverse companies in the United States and Mexico. "This way, production workers get what is rightfully theirs, and at the same time, salaried employees have an incentive to contribute to [the foundry's productivity] in any way they can, because they always get 20% of whatever the blue-collar people make." Whatever additional expense is incurred in extending the incentive to salaried workers is more than made up, Jackson contends, in the increased efficiency of the total operation.
