The Productivity-Boosting Gain-Sharing Report

Rogan Corp. found it took a well-designed weekly gain-sharing report to encourage the labor-cost savings that reward employee and employer alike

Back in 1980 the future didn't look so good for Ed Rogan and the plastic-knob-manufacturing business that had been Rogan Corp.'s bread and butter for decades. As sophisticated instrumentation moved from analog to digital displays and no longer needed old-style controls for calibration, company president Rogan feared that "technology was going to make us obsolete." So he invested more than $2 million to replace the molding machines, and he introduced new products.

Rogan knew the success of his strategy rested on dramatically ratcheting down expenses. Yet labor, which constituted a large chunk of costs, seemed untouchable. Rogan's shop-floor employees expected annual raises regardless of the company's performance. And to buck that, Rogan feared, would set off "a big cultural battle." He visited Mexico with an eye to relocating operations there but preferred to stay in Northbrook, Ill., where the company had been since its founding, in 1934. Instead he cast about for a solution that would "satisfy our concern for our people who were loyal, as well as let us survive."

In 1983 Rogan's quest led him to consider a gain-sharing program that would encourage employees to increase their overall productivity. The technique pegs workers' bonuses to improvements in efficiency. Rogan and Tom McGrath, a consultant from Jackson Gainsharing Co., in Marion, Ind., worked for six months analyzing the company's financial statements to determine the historical cost of labor as a percentage of expenses. Using that information, they set a target for productivity. When output efficiency surpassed that goal, employees would enjoy the rewards.

But Rogan realized that success would require universal enthusiasm. He had to sell the program to the workers. He firmly believes "this is not something to try alone. Bring in a professional." As an outsider, McGrath was in a position to act as an ombudsman on the shop floor who could consider without prejudice the concerns of employees. Ed Rogan embraced the program and rolled it out in 1986.

"We wanted to start in an up cycle," Rogan says, "so we could have a modest payout." For the first four-week cycle, gain sharing paid out an extra $11,712, and for the next, $12,279. In the first year and a half gain sharing rewarded employees with checks equal to 16.3% of their wages, in addition to their regular pay.

For a gain-sharing plan to succeed, employees must see the link between their performance and their pay. Accordingly, Rogan has institutionalized regular publication of the company's production and financial results. The company posts every day's shipping totals on the factory walls. It is the weekly gain-sharing report, though, that Rogan uses to focus everyone's attention on production improvements and efficiency. Every Friday Rogan or one of the four other members of his steering committee (they rotate responsibility on a five-week cycle) reviews the report with every department and shift. The committee members know it's crucial that each of the 65 workers in the program understands his or her own potential to affect the bottom line.

And people have learned -- as evidenced by the variety of ways employees have taken it upon themselves to make improvements on the shop floor. They have contributed more than 300 ideas for making production more efficient. Recently, the company adopted employee proposals to conduct the inventory count in one day rather than two. "This is a reward-for-efficiency compensation plan," says Rogan. Employees understood, he explains, that "we'd get one more day to work on increasing gain sharing in that period. The result was, we got another $40,000 of value produced."

Rogan considers the program a triumph. "We've had negative results in only three periods. The workers weren't happy. But everything started at zero in the next period. We don't come back and penalize the employees. We just say, 'OK, we lost that game.' We don't subtract it from pay. This is a shared, not an adversarial, relationship."

Ed Rogan explains how to read the gain-sharing report:

[Sample]

This is the report for the 85th four-week period since we started. We'd been doing this for six and a half years. The four-week cycle is tied to our production/shipping schedule.