Recently, an order for castings with an unusually quick deadline came into Bahr Brothers Manufacturing Inc., a foundry and machine shop in Marion, Ind. To do the job, employees had to work round-the-clock instead of the customary eight-hour shifts. But the order was completed and the customer was satisfied, all without a groan or a grimace from the workers. In fact, employees were glad to do the extra work in a short time because they knew their gain-sharing checks would be fatter at the end of the month.
Gain-sharing, a broad term for programs that give frequent bonuses when employees increase their output, is a concept that caught chief executive officer Bill Jackson's interest during his 20 years as a manager of several Midwestern foundries. At one Michigan company, he realized that the company made money when labor was 33% of gross sales or less, and lost money when labor costs ran higher. Gain-sharing seemed to be a way to keep labor costs under control. The idea was a little too radical for Jackson's employers, however, so in 1966, he bought Bahr Bros. with the aim of installing a gain-sharing plan for all employees, managers included.
Under gain-sharing, sales at Bahr Bros. have grown from $110,000 in 1966 to $1.8 million in 1984 -- during a turbulent period when dozens of foundries have disappeared and the survivors have had to contend with the fiercest overseas competition they have ever known.
Gain-sharing, Jackson believes, has been an important factor in Bahr Bros.'s success. In fact, he is so enamored of the concept that he is turning control of the company over to his son, Jeff, in order to pursue a consulting business, advising other companies on how to set up gain-sharing plans.
There are many different formulas that can be used in gain-sharing. Jackson based Bahr Bros.'s plan on labor because it was the simplest and easiest for employees to understand. He also established separate plans for hourly and salaried workers, reflecting the different skills and responsibilities of each group. The hourly plan uses 27.3% of gross sales as a target labor cost, figuring in employee benefits and the cost of any returned product. When labor costs for a month run less than 27.3%, the difference in dollars is divided among all hourly employees.
To promote a team spirit, the salaried plan is tied to the hourly plan. An amount equal to 15% of the hourly plan is divided among the salesperson, the superintendent, and two administrative employees. Jeff Jackson, vice-president and general manager, now receives a salary and a percentage of sales.
In addition to motivating workers to hold costs down, the younger Jackson relies on gain-sharing as an indicator of company performance. "The plan is a management tool that allows us to predict the company's profitability for every four-week period," he says. "In 1982, it told us we needed to make some drastic changes immediately because the work wasn't profitable. If we hadn't had gain-sharing, we might have lost the company."