Fundamentals of Management, 8th ed

gainsharing

programs

Designed to share

the cost savings from

productivity

improvements with

employees

Scanlon plan

Similar to

gainsharing, but the

distribution of gains

is tilted much more

heavily toward

employees

Chapter 10: Managing Employee Motivation and Performance

3 1 3

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There are also other kinds of team or group level incentives that go beyond the con-

tributions of a specific work group. These are generally organization-wide kinds of

incentives. One long-standing method for this approach is profit sharing. In a profit-

sharing approach, at the end of the year, some portion of the company’s profits is paid

into a profit-sharing pool that is then distributed to all employees. If the amount is not

distributed at that time, it is put into an escrow account and payment is deferred until

the employee retires.

Employee stock ownership plans (ESOPs) also represent a group-level reward system

that some companies use. Under the ESOP, employees are gradually given a major

stake in ownership of a corporation. The typical form of this plan involves the com-

pany’s taking out a loan, which is then used to buy a portion of its own stock in the

open market. Over time, company profits are then used to pay off this loan. Employees,

in turn, receive a claim on ownership of some portion of the stock held by the company,

based on their seniority and perhaps on their performance. Eventually, each individual

becomes an owner of the company.