Workers’ Participation i Management (WPM) W k ’ P ti i ti in M t

What is WPM?
• WPM is an essential ingredient of Industrial democracy democracy. • The concept of WPM is based on Human Relations approach to Management which brought about a new set of pp g g values to labour and management. • WPM refers to participation of employees in the decisionmaking process of the organization organization. • Workers’ participation is also known as ‘labour participation’ or ‘employee participation’ in management. In Germany it is p y p p g y known as co-determination while in Yugoslavia it is known as self-management. The International Labour Organization has been encouraging member nations to promote the scheme of WPM • WPM implies involvement of workers in the management of an enterprise.

What is WPM?
• According to Keith Davis Participation refers to the mental Davis, and emotional involvement of a person in a group situation which encourages him to contribute to group goals and share the responsibility of achievement. • According to Walpole, Participation in Management gives the worker a sense of importance importance, pride and accomplishment; it gives him the freedom of opportunity for self-expression; a feeling of belongingness. The concept of WPM encompasses the following: • It provides scope for employees in decision-making of the organization. organization • Participation may be at the shop level, departmental level or at the top level. • Participation includes the willingness to share the responsibility of the organization by the workers

Features of WPM
1. 1 Participation means mental and emotional involvement rather than mere physical presence. 2. Workers participate in management not as individuals but p p g collectively as a group.. 3. Workers’ participation in management may be formal or informal. informal In both the cases it is a system of communication and consultation whereby employees express their opinions and contribute to managerial decisions. 4. Workers’ participation may be voluntary or statutory 5. Workers’ participation may be financial or non financial 6. Participation will involve both responsibility and authority 7. Participation should involve accountability

Objectives of WPM 1. 6 To improve the quality of working life (QWL) by allowing the workers greater influence and involvement in work and satisfaction obtained from work. 1 2. To build a dynamic Human Resource culture. To satisfy the workers’ social and esteem needs. workers and the society at large. To establish Industrial Democracy Democracy. 6. To promote increased productivity for the advantage of the organization. workers To strengthen labour-management co-operation and thus maintain Industrial peace and harmony. . To secure the mutual co-operation of employees and employers in achieving industrial peace 8. 7. 5. 3. 4. 8 Its psychological objective is to secure full recognition of the workers.

Objectives of WPM According to Gosep workers’ participation may be viewed as: Gosep. A means for achieving industrial peace and harmony which leads to higher productivity and increased production. workers An instrument for increasing the efficiency of enterprises and establishing harmonious relations. A de ice for de eloping social ed cation for promoting solidarit among device developing education solidarity workers and for tapping human talents. A humanitarian act. An ideological way of developing self-management and promoting industrial democracy. The main implications of workers’ participation in management as summarized by ILO: Workers have ideas which can be useful Workers may work more intelligently if they are informed about the reasons for and the intention of decisions that are taken in a participative atmosphere. . elevating the status of a worker in the society.

Under this method the managers and workers jointly take decisions. dec s o s already taken by the management come to employees. Associative participation: It is an extension of consultative participation as management here is under the moral obligation to accept and implement the unanimous decisions of the employees. Consultative participation: Here workers are consulted on the matters of employee welfare such as work. However. • • • • . Decisive participation: Highest level of participation where decisions are jointly taken on the matters relating to production.Levels of WPM • Information participation: It ensures that employees are able to receive information and express their views pertaining to the matter of general economic importance. safety and health. Administrative participation: It ensures greater share of workers’ pa t c pat o participation in discharge of managerial functions. welfare etc. as employees’ views are only advisory in nature. preferably with alternatives for administration and employees have to select the best from those for implementation. Here. final decision always rests with the top-level management. decisions d sc a ge o a age a u ct o s e e.

Degree of Involvement Level of Participation Authority-ResponsibilityAccountability Quotient Minimal Low Information Dissemination Consultative participation Associative participation p p Administrative participation Decisive D i i participative ti i ti Heightened High .

Forms of WPM Indirect/Informal Participation Collective Bargaining Job enlargement and enrichment Suggestion schemes Quality circles TQM and Kaizen Autonomous/Empowered teams Decentralization and delegation Direct/Formal Participation Complete Administrative control Board level participation Staff or work councils Joint councils and committees Financial participation .

on the other hand. WPM. brings both the parties together and develops appropriate mutual understanding and brings about a mature responsible relationship. bargaining. For CB to work. practice. The process of CB cannot be called as WPM in its strongest sense in reality. management and workers may reach collective collecti e agreement regarding r les for the form lation and termination rules formulation of the contract of employment. . as well as conditions of service in an establishment. some force. tries to take advantage of the other. CB is many a times based on the crude concept of exercising power for the benefit of one party. the workers’ and the employers’ representatives need to bargain in the right spirit But in practice while bargaining each party spirit.Forms of WPM Indirect/Informal Participation Collective Bargaining Through the process of CB. Even though these agreements are not legally binding they do have binding.

g. But this f form of participation is very basic as it provides only limited f freedom to a worker concerning the method of performing his/her job. welfare schemes and other policy i lf h d h li decisions.Forms of WPM Job Enlargement and Job Enrichment Excessive job specialization that is seen as a by-product of mass production in industries. employees Two methods of job designing – job enlargement and job enrichment– are seen as methods of addressing the problems. autonomy etc ) to make it more rewarding etc. leads to boredom and associated problems in employees. This is WPM in that it offers freedom and scope to the workers to use their judgment. Job enlargement means expanding the job content – adding task elements horizontally. status. . Job enrichment means adding `motivators’ to the job (e. The worker has no say in other vital issues of concern to him – issues such as j b and i h job d income security.) rewarding.

Suggestions can come from various levels. benefits and the like. employees’ organization is entertained Progressive managements increasingly use suggestion schemes.Forms of WPM Suggestion Schemes Employees’ views are invited and reward is given for the best suggestion. Out of various suggestions. facilities. The ideas could range from changes in processes. Often rewards are given to the employees in line with the benefits derived from the suggestions. It gives the employee a sense of self-fulfillment It provides the employee with an outlet to vent his concerns p p y . methods. With this scheme the emplo ees’ interest in the problems of the scheme. those accepted may provide marginal to substantial benefits to the company.

Organization gets to enjoy higher savings-to-cost ratios. There is direct participation of workers in improving organizational processes and systems. and impressive results when correctly implemented. Employees become involved in decision-making. concrete. Workers got to get out of their daily routine and do something challenging. A QC consists of seven to ten people from the same work area who p p meet regularly to define. analyze. Technical problems got solved easily. . Training in problem-solving techniques is provided to the members. acquire communication and analytical skills and improve efficiency of the q y p y work place.Forms of WPM Quality Circles Concept originated in Japan in the early 1960s and has now spread all over. and solve quality and related problems in their area. g p g q p QCs are said to provide quick. challenging Chances of most effective QC members getting promotions are enhanced.

many trade unions look at it as a way of overburdening workers and an attempt to undermine their role. However. brainstorming. the management needs to show its g . These circles require a lot of time and commitment on the part of members for regular meetings. Few circles y y survive beyond this limit either because they loose steam or they face simple problems. etc. . g commitment by implementing some of the suggestions of the groups and providing feedback on the disposition of all suggestions.Forms of WPM Quality Circles QCs can be an excellent bridge between participative and nonparticipative approaches. For QCs to succeed in the long run. analysis. Most QCs have a definite life cycle – one to three years.

and 100% of the time. O d Organizations can li k rewards or promotions t th i ti link d ti to these. It is based on the belief that quality can be improved by anybody through q y p y y y g careful inspection. Strive to do error-free work. the first time. Manage by prevention. not correction. of an organization to quality. Measure the cost of quality. TQM and Kaizen are called participative because they are deliberate and semi-formal programmes involving every employee in the organization. Kaizen is small but continuous improvements on a daily basis. New principles of TQM are: Meet the customer’s requirement on time. .Forms of WPM Total Quality Management and Kaizen TQM refers to the deep commitment. making each one responsible for improving quality everyday. . almost obsession. q . Every step in company’s processes is subjected to intense and regular scrutiny for ways to improve it.

They often create their schedules and review their performance as a group. may take initiative in their work. may get more work done. Teams plan. sometimes called an autonomous work group.Forms of WPM Autonomous/Empowered Teams An autonomous team. Teams may be empowered to share various management and leadership functions. control and improve their work. May prepare their own budgets and co-ordinate their work with other departments. The members of the autonomous team are given latitude to establish their own internal goals and work practices. Employees may feel more responsible. and may enjoy the work more. Autonomous teams are often established to manage production areas or departments. Empowerment occurs when authority and responsibility are passed on to the employees who then experience a sense of ownership and control over their jobs. is a group of individuals working toward specific goals without the direct influence of an outside party. Ultimate team goals and support are provided by management in concert with the team. Frequently responsible for acquiring any new training they might need. .

and workers. facilitator Leadership style is liberal and progressive Information flow is open. Characterized by empowered employees Organizational structure is layered but flat. usually at a lower level. Job design involves multiple tasks Management’s role is that of coach. . skill-based Decentralization empowers people by giving them freedom of decisionmaking and promoting WPM. shared Rewards are team-based. team-based g y . It also connotes a higher authority given to lower level functionaries. Delegation is a lesser degree of decentralization which involves passing on specific tasks and responsibilities to someone else. allowing for more innovation and efficiency. Delegation is the means to gradually achieve decentralization.Forms of WPM Decentralization and Delegation Decentralized decision making is any process where the decision making authority is distributed throughout a larger group. executives. Thus there will be more bottom up directional information flow.

Trade unions welcome this type of participation. co p ete co t o o e s s ot a a s e t e p ob e of participation because the workers do not evince interest in management decisions. The system of self-management in Yugoslavia is based on this concept. It ensures identification of the workers with their organization. Minimal industrial disputes because workers develop loyalty to the organization.Forms of WPM Direct/Formal Participation Complete Administrative control Workers acquire complete control of the management through elected boards and committees committees. Self-management gives complete control to workers to manage directly all aspects of industries through their representatives. This system is not working very effectively wherever it exists. . However. complete control by workers is not an answer to the problem o e e .

. He or she can serve as a guide and a control element. He or she can prevail upon top management not to take measures that would be unpopular with the employees. Worker representation at BOD can serve as a very powerful tool for empowerment and WPM. He or she can guide the Board members on matters of investment in employee benefit schemes like housing. The workers’ representative on the Board can play a useful role in safeguarding the interests of workers. and so forth.Forms of WPM Board level participation This refers to representation of workers at the board of directors’ level This would be the highest form of industrial democracy.

making They may be given administrative responsibilities of certain facilities like managing worker canteens etc. Such councils have not enjoyed too much of success because trade S f union leaders fear the erosion of their power and prestige if such workers’ bodies were to prevail. Their role ranges from seeking information on the management’s intentions to a full share in decisionmaking. . The employees of different sections/departments/units elect the members of their councils councils. There ma be one co ncil for the entire organi ation or a hierarch of may council organization hierarchy councils.Forms of WPM Staff and Works Councils Staff councils or works councils are bodies on which the representation is entirely of the employees. Such councils play varied roles.

Examples of such committees are welfare committee. increasing productivity and reducing labour unrest. . health committees etc. workers Such committees discuss a wide range of topics connected to labour welfare and working conditions. these bodies merely serve as suggestion forums for workers. In most cases.Forms of WPM Joint Councils and Committees Joint councils are bodies comprising representatives of employers and employees. This method sees a very loose form of participation as these co ncils er participation. Such committees have not proven to be too effective in promoting industrial democracy. safety committee. councils are mostly consultative bodies.

Some schemes of financial participation: Performance-linked pay Financial ownership: Employees’ Stock Option schemes. he/she is likely to be more positively motivated and involved. Profit sharing and gain sharing o t s a g a d ga s a g Bonus Pension-fund participation . The logic behind this is that if an employee has a financial stake in the organization. involved Makes the workers committed to the job and to the organization.Forms of WPM Financial Participation It involves a stake of the workers in the finances of the organization Performance of the organization is linked to the financial performance of the emplo ee employee.

Employee gets the deferred amount and interest thereon after some time. Bonus or incentive would constitute a form of add-on or addition over actual salary salary. . Potential base pay at risk: In cases where raises/increments are given given. At-risk pay: Some amount of pay is at-risk and is paid when targets are achieved. Deferred Pay: Some amount of the pay that is to be paid as reward is deferred an saved into an account. It’s a reward for loyalty.Forms of WPM Performance-linked pay or Variable Pay Plan (VPP): To create a sense of shared destiny. some percent of increment is withheld and is released only if performance targets are attained. Add-on pay: Increment to base pay.

third of his holding to his employees in 1919. Many a times organizations also give shares as rewards or bonuses. Thus ESOPs involves making the workers’ shareholders of the company workers by inducing them to buy equity shares.Forms of WPM Financial ownership: Employees’ Stock Option schemes Employees schemes. advances and financial assistance in the form of easy repayment options are extended to enable employees to buy equity shares. Kodak. Eastman. Companies may also provide easy funding through banks. usually at lower price. An ESOP is nothing but an option to buy the company's share at a certain price This could either be at the market price (price of the share price. or at a preferential price (exercise priceprice lower than the current market price). . it could be at whatever price the management fixes it at. currently listed on the stock exchange-in this case certain units of stocks are reserved for employees). The ESOP concept has been around for almost 80odd years when George Eastman founder of Kodak transferred oneyears. In many cases. An Employee Stock Option Plan is when the company offers its shares to the employees. If the firm has not yet gone public (shares are not listed on any stock exchange).

if the stock's value has increased when the employees exercise their option. These two plans differ in the way the money is taxed. The most popular plans are ISOs and NQO plans With both of these plans. So. if not. With ISOs. the employee is offered/alloted a specific number of shares that they can purchase (exercise) on a specified date. make sure they don't sell the shares for at least two years after the time the option was granted or within one year after they exercised their option. then the stock options may not be worth exercising. the employees pay no taxes until they later sell the shares. At that time. nonqualified options (NQO) & employee stock purchase plan options (ESPPO). They must. plans. then they get a good deal. There is no corporate deduction when the employee exercises the option. h h l i h i . any money they made off the transaction is subject to capital gains tax instead of income tax. The shares can be purchased at the value of the stock at the time the option was granted. however.Forms of WPM Three types of stock options: incentive stock options (ISO) (ISO).

Most companies allow employees to purchase stock amounts up to 10% of total pay.Forms of WPM With NQOs employees will have to pay income tax on any gains they NQOs. ESPPOs are vesting period . then they will only owe capital gains tax on the additional increase in value when they sell. . if the employee keeps the stock and it increases more in value. made when they exercised their options. Phantom-stock plans operate in a similar manner as the other stock options. then the employer i d h l ll h h l issues a check to the h k h employee for the increased amount. then on a specified future date the company's value is reevaluated. There can also be a corporate deduction on the same amount. but the risk of sharing equity in the company isn't there. Unlike the ISOs and NQOs offered after a ‘vesting period’. Companies can issue shares to employees at a set price based on the company's current value. Later. ESPPO is another option for employers who want to lure new recruits. Another lesser-known option particularly appealing for small and private companies is the phantom-stock plan. usually offered to all eligible employees." and the company can take a tax deduction. Employees can purchase the stock at usually about 85% of its market value. If the stock has risen and the employee wants to sell. The employee will pay tax on the additional "wages.

stock performs and the rewards that employees get. They mirror the stock prices of a company in the open market. The appreciation in the stock value is paid out as cash to the employees in a staggered manner.000 . It is a win-win situation for both employer and employees. However. Now Shadow ESOPs are becoming the new mantra or the new compensation tool for rewarding employees in Indian companies. .the appreciated value of stock . the incentive in this case will be staggered over a given period. This is something where there is a direct linkage of how a company performs. are switching to this new mode of compensation. Instead of getting shares. which are to be exercised after three years. At the end of three years.as cash incentive. Say an employee has been allotted 100 shares at a price of Rs 100 as shadow ESOPs. the employee would get Rs 20.Forms of WPM Shadow ESOPs are ESOPs in cash More and more Indian companies cash. the stock price goes up to Rs 300.

then the stock exchange where there i hi h k h h h is highest trading volume on the said d di l h id date should be considered. on stock exchanges. shares.Forms of WPM In India the ESOP is not taxed on acquiring the shares You are taxed India. . prior to the date of the meeting of the company board in which options are granted or shares are issued. you have to pay tax at the rate of 10% (plus surcharge if applicable). The taxability depends on the nature of gain at the time of sale. Transfer here refers to when you gift it to someone or transfer it to someone else under an irrevocable deed. Long-term gains are exempt from tax. Securities and Exchange Board of India has amended its guidelines on ESOPs to provide for mandatory disclosures. If the shares are listed on more than one stock exchange. the market price will mean the latest available closing price. Capital gains tax is computed on the difference between the sale price and the issue price (the price at which shares are offered to you). on the profit you make when you sell the shares or transfer them. Under the amended norms. If you have a short-term capital gain. pricing etc. Recently.

pioneered the concept of ESOPs in India. and generally ranges from one to five years. in fact.Forms of WPM Often used as a tool to retain employees ESOPs can improve your employees. bottom line through employees' heightened involvement and interest. Owning an equity share means owning a share in the company business. Sometimes. IT companies in India have been typically the main issuers of options co pa es d a a e bee typ ca y t e a ssue s o opt o s and stories abound about how engineering graduates who joined these companies in the initial years turned millionaires. the ESOPs are given in a phased out fashion -. . This is known as the vesting period. you can acquire the shares after you complete a particular period of employment. For instance. another 20% in the third year. business Companies offer their employees shares because it is considered that having a stake in the company would increase loyalty and motivation substantially. Giving ESOPs depends on company policy There are time limits for policy.20% in the second year. availing this scheme. The effectiveness of ESOPs as a retention tool has inspired several large Indian business houses to offer them to employees. etc. Infosys.

At the end of the 19th century. Long before many western industrial nations followed suit his company introduced profit sharing for suit.Forms of WPM Profit Sharing An incentive based compensation program to award employees a percentage of the company's profits. Jamsetji Tata. . The formula is usually based on 5% to 6% of the employee's salary. They usually include a vesting period of 5 to 7 years. Profit sharing when used as a special term refers to various incenti e sharing. hen sed term. was inspired by the idea of helping restore India's wealth. About 40% of companies in India today offer profit sharing plans. Profit sharing programs require setting up a formula for distribution of company profits. employees as a motivational tool(1934). ario s incentive plans introduced by businesses that provide direct or indirect payments to employees that depend on company's profitability in addition to employees employees' regular salary and bonuses bonuses.

In publicly traded companies these plans may sometimes amount to allocation of shares to employees i. you may opt to not contribute. profitable years.Forms of WPM Profit Sharing The profit sharing plans are based on predetermined economic sharing rules that define the split of gains between the company as a principal and the employee as an agent agent. it takes the form of free ESOPs.e. Generally this is done on an annual basis. The amount distributed to each employee may be weighted by the employee's base salary so that employee s employees with higher base salaries receive a slightly higher amount of the shared pool of profits. Profit sharing work best when company earnings are relatively stable (or steadily increasing). . It also lets companies control how the money is invested and is not as expensive to administer as other plans plans. The good thing about profit sharing plans is that they allow you to decide if and how much your company contributes to the plan During less plan. The company contributes a portion of its pre-tax profits to a pool that will be distributed among eligible employees.

It focuses only on the goal of profitability (which may be at the expense of quality). For smaller companies. However.Forms of WPM Profit Sharing Advantage of profit sharing is that it brings groups of employees to work together toward a common goal . these plans may result in drastic swings in earnings for employees which the employees may find difficult to manage their personal f finances. helps employees focus on profitability. It enhances commitment to organizational goals. it is mostly welcomed by employees who see it as their participation in sharing the profits of the company. Disadvantages are that the pay for each employee moves up or down together (no individual differences for merit). . The costs of implementing the plan rise and fall with the compan 's ith company's revenues.

generally all the employees at a site or operation are included. units or projects. employees share financially in the gain.Forms of WPM Gainsharing Gainsharing involves sharing the gains from cost-savings. It is a productivity measure. Gainsharing i a system that i l d G i h i is h includes a fi financial measurement and i l d feedback system to monitor company performance and distribute gains. Company productivity ith orkforce Gainsharing is best described as a system of management in which an organization seeks higher levels of performance through the involvement and participation of its people people. In gainsharing a Compan shares prod cti it gains with the workforce. as opposed to profit-sharing profit sharing which is a profitability measure measure. included It’s a technique that compensates workers based on improvements in the company's productivity. usually as a lump-sum bonus. gain sharing may be specific to single plants. As performance improves. Requires employee commitment. . sites. It is a team approach. gainsharing. While profit sharing may apply to all employees organization-wide. training & frequent communications.

. One is gain calculation. scrap rates. The second is a structured system for employee involvement. employees The organization's actual performance is compared to organization s baseline performance (often a historical standard) to determine the gain.Forms of WPM How Gainsharing Works There are two important parts of Gainsharing system. Gains and resulting payouts are self-funded based on savings generated by improved performance. Employees have an opportunity to earn a Gainsharing bonus generally on a monthly or quarterly basis basis. error rates) which are more controllable by employees rather than organization-wide profits profits. Gainsharing applies to all types of business that require employee collaboration and is found in manufacturing. spending. distribution. organizations. Gainsharing measures are typically based on operational measures (productivity. and service as well as the public sector and non-profit organizations service. health care. involvement The typical Gainsharing organization measures performance and then through a pre-determined formula shares the savings with all employees.

the more they are integrated into the day-to-day operational systems. This type of reward is based on factors directly under a worker’s control (i e productivity or costs) worker s (i. gainsharing plans do not adversely affect company costs.. the design process. the more commitment there is to the Gainsharing system. costs). And. Because this pay is only implemented when gains are achieved. system And the more commitment there is to achieving overall business goals the better the resulting performance is. Employee involvement is significantly enhanced Gainsharing systems vary widely in terms of their design and the degree to which they are integrated into the regular operating systems of the company. Of course. It requires designing a focused involvement system to eliminate barriers to improved company performance Employees often are involved with performance. Works best when company performance levels can be easily quantified quantified. A supporting employee involvement system is part of the plan in order to drive improvement initiatives.e. .Forms of WPM Gainsharing Workers voluntarily participate in management to accept responsibility for cost-cutting reforms.

Because it rewards labor savings. Here cost-saving calculations are more complex based on several pa a ete s ecause t s p a ut es parameters. such as scrap reduction or energy consumption. t s ost appropriate for organizations that want to improve other variables. it's most u t cost o u a. This program dates back to the 1930s and relies on committees to create cost-sharing ideas.Forms of WPM Gainsharing Plans The Scanlon Plan is the oldest and most widely used. The Rucker Plan is based on the premise that the ratio of labor costs to production value is historically stable in the manufacturing industry. It s ideas It's based on the historical ratio of labor cost to sales value of production. it is most appropriate for companies that have a "high touch labor" content. in addition to labor cost. tracks the value added to a product as a measure of productivity. Because this plan utilizes a multi-cost formula. This principle became the underlying precept of the Rucker Plan which Plan. .

With this plan. a standard is developed that identifies the expected number of hours to produce something. these plans modify either the "textbook descriptions" of the bonus formula or the employee. It's the easiest of the gainsharing plans to understand and install. Custom plans are used to customize components of a gainsharing plan to support a unique aspect of an organization's environment. It may be used in service sectors to share gains from increased customer loyalty etc.involvement system. Improshare measures changes in the relationship between outputs and the time (input) required to produce them. multitiered employee-involvement approaches. . technology and capital equipment. product mix. many organizations utilize selfdirected work teams or cross functional teams in lieu of the structured cross-functional structured. and any savings between this standard and actual production are shared between the company and the workers. Typically. Instead. The employeeinvolvement vehicles associated with the textbook implementations of other plans are extremely dated.Forms of WPM Improshare plan stands for "Improved productivity through sharing" and Improved sharing is a more recent and popular plan. This plan is minimally affected by changes in sales volume. or price and wage increases.

product quality. • Leads to improvements in other measures of company performance. lower rates of absenteeism and defects. emplo er • Employees can share in the benefits of employee sponsored improvements. Gainsharing works best in a work environment that is based on openness and trust. Teams are formed and trained in order to work on performance enhancement initiatives. • Enhances commitment to organizational goals.Forms of WPM Advantages of gainsharing: • Helps companies achieve sustained increases in productivity. . Supervisors and managers are trained in the relationship of their role toward the plan. including: teamwork. It's best to have an expert on Gainsharing to guide and facilitate the process. Executives and managers must be educated in order to develop a clear understanding of the G f Gainsharing philosophy and the management style required for success. • Employees become more involved the productivity gains made by the employer.

Some employees may be excluded. Application Measurement Funding F nding Payment Target Employee Eligibility Method of Distribution Impact on Behaviors Beha iors Applies to a single facility.Applies organization-wide alone organization. quality. compensation for higher-level employees. Gainsharing reinforces behaviors that promote improved performance. site. i ti . profits. Payout is typically annual. Payouts are made only when performance Payouts are typically made when there p g p has improved over a standard or target. Payout Frequency Payout is often monthly or quarterly. are profits Typically all employees at a site are eligible for plan payments. spending. such as hourly or casual employees.Gainsharing Purpose To drive operational performance of an organization Profit Sharing To share the financial success of the organization and share company’s success. Typically employees receive the same % Profit sharing may be larger % of payout or cents per hour bonus. Payout is based on operational measures Payout is based on a broad financial (productivity. service) measure of profitability. t i d f Influences the sense of employee identity to th t the organization. Payouts are self-funded based on savings P P t e elf f ded b ed i Payouts are funded through company t e f ded th h by improved performance. or stand.

Forms of WPM The Profit Sharing Pie • • • Based on year end profit Paid annually No direct employee involvement The Gainsharing Pie Th G i h i Pi • • • Based on operational performance Paid more frequently than annually Employee involvement critical .

However. or suggest ways to reduce expenses. For example. • accounts receivable staffers who achieve high levels of collections. There are two types of employee bonuses: performance bonus that encourage employees to become more productive or maintain high standards of performance and free. • service department personnel who complete a higher than average number of procedures. or something else of value--can be a powerful tool to motivate a workforce workforce. or time off. • production li workers who suggest product d i i d i line k h d design improvements. • or any employees who consistently report to work on time.g.Forms of WPM Bonus Bonus is an incentive for employee to share the company’s good times. in both types. or use less than their allotment of sick leave.floating bonuses that are simply performance. or a gift. a bonus could be offered to: • salespeople who exceed their quotas for the year. given out as gifts e. . festival bonus (Diwali bonus in India). An employee bonus--whether it's cash. the company is trying to encourage certain types of behavior by rewarding it.

e p oyees ga o t e co t but o s t ey a e profits and gains from cost-cutting.Forms of WPM In each of these examples extending bonuses creates two winners: the examples. continue to expect them. example. The whole purpose of bonus program is to make the company stronger. Bonus is slightly different from profit sharing and gain sharing because in the latter two. able to survive and prosper. employees gain from the contributions they make to t e atte t o. the more potentially dangerous they become. On the other hand free. p p p g p y g . management can no longer afford to offer holiday bonuses? Employees who received those goodies in the past. . aren t performance also motivate employees and ensure their involvement and participation but can create serious problems for struggling businesses. And the bigger these bonuses are. more competitive. What happens for example when business takes a nose-dive and happens. Such expectation s when not fulfilled. employee who receives the compensation and the employer who benefits from the worker's positive performance.floating bonuses that aren't attached to positive hand. while in bonus there may not be such contributions directly. Earning a profit is just part of it. become highly demotivating. Thus bonus has larger goals to serve than profit sharing.

the Full Bench of the Labour Appellate evolved a formula for determination of bonus.Forms of WPM The Payment of Bonus Act 1965 Act. The practice of paying bonus in India appears to have originated during First World War when certain textile mills granted 10% of wages as war bonus to their workers in 1917 1917. to consider in a comprehensive manner. 1965. It came on the Statute Book as THE PAYMENT OF BONUS . In 1961 a Tripartite Commission was set up by the Government of India 1961. accepted the recommendations of the Commission subject to certain modifications. p p y p ACT. In 1950. . A plea was made to raise that formula in 1959. The Payment of Bonus Bill having been passed by both the Houses of Parliament received the assent of the President on 25th September. The Act is to provide for the payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity. the question of payment of bonus based on profits to employees employed in establishments and to make recommendations to the Government The Government of India Government. 1965.

Both parties should have a genuine faith in the system and in each other and be willing to work together. development of personnel. and puts the employers to financial losses. Participation should be real. evaluation of costs. on th other h d must also whole h t dl co-operate the th hand. for their presence ruins the employees. Management must genuinely implement the suggestions and decisions of the workers. The issues related to increase in production and productivity. rationally and logically and to enable them to act in a responsible way way. Where a right kind of attitude exists and proper atmosphere prevails the process of participation is greatly stimulated. Employees need to be educated to enable them to think clearly. A peaceful atmosphere should be there wherein there are no strikes and lockouts. and expansion of markets should also be brought under the jurisdiction of the participating bodies. Programs for training and education should be developed comprehensively. • • • • • . t l h l heartedly t with the management. harms the interest of the society.Essential Conditions for WPM • The attitude and outlook of the parties should be impartial so that a free and frank exchange of thoughts and opinions can be possible. Th l b k The labor.

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