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A study of the applications of gainsharing incentive plans in the Canadian mining industry McDonald, Douglas J. 1993

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A STUDY OF THE APPLICATIONS OFGAINSHARING INCENTIVE PLANS IN THECANADIAN MINING INDUSTRYbyDOUGLAS JOHN McDONALDB.Comm , The University of British Columbia, 1991A THESIS SUBMITTED IN PARTIAL FULFILLMENT OFTHE REQUIREMENTS FOR THE DEGREE OFMASTERS OF APPLIED SCIENCEinTHE FACULTY OF GRADUATE STUDIESDepartment of Mining and Mineral Processing EngineeringWe accept this thesis as conformingto the required standardTHE UNIVERSITY OF BRITISH COLUMBIASeptember 1993© Douglas John McDonald, 1993In presenting this thesis in partial fulfilment of the requirements for an advanceddegree at the University of British Columbia, I agree that the Library shall make itfreely available for reference and study. I further agree that permission for extensivecopying of this thesis for scholarly purposes may be granted by the head of mydepartment or by his or her representatives. It is understood that copying orpublication of this thesis for financial gain shall not be allowed without my writtenpermission.(SignatureDepartment of Artoj t C{ ;le^ProceS...0 67ifftwf/The University of British ColumbiaVancouver, CanadaDate  aciakt .S7/ P9SDE-6 (2/88)ABSTRACTIncreased competition in the mining industry has demanded that companies focus ontheir operations to minimize the costs of production. While there are many strategies beingused to lower costs, employee incentives that attempt to tap the human resources are becomingmore prevalent. This research focuses on the applications of one of these human resourcesincentives in the mining industry: Gainsharing.In the mining context, gainsharing combines a group based bonus system that coversvirtually all employees and is based on parameters over which they have control, with anappropriate communication network and management structure.The mining environment is conducive to gainsharing plans; in deed, gainsharing hasmany advantages over more commonly used incentives like piece-rate production bonuses andprofit sharing plans. Currently, five percent of the operating mines in Canada use gainsharingplans, while six percent use profit sharing plans and 30% use piece-rate incentives. Surveysreturned from five Canadian mines and two U.S. mines with gainsharing plans indicate that inall cases there were increases in productivity, and in all cases the mines are satisfied with theplans.However, despite the positive results, in some cases the plans are not structured andimplemented in the way dictated by both experience with the plans in other industries and thecharacteristics of the mining industry. After thoroughly explaining the gainsharing conceptand exploring the structure and results of the plans used at the mines participating in thesurvey, this research provides recommendations which will improve the effectiveness ofgainsharing applications in mines.TABLE OF CONTENTSAbstract^ iiTable of Contents ^ iiiList of Tables viList of Figures ^ viiAcknowledgments viiiQuotation^ ixCHAPTER 1 - INTRODUCTION1.1 Introduction ^  11.2 Motivational Theories ^  31.2.1 Herzberg's Two Factor Theory^  31.2.2 Maslow's Hierarchy of Needs  51.2.3 Discussion  61.3 Incentives - Definition^  71.3.1 The Need for Incentives  81.3.2 Types of Incentives  10Individual Production Incentives^  10History^  11Organizational Considerations  13Profit Sharing  14History  15Organizational Considerations^  16Gainsharing^ 171.4 Summary  19CHAPTER 2 - GAINSHARING - HISTORY, THEORY AND EXAMPLES2.1 History^  222.2 Gainsharing Theory^  232.3 Gainsharing - More Detail  302.4 Gainsharing - Examples  312.4.1 Bonus Format  312.4.2 Communication Network^  42CHAPTER 3 - GALNSHARING - DESIGN AND IMPLEMENTATION OF TODAY'SINCENTIVE3.1 Why Gainsharing?^  473.4 Characteristics favourable to Gainsharing Success^ 483.5 Gainsharing and Company Culture^  533.5.1 Changing Company Culture  553.6 Gainsharing and Management  623.7 Gainsharing and Employees^  643.8 Gainsharing and Unions  683.9 Considerations When Implementing Gainsharing^  703.10 Gainsharing in the Long Term^  743.11 Potential Problems with Gainsharing  79CHAPTER 4 - EMPLOYEE INCENTIVES AND THE MINING INDUSTRY4.1 A Brief History^  824.2 Incentives Used Today In Canadian Mining^  854.2.1 Mining and Piece-Rate Plans^  874.2.2 Mining and Profit Sharing  934.3 Gainsharing and the Mining Industry  964.3.1 Micro Characteristics ^  964.3.2 Macro Characteristics  1004.3.3 Labour Characteristics  101CHAPTER 5 - SURVEY OF GAINSHARING IN THE MINING INDUSTRY5.1 Introduction^  1045.2 The Survey  1045.2.1 Purpose  1045.2.2 Targets^  1055.2.3 Method  1055.3 Case Studies  1065.3.1 Case 1 ^  1085.3.2 Case 2  1155.3.3 Case 3  1215.3.4 Case 4^  1275.3.5 Case 5  1345.3.6 Case 6  1395.3.7 Case 7^  1455.4 General Trends  1525.4.1 Plan Design, Implementation, and Results ^  1525.4.2 Other Observations ^  1605.5 Comments About The Survey  1611VCHAPTER 6 - CONCLUSIONS AND RECOMMENDATIONS6.1 Conclusion^  1636.2 Final Comments on Gainsharing Plans in Mining^ 1646.2.1 Initial Mine Characteristics ^  1646.2.2 Plan Preparation and Implementation  1656.2.3 On-Going Plan Management  1686.3 Recommendations for Further Study  169BIBLIOGRAPHY^ 170APPENDIX 1 - Survey of Gainsharing in the Mining Industry^ 176APPENDIX 2 - Case Study of the Glenrock Coal Company 190Background Information^ 191Mine Conditions up to 1988 191The Gainsharing Plan - 1988 192Gainsharing Implementation  196The Mine After 5 Years - 1993 ^  198Future Challenges^ 200Suggestions 203Conclusion 205Appendix 2a - Summary of Employee Surveys at Glenrock^ 207LIST OF TABLES1) Summary of Differences in Incentive Plans^ 192) Simple Scanlon Plan Bonus Calculation  353) The Rucker Value Added Formula 374) The Improshare Calculation^ 385) Scanlon Plans and Suggestions  456) Environmental Factors Conducive to Gainsharing Success^ 527) Policies to Maintain a Gainsharing Plan^ 778) Reasons for Gainsharing Problems 809) Example of a Piece-Rate Calculation in a Mine 8810)Bonus payments per installed rockbolts at Sullivan Mine^ 9011) Profit Sharing Plan at INCO Ltd. (1991)^ 9412) Gainsharing Check List - Mine 1 11213) Gainsharing Check List - Mine 2 11914)Gainsharing Check List - Mine 3^ 12415)Gainsharing Check List - Mine 4 13116)Gainsharing Check List - Mine 5 13817)Gainsharing Check List - Mine 6^ 14318)Gainsharing Check List - Mine 7 14919) Summary of Gainsharing Plans Studied  153LIST OF FIGURES1) Herzberg's Two-Factor Theory of Motivation^ 42) Maslow's Hierarchy of Needs^ 53) The Gainsharing Incentive  304) Gainsharing Bonus Chart 405) Participation at Work^ 546) The Process of Attitude Change^ 557) Incentive Plans in Canada 868) Incentive use in Underground Mines 869) Incentive use in Open Pit Mines^ 87viiACKNOWLEDGMENTSThe author wishes to express his sincere gratitude to his thesis supervisor, Dr. RichardPoulin, for his guidance, support, and encouragement over the past two years. I would also liketo thank Andrew Burkert, Knud Sinding, Dr. A.E. Hall, Len Anderson, and Philippe Poirier fortheir thought provoking comments and support. Thanks also to my other colleagues andfriends at UBC whose encouragement, enthusiasm, and interests provided a positive and diverseworking environment.Many thanks to the companies and individuals who participated in the gainsharingsurvey. Their honesty in the completion of the survey is greatly appreciated.Finally, I would like to thank the other people, too numerous to mention, who donatedtheir time to discuss employee incentives in the mining industry.viii"Imagine, I ought to have said to him, that you have the samesystem as the old peasant has, that you have found means ofmaking your laborers take an interest in the success of the work,and have found the happy mean in the way of improvementswhich they will admit, and you will, without exhausting the soil,get twice or three times the yield you got before. Divide it inhalves, give half as the share of labor, the surplus left you will begreater, and the share of labor will be greater too. And to do thisone must lower the standard of husbandry and interest thelaborers in its success. How to do this? - that's a matter of detail;but undoubtedly it can be done."Leo Tolstoy, Anna Karenina1876ixCHAPTER 1 - INTRODUCTION1.1 INTRODUCTIONThe Canadian mining industry has been confronted with a vastly changed competitiveenvironment lately. Most of these changes in the environment have been external ones, ascountries in South America, the South Pacific, and the former U.S.S.R. have been increasingthe competitive pressure on the world's metal markets. Huge high-grade deposits combinedwith more stable governments and favourable operating conditions have spurred on minedevelopment in some of these countries, while in others the need for foreign currency has leadto very competitive pricing practices. Other changes affecting the Canadian mining industryhave been internal. For example, escalating operating costs, due in part to taxation on power,water, and electricity (Keevil, 1993), and increasingly stringent and uncertain land-use policieswhich can delay and halt potential mines have made an already risky investment even riskier.Traditionally, one advantage Canada has had over many other mining nations has been astable, predictable political system. However, political advantages of operating in Canada aregreatly diminished when the environmental review process can delay projects for several yearsand the government talks about the validity of expropriation of mineral rights withoutcompensation, as the B.C. provincial government did in early 1992. The net result of thesechanges has been an increase in global competitiveness, as witnessed by decreased commodityprices, combined with a decrease in the ability of Canadian mines to compete.As a result of this threat, many Canadian mines are beginning to focus on theiroperations to exploit all of their resources to the fullest capacity. One potential resource thathas been largely overlooked in the past is the human resource. A recent Human ResourceStudy of the Canadian Mining Industry commissioned by Employment and ImmigrationPage 1The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- IntroductionCanada (April, 1992) reports that while a lot of current operations and production workers arenot highly educated, most are able to "grasp concepts and learn their job". Furthermore, itstates that many operations are requiring grade 12 education for new hires, and others aregoing further and examining potential employees. This labour base could provide mines witha large competitive advantage, and more and more mines are recognizing this opportunity.After years of encouraging individualistic performance, some operations are adoptingincentives that promote continuous improvement, co-operation, and team competitiveness inthe interests of improving productivity. It is hoped that these strategies are successful. Arecent study (World Economic Forum, 1991) in which the World Economic Forum compared23 of the world's developed nations, found Canada to be 16th in terms of the extent to whichlabour employees strongly identify with company objectives, 19th in terms of the extent towhich union and management work together to their mutual benefit, and 20th in terms of theeffectiveness of in-company training programs in meeting the needs of a competitive economy(which ranks Canada ahead of the U.K., Hungary, and Turkey).This research will analyse in depth one type of incentive plan that is being used inmines to tap the human resource: Gainsharing. Conversations with mining human resourceprofessionals and a review of the literature revealed that despite substantial interest in thissubject, there is a significant lack of clarity regarding the term "gainsharing". In some of themonographs the plans are described as primarily a participative management scheme whichshares rewards from gains with employees, while in others they are purely group-basedmonetary incentives. Possibly as a result of this lack of clarity in the gainsharing definition,there has been very little research into the application of these plans in Canadian industry andno comprehensive review of their applications in the Canadian mining industry. Richardson(1985) described the life-cycles of four participative management plans, one of which was againsharing plan in a mining company, and while insightful, his paper does not provide a cleardefinition of gainsharing or explore the concept in any detail. By first clearly defining thePage 2The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- Introductiongainsharing concept, this research will enable a review of the application of these incentives inother industries which in turn will help when studying the applications of gainsharing in theCanadian mining industry.The main thrusts of this research are to define the gainsharing concept, outline plandesign considerations, summarize recommended implementation and maintenanceconsiderations based on experience with the plans in other industries, explore the potentialitiesof gainsharing as a corporate strategy, define gainsharing in the mining context, explore anyadvantages that incentives like gainsharing may have over other common incentives in mining,create a database of the Canadian mines using gainsharing, discuss their plan structures andresults based on a survey sent to these mines, and recommend design and maintenanceprocedures for gainsharing plans in the mining industry.1.2 MOTIVATIONAL THEORIESIt seems logical to precede a discussion of incentive plans by introducing some theorieson motivation. After all, motivation is the incentive's raison d'être. This section willintroduce two popular theories of motivation, which will provide a basis for understandinghuman motivation and create a framework which will help to reveal some advantagesgainsharing has as an incentive plan. The theories are Herzberg's Two-Factor Theory, andMaslow's Hierarchy of Needs.1.2.1 Herzberg's Two-Factor TheoryIn the 1959 book "The Motivation To Work", Herzberg developed a two-factor theoryof motivation. The theory states that the characteristics of each job can be divided intoPage 3The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- Introductionhygiene factors and motivators. Hygiene factors are analogous to medical hygiene, as they arenot curative, or don't motivate, but they are preventative measure against "disease". In otherwords, they result in dis-satisfaction amongst employees if they are not present, but do notmotivate if they are present. They include such things as adequate salary, job security,working conditions, benefits, company policies, and technical supervision. Motivators, on theother hand, result in satisfaction and motivation when they are present in the job, but do notnecessarily result in dis-satisfaction if absent, as long as the hygiene factors exist. Theyinclude things like achievement, recognition, responsibility, advancement, the work itself, andthe possibility for growth. According to this theory, a motivated work force will have thehygiene factors present, and will also have a suitable number of motivators present.Moreover, Herzberg states that the jobs with few opportunities for the motivators to appearmust offer a higher level of hygiene factors, to make the work tolerable. ,r---1 Job characteristicsHygiene Factors MotivatorsFor example,adequate:-salary-job security-working conditions-fair workload-good benefitsFor example,opportunities for:-achievement-responsibility-recognition-advancement-challengeNo motivation, butdis-satisfaction If absentSatisfaction and motivationif present, butno dis-satisfaction if absentFigure 1Herzberg's Two-Factor Theory of MotivationIt is important to note that as employees change, so do the conditions which act asmotivators or hygiene factors for them. For example, fifty years ago pension plans wouldhave been considered motivators by most employees, and would have encouraged jobPage 4The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- Introductionsatisfaction if present. Today, however, people are dis-satisfied if pension plans are notpresent, or are insufficient. One example of a condition that is a motivator today but maybecome a hygiene factor in the future, is daycare (Doyle and Doyle, 1992).1.2.2 Maslow's Hierarchy of NeedsMaslow's hierarchy of needs include, in order of importance, physiological needs,safety and security needs, belonging, social, and love needs, self-esteem needs, and self-actualization needs. The theory is that people have a "need hierarchy", and that when onelevel is satisfied people's efforts shift to fulfill the next need in the hierarchy, and it is thepursuit of this need that will motivate them.Level5^SelfActualization4 Self-esteem3^Belongingness and social2^Safety and SecurityPhysiological NeedsFigure 2Maslow's Hierarchy of NeedsPhysiological needs include the need for food, shelter, and health, and represent themost basic human needs. If these needs are absent, people are very highly motivated toachieve them. Once achieved, people are motivated to fulfill their level two, or safety andsecurity needs. Fulfilling level two needs will imply that the needs for food, shelter, andPage 5The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- Introductionhealth (i.e., level one needs) are secured for the future. Once people know that their safetyand security needs are met, they are motivated to fulfill their level three, or social, needs.These can be met by family, or through work, religion, or other social groups. Often, whencompanies do not satisfy these needs, union membership does (Doyle and Doyle, 1992). Theterms union, and brotherhood, and slogans like "workers of the world, unite" connote levelthree needs. Once these needs are met, people are motivated by the desire to fulfill their levelfour needs. Self esteem needs include the desire to have one's skills and capabilitiesrecognized, and to be a competent contributor. Therefore, people have a desire to learn newskills and demonstrate their proficiency with them. Once these skills are recognized, peopleare motivated by level five, or self actualization, needs. This is the highest level ofmotivation, and people at this level are motivated not by a desire to have their own skillsrecognized, but by a genuine desire to help others and contribute to the group's goals, for thegood of the group.The fundamental assumptions of this hierarchy are that once a need is satisfied, it is nolonger a motivator, and that once people satisfy one need, they proceed up the hierarchy to thenext need. Therefore, once people have fulfilled their safety and security needs, they are notmotivated by measures that promise to fulfill these needs (for example, increased wages),except to the extent that they may result in increased status in the organization and thereforehelp to fulfill level four needs.1.2.3 DiscussionMonetary incentives alone are not perceived as being great motivational tools in eitherof these theories. For example, Herzberg's Two-Factor Theory states that an adequate salaryis a hygiene factor, not a motivator. Maslow's Hierarchy of Needs states that money ceases toPage 6The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- Introductionmotivate after people have achieved their level two needs. According to these theories, andassuming that there is sufficient money to satisfy the hygiene factors and level 1 needs, moneywill motivate people only if it increases their feelings of recognition and achievement.Herzberg (1959, p.117) states that once there is sufficient money to satisfy hygiene factors"money earned as a reward for outstanding individual performance is a reinforcement of themotivators of recognition and achievement". Similarly, money may motivate people atMaslow's level 3 and 4 needs if, for example, it can buy them memberships in exclusive clubsthat satisfy their belongingness and esteem needs. However, anyone who has worked under abonus system will likely question the argument that monetary incentives are this limited.Nevertheless, the two theories can provide some insight into the merits of non-pay relatedvariables in motivation. The debate over the merits of pay-related (or extrinsic) rewards andjob-related (or intrinsic) rewards like recognition, advancement, and responsibility inmotivation has continued for decades. This debate will be explored further in chapter 2.1.3 INCENTIVES - DEFINITIONEmployers have recognized the competitive advantage that can be gained from havinga motivated work force for many years now. One practice often used by them to motivatepeople and increase productivity is to offer incentives to employees that motivate them towork harder. While there are many different types of incentive plans, with different implicitassumptions regarding motivation, they all share the general assumption that employees havean untapped reservoir of energy that will be drawn on only when they are given adequatemotivation to do so. Their fundamental purpose has been defined differently at differenttimes. For example, J.K. Louden (1944, p.13), said that they "offer a financial incentive for aworker or group of workers to produce work of an acceptable quality over and above aPage 7The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- Introductionspecified quantity". Ian Smith (1983, p. 129) allows for intrinsic, or non-monetary, rewardswhen he describes incentive schemes as an "attempt to influence the behavior, and thereforework performance of the employees, through the provision of a monetary or non-monetaryreward which is extra to basic remuneration". Whichever definition is used, it is clear that allemployee incentives provide some form of reward for improved performance, and attempt tomotivate employees to produce at the highest level they are capable of.1.3.1 The Need For IncentivesOver the years, employers have realized that in many cases their traditional paymentsystems do not adequately motivate employees. This section will briefly describe theshortcomings of traditional payment systems, to convey why many employers have adoptedincentive plans.Prior to the wide-spread use of incentives, the standard payment system was day-ratepay, where each worker is paid a flat wage per day, regardless of production (Gilman, 1890).Under this payment system, efficient workers were paid the same amount as inefficientworkers, thus leading to inequality in the payment system and bad feelings on behalf of theefficient workers. Before long, the efficient workers would decrease their output to matchtheir inefficient counterparts, with the feeling that if they were paid the same, there was nopoint in working hard. This lead to what Frederick Taylor described (Copley, 1923) as"systematic soldiering", where each worker achieves only the minimum requirements each dayto receive pay. In an attempt to eliminate systematic soldiering from the workplace andincrease productivity, employers have experimented with a variety of pay systems.One method that is often used to overcome this problem is "merit based pay", wheresalary increases are based on the merits of individual employees. This can be thought of as aPage 8The Applications of Gainsharing Incentives in the Mining IndustryChapter 1 - Introductionnon-variable based incentive, as in practice merit increases are based on historic performance,and once given do not vary with future performance. Merit based pay has some seriousdisadvantages. First, recent merit pay increases have averaged 5-6% in most industries, andactual individual increases cluster around the average figure (Baime, 1990). In many cases,management is loathe to give increases that are substantially over, or below the averageamount. With little differentiation between the increase given to "star" performers andaverage employees, the incentive towards positive work practices decreases, the credibility ofthe plans falters, and resentment on behalf of the star performer can occur. Furthermore, meritpay has little motivational impact on employees, as many of them see pay increases as anentitlement.Second, merit pay increases are fixed cost increases. They reward employees for pastperformance by increasing future pay, regardless of their, or the company's, futureperformance. In cyclical industries this can be a dangerous trend, as wage increases in up-swings may lead to demoralizing salary cuts, or insolvency, in down-swings. Furthermore, ifit is difficult to identify the causes of improved performance, merit pay increases could begranted during price up-swings when the company may be doing well despite poor workperformance. Well developed incentives, on the other hand, are highly positively correlatedwith the performance of company employees.Third, merit pay increases are often based on subjective performance appraisals.Introducing subjectivity into a pay system can result in unfairness and dysfunctional workpractices if employees attempt to curry favour with their supervisors. Moreover, it can resultin serious systemic problems if employees are afraid of voicing opinions contrary to theirsupervisors opinion, for fear of compromising their merit bonus.Other methods initiated to increase productivity are designed to make a largercomponent of pay fluctuate with future performance, and include a host of different incentiveplans. While they may not be appropriate in all industries, variable based pay systems arePage 9The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- Introductionbecoming more common (Baime, 1990) as employers become aware of the weaknessesassociated with day-rate pay and merit pay systems.1.3.2 Types of IncentivesIncentives can be differentiated by many characteristics. These include the frequencyof the bonus payments, bonus calculation methods, whether bonuses are paid on a group orindividual basis, whether the incentives encourage participation with a communicationnetwork, and the types of rewards offered (either extrinsic or intrinsic).The following pages will briefly review three types of incentive plans - piece workincentives, profit sharing, and gainsharing - to provide a basis for the in-depth analysis ofgainsharing plans in the mining industry in subsequent chapters. A fourth form of incentiveplan, employee share ownership plans, will not be considered in any detail. The reason forthis is because, as motivators, they bear a great deal of resemblance to profit sharing plans.Individual Production IncentivesDefinitionIndividual production incentives, or piece work plans, link financial remuneration tothe unit productivity of individual employees. They therefore require the establishment of arate, or bonus, that will be paid for each unit of production. In most cases, a minimum hourlywage is guaranteed, with rewards for production paid on top of it. For example, a sales personmay receive a base wage plus a fixed percentage of the number of sales made. EmployersPage 10The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- Introductionusually try to set the per-unit bonus so that an average worker earns a "fair and reasonable"rate of pay when working at an average pace. Often, a minimum amount of productivity mustbe achieved before the bonus calculation will begin. Bonuses are paid frequently, usually withpay cheques, making the reinforcement of this type of incentive quite strong. However, asthere is no accommodation for teamwork or participation explicit in the definition of piecework incentives, they offer only extrinsic rewards.HistoryThe exact date of the development of individual production incentives is unknown. AnAct of King Edward VI in the 16th century allowed workers to work at home, to be paid onthe basis of piece work (Smith, 1983). Similar isolated examples have been noted since then(Babbage, 1832).However, the first modern discussion and development of a piece rate incentivescheme was by F.W. Taylor in the early 1880's (Copley, 1923). Prior to this, attempts toovercome "systematic soldiering" by implementing these incentive schemes often failed,primarily because the piece rates were set on the basis of historical performance. This createdtwo problems. First, in some cases, employees who were in production centres that were themost efficient in the past were penalized, as the piece-rate paid to them would be relativelysmall. If they had been working hard all of the time, the rate paid would be based on theiroptimum production. Therefore, their ability to increase production was limited, and so wastheir bonus. On the other hand, their less-efficient counterparts in other production centreswould have piece-rates based on a production level far below their capacity. Their ability toincrease production, and its associated bonus, resulted in large rewards for them purely as aresult of being inefficient workers in the past.Page 11The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- IntroductionSecond, in a lot of cases employees showed that the incentive of the piece rate inspiredthem to produce more than anyone, judging from their past performance, could have guessed(Copley, 1923). As a consequence, employers often decreased the piece rates to avoid payingwages that often were far greater than the ones the original piece rates were intended to allow.This rate cutting had the following effect, as described by Taylor in 1895 (Copley, 1923)."Even the most stupid man, after receiving two or three piece work "cuts" as areward for his having worked harder, resents this treatment and seeks a remedyfor it in the future....The latter [management] endeavors by every means toinduce the workmen to increase the output, and the men gauge the rapidity withwhich they work, so as never to earn over a certain rate of wages, knowing thatif they exceed this amount the piece-work rate will surely be cut, sooner orlater".Taylor wanted to put an end to this sub-optimal arrangement by basing piece rates onwhat he referred to as "time study", where the piece rates are based on the length of time inwhich work ought to be done (Copley, 1923). Using this method, the time that work ought totake is based not on past performance, but on the systematic measurement of each job'srequirements. The jobs are broken down into their sub-routines, and the time that an averageemployee working at an average rate takes to complete each routine is estimated. The timetaken for the sub-routines is then added to determine the total time requirements for each job.Time study was first used in the Midvale Steel Company in 1881 (Copley, 1923), and becauseit was a relatively unbiased and systematic approach to developing piece rates, the popularityof individual production incentives grew rapidly through the early 1900's (Nelson, 1980).However, with the depression, many companies abandoned their incentive plans(Louden, 1944). This was in part because low production levels during the depression inresponse to diminishing markets made bonus payments unfeasible, but also becausemanagement, in struggling to remain solvent, had to cut costs and often did so by laying offpeople involved in the administration of the incentive plans. However, it is possible that thePage 12The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- Introductiondepression only exacerbated the inevitable decrease in the popularity of the plans. This isbecause in their rush to implement these plans form 1900 to 1930, many companies did notconsult people who were knowledgeable in production incentives. As a result, several of whatLouden refers to as "evils" were perpetrated in this time, most resulting from poorly designedincentive schemes. Some of the problems he identified were a failure to teach the employeesabout the plans and enlist their cooperation, failure to convince foremen of the merits of theplan, failure to provide employees with a means by which to increase production, and a failureto establish standards that maintained quality and minimized waste. Whether because thedepression made them obsolete, or because they were poorly designed, organized labourrevolted against these plans in the early 1930's, and further decreased their numbers (Louden,1944).However, piece rate incentives are quite popular today. They are evident whereverclerks receive commissions for each sale, or where professionals can bill for each client theyattend to. They are generally viewed as fair incentives because they provide ambitiousindividuals with a financial reward in line with the amount of work that they do.Organizational ConsiderationsIt is not difficult to see what effect these plans would have on production. With thewage tied to individual productivity, each employee would try to maximize their production.However, employee pursuit of individual gain can have some serious drawbacks. Forexample, in some cases production may increase at the expense of other unit costs likematerials or maintenance. Similarly, safety or quality may deteriorate in the interests ofincreasing production. As a result, employee bonuses could increase with the unit costs ofproduction, clearly not a desirable trend. Unless there is some allowance for these parametersPage 13The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- Introductionmade in the bonus calculation, employees have an incentive to ignore the issues of total unitcosts and quality to maximize their earnings.There is no allowance made for intrinsic rewards with piece-rate incentives. Employeesuggestions and involvement is not explicitly encouraged, so these incentives do not takeadvantage of the mental capabilities of the work force. Moreover, the ability to work as ateam towards common goals is seriously compromised under piece rate incentives, as anemployee's bonus is based on individual, not team, performance.Piece-rate incentives have many more potential problems (Strauss, 1990). Often,although production initially increases, it falls short of its true potential. Among employees,the fear of rate cutting still exists, and as a result employees who "over produce" may receivepeer pressure to decrease production. Also, workers may fear that if production is based onrates when they are "fresh", management will require equal production when they have lessenergy. Employees are sometimes also concerned that high production may result in layoffs.Another problem with these incentives is that they may result in destructive competitionamongst employees (Strauss, 1990), as they attempt to surpass each other in earnings. In alllikelihood, this would worsen safety practices and product quality. All of these factors canresult in less than optimal production levels.Profit SharingDefinitionAs the name suggests, profit sharing plans pay a bonus which is derived from companyprofits. If the company enjoys a profitable year, some percentage of the profits are paid to theemployees; otherwise, no bonus is paid. Profit sharing plans can vary greatly, with the mainPage 14The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- Introductiondistinctions being whether the bonus is paid directly to employees or deferred to a later date,whether the bonus is determined by a fixed formula or is discretionary, and whether the plan isan addition or substitute to the existing pension plan (Strauss, 1990). Where offered as asupplement to the pension plan, profit sharing becomes as much a job benefit as an incentive,due to the large delay of the bonus payments. When used as an incentive, profit sharingbonuses are generally paid at the end of the financial year when corporate profits aremeasured, and are paid on a group basis. In some plans, a minimum level of companyprofitability must be achieved before bonus payout. Although there is no accommodationinherent in the definition for teamwork and participation, it is argued by some that because thebonus is group based and derived from company profitability, teamwork and communicationwill increase. Therefore, there may be some intrinsic rewards associated with profit sharingplans.HistoryThe modern literature on profit sharing dates back to Charles Babbage's "On TheEconomy of Machinery and Manufactures", in which he wrote in 1832 (p.177) that"it would be of great importance, if, in every large establishment, the modes ofpaying the different persons employed would be so arranged, that each shouldderive advantage from the success of the whole, and that the profits of theindividuals should advance as the factory itself produced profit, without thenecessity of making any changes in the wages agreed upon."However, the possible benefits of profit sharing occurred to Turgot in 1775, longbefore it was written up in journals, and it was first implemented by M. Leclaire in 1842(Gilman, 1890). Leclaire was motivated to implement the scheme more through his altruisticambitions towards his employees than his desire to increase his personal wealth. Nevertheless,Page 15The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- Introductionlargely due to the good relationship he enjoyed with his employees prior to implementing theplan, the long term fortunes of his company increased dramatically with plan implementation(Gilman, 1890). Seeing his success, manufacturers in other industries adopted profit sharingschemes, many of which were successful (Gilman, 1890).While a relatively rare form of employee incentive before the 1940's, profit sharingplans have multiplied to the point that 360,000 companies in the U.S. used them in 1984(Strauss, 1990). Often, the schemes are introduced in exchange for wage concessions in timesof business downturns (Strauss, 1990). Furthermore, they have been used to replaceproduction processes where piecework is inappropriate due to non standardized outputs orhigh quality control requirements (Strauss, 1990). However, today the majority of the plans inthe U.S. are deferred plans, which place earned profits into employee accounts, which are paidout at retirement, disability, or death (Hammer, 1988). As stated, these forms of profit sharingplans are more similar to pension plans than incentive systems (Strauss, 1990).Organizational ConsiderationsThe theory behind profit sharing plans is that the employees will identify with thecorporate objective of increased profitability, and will therefore alter their work behaviors tobe congruent with this objective. For the company, they have the advantage that labour costschange with the fortunes of the company. Therefore, when business is bad no bonuses arepaid out and the cost of labour decreases. Furthermore, the employees share the good timeswith the company. However, some serious problems have been identified with profit sharingplans.First, in most cases the bonus payment is not made with sufficient frequency toadequately reinforce the desired behaviors (Smith, 1983). Second, there is often only atenuous link between worker performance and bonus, as market factors, accounting practices,Page 16The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- Introductionand management decisions, all of which are beyond the control of the employees, can have aradical effect on profitability. Therefore, in industries where profitability is exposed to sellingprice or exchange rate fluctuations, company profits may decrease despite improving workerproductivity. For example, the volatile output price may create situations where despite stellaremployee productivity, company profits decrease due to soft market prices. In this case, highwork performance of the employees goes un-rewarded. Alternatively, employees may getlarge bonuses when the prices (and consequently profits) increase, despite poor workpractices. This would reinforce sub-optimal performance among employees at work, anddecrease the company's operating efficiency. This decreased operating efficiency will becomepainfully obvious during price down-swings. Poor management decisions can have a similareffect. This can result in employee anger and frustration as good work practices go un-rewarded, and can severely damage organizational morale. Third, in cases where companyprofits decrease, morale may plummet as bonus payments fall, thus decreasing the chances ofa successful turnaround.GainsharingDefinitionWhile the name "gainsharing plan" leads one to believe that these incentives are formaland structured, they are in fact more a management philosophy than a set of rules. Thephilosophy behind these plans is that all people prefer to express themselves fully in allsituations, and that in doing so they can be both constructive and supportive to the groups inwhich they are participating (Frost, Wakeley and Ruh, 1974). Furthermore, people should begiven the opportunity to participate, and any gains realized should be shared between thePage 17The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- Introductioncompany and employees. The plans make employee bonuses depend on group performance,and then give employees the opportunity to affect this performance by encouraging them toapply their functional expertise in a pro-active manner. Therefore, management practices thatencourage participation with some sort of communication network and provide an equitablereward for gains can be seen as gainsharing (Frost Wakeley and Ruh, 1974).Bonuses, or gains, are paid to workers when they surpass pre-set standards. Thesestandards are usually production related, but often include cost and safety parameters whenappropriate. Gains can be shared to differing degrees by the company and employees, andgenerally range from a 25/75 split to a 75/25 split. Profitability is usually not a standard forbonus determination, as it can be affected far more by uncontrollable factors like commodityprices, exchange rates and accounting practices than by employee productivity. Many plans,however, include the sales value of production in the bonus formula. This is equitable whenprice changes are steady and predictable, meaning that any large changes in sales value ofproduction are a result of changes in production, and not the selling price. The gains are paidat the frequency stated in the plan structure, usually quarterly or monthly, on a group basis.The size of the groups is generally determined by the natural work boundaries, or taskinterdependencies, and can range from the entire company to small production centres.Because gainsharing plans create a communication network and provide an opportunity toearn bonus pay, rewards can be both intrinsic and extrinsic in nature. The motivationprovided by extrinsic rewards depends on the size and frequency of the bonus payments, andthis varies from plan to plan. The intrinsic rewards are created through the communicationnetwork, as employees are given opportunities for recognition, authority, advancement, andgreater job identification. The degree of reinforcement offered by the intrinsic rewards alsovaries from plan to plan, as the communication structures can be quite different. The dualreward characteristic of gainsharing plans will be explored further in chapter 2.Page 18The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- Introduction1.4 SUMMARYPiece work, profit sharing, and gainsharing plans represent a large component of theincentives used to motivate production personnel. All three of these incentives have differenteffects and demands on employees, management, unions, and ultimately, the company. Theyencourage individual work habits, teamwork, and participation to differing degrees, makingthe choice of which incentive to implement depend on the peculiarities of each situation.Table 1 summarizes the main differences between the three incentive schemes discussed.Table 1Summary of Differences in Incentive PlansCharacteristics Gainsharing Profit Sharing Piece Worka) Employee identificationwith company goalsHigh Medium Lowb) Opportunities foremployee inputHigh Medium toLowLowc) Motivational ability High Low Highd) Infrastructure required High Medium Mediume) Bonus paid to: Groups Groups Individualsf) Bonus based on: Factors overwhich employeeshave controlCompanyProfitabilityIndividualProductivityg) Reward form: Intrinsic andextrinsicIntrinsic andextrinsicExtrinsich) Bonus paymentfrequencyMonthlyquarterlyYearly WithpaychequesAnythingi) Management style Must befacilitative /participatory.AnythingPage 19The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- Introductiona) As explained above, although theoretically both profit sharing and gainsharing provideemployees with the incentive to act in the company's best interests, the tenuous link betweenwork performance and bonus under profit sharing plans leads to lower identification withcompany goals than with gainsharing plans. Moreover, profit sharing does not necessarilyestablish a communication network through which information exchanges and problemsolving processes, which are essential in building employee identification with company goals,can evolve. Piece work incentives encourage the employee to maximize his or her individualgains, regardless of company policy.b) Gainsharing provides a formal employee feedback system, which employees areencouraged to use. Employees have an incentive to suggest ideas to management in profitsharing schemes but not a formal mechanism through which to do this. Employees haveneither the incentive nor the mechanism under piece-rate incentive schemes.c) The motivational ability of profit sharing schemes is quite low due to the tenuousrelationship between productivity and bonus (Hammer, 1988), and infrequent bonus payments.With gainsharing, the bonus is usually based on standards directly controllable by employees,and paid more frequently. Furthermore, employees have opportunities to contribute to workprocesses and problem solving, and intrinsic rewards associated with these opportunities canbe high. Piece work incentives are paid on an individual basis, and therefore ultimatelycontrollable by individual employees. Due to the direct performance/reward relationship, themotivational ability of this incentive is high.d) Gainsharing demands a communication system, as well as efficient accounting systemsfor setting accurate standards, and explaining and calculating bonuses. Profit sharing andpiece work incentives require accurate accounting systems for similar reasons.g)^Because they encourage employees to make suggestions and assume that by makingthese suggestions they satisfy self esteem and self actualization needs, both gainsharing andPage 20The Applications of Gainsharing Incentives in the Mining IndustryChapter 1- Introductionprofit sharing can provide intrinsic and extrinsic rewards. Piece work provides extrinsicrewards only, through the financial reward.i)^To be effective, a gainsharing plan requires a facilitative and participatory managementstyle. Because there is no explicit call for a communication network with profit sharing andpiece rate incentive plans, any management style can be used in conjunction with them.The following chapter will examine gainsharing in greater detail by discussing itshistory and theory, and providing some examples of possible applications.Page 21CHAPTER 2 - GAINSHARING - HISTORY, THEORY AND EXAMPLES2.1 HISTORYThe concept of gainsharing has been credited to Joseph Scanlon, whose diversebackground provided a catalyst for effective communication between both management andunion personnel, and helped to create an environment of mutual cooperation. Gainsharing wasfirst introduced in the Nunn-Bush Shoe Company in 1935 (Graham-Moore, 1990a) but it wasnot until 1938, when a gainsharing plan was implemented at the Adamson Company in Ohio,that the potential of these plans was realized. As a labour leader in 1938, Scanlon was awarethat the demise of the Adamson Company, a small steel tank producer, was imminent (Golden,1958). High costs were driving the company out of business and in an attempted turnaround,a union/management productivity plan was introduced where workers shared any tangiblesavings in labour costs with the company and were given opportunities to make suggestions.Through employee involvement (one $8000 suggestion saved the company $150,000 in thefirst year), the company started to make a profit (Golden, 1958). Magazine articles in Life(1946) and Fortune (1950) increased the exposure of gainsharing and resulted in its adoptionby about 50 companies by 1950 (Gowen, 1990).For the most part these first plans consisted of defining what the ratio of labour costs tothe sales value of the output should be. Then, any savings under these expected labour costswere shared between the company and employees. In addition, union/managementcommittees were established to solicit, review, and (if approved) implement employeesuggestions.Since 1950, however, other forms of gainsharing have materialized. Because of theflexibility of gainsharing plans to diverse operations, and the increased focus on productivityPage 22The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and Examplesin many industries in the 1980's, interest in gainsharing has increased (Graham-Moore, 1990a)to the point that approximately 15% of U.S. firms use it (Rollins, 1989).2.2 GAINSHARING THEORYAcademics have been studying gainsharing since the 1940's, with the first studies beingdone by Joseph Scanlon at the Massachusetts Institute of Technology. Most of the gainsharingstudies (for example Davenport, 1950) have focused on the Scanlon plan and have been casestudies which have contributed empirical results to the field. However, while these casestudies and empirical surveys have helped people to identify some of the factors which areconducive to gainsharing and some of the effects it has on involved parties, for the most partthey have not helped to reveal why it works, nor have they discussed the relative importanceof the intrinsic and extrinsic rewards in motivation.White (1979) stated that the Scanlon Plan "had its origins in actual practice and isvirtually void of theory". Consequently, there have been some attempts to adapt a theory tothe practice of gainsharing. While it is not the intent of this research to develop or examinethe theory of gainsharing in great detail, this section will briefly summarize some of thetheories developed to explain its results.One of the first attempts at attaching a theory to the practice of gainsharing was made,albeit indirectly, by McGregor in 1960. He developed two sets of assumptions, Theory X andTheory Y, that lead to different management styles. Theory X (p. 33) states that:1) The average human being has an inherent dislike of work and will avoid it if hecan.2) Because of this human characteristic of dislike of work, most people must bePage 23The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and Examplescoerced, controlled, directed, or threatened with punishment to get them to putforth adequate effort toward the achievement of organizational objectives.3) The average human being prefers to be directed, wishes to avoid responsibility, hasrelatively little ambition, wants security above all.This set of assumptions leads to autocratic, directive management styles that areappropriate and needed at times but, when used exclusively, fail to "discover, let alone utilize,the potentialities of the average human being" (p.43).Theory Y assumes that:1) The expenditure of physical and mental effort in work is as natural as play or rest.2) External control and the threat of punishment are not the only means for bringingabout effort towards organizational objectives. Man will exercise self-directionand self-control in the service of objectives to which he is committed.3) Commitment to objectives is a function of the rewards associated with theirachievement, (where the most significant rewards are ego satisfaction and self-actualization).4) The average human being learns, under proper conditions, not only to accept but toseek responsibility.5) The capacity to exercise a relatively high degree of imagination, ingenuity, andcreativity in the solution of organizational problems is widely, not narrowly,distributed in the population.6) Under the conditions of modern industrial life, the intellectual potentialities of theaverage human being are only partially utilized.McGregor adopts Maslow's "Hierarchy of Needs" to explain the relative merits ofTheory X and Theory Y management assumptions. He states (p. 41) that the "carrot and stick"theory of motivation that goes along with theory XPage 24The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and Examples"does not work at all once man has reached an adequate subsistence level and ismotivated primarily by higher needs. Management cannot provide a man withself-respect, or with the respect of his fellows, or with the satisfaction of needsfor self-fulfillment. We can create conditions such that he is encouraged andenabled to seek such satisfactions for himself, or we can thwart him by failing tocreate those conditions."By using management styles consistent with Theory Y, management can createconditions that give people an opportunity to fulfill their self-esteem and self-actualizationneeds. Furthermore, McGregor states (p.110) that the Scanlon Plan is a philosophy ofmanagement which "rests on theoretical assumptions entirely consistent with Theory Y."Therefore, using this model, the theoretical argument for increased motivation when usinggainsharing plans is that through participation they give employees an opportunity to fulfilltheir higher needs on Maslow's hierarchy and, because these needs are unfulfilled, thisopportunity acts as a strong motivator.A second theoretical discussion of gainsharing was by Frost, Wakeley, and Ruh in1974. They state that there are three conditions that must be satisfied in a Scanlon Plan:Identity, participation, and equity. Identity refers to the explicit identification of eachemployee and their roles within the organization. This allows the employees to establish theircommon ground with the organization and discover that "the employees are the organization"(p.53). If fully identified with the company, employees will know where the company wantsto be in the future as well as their responsibilities in helping the company to get there. Theywill then be suitably armed to participate effectively by providing suggestions that can furthercompany objectives.Participation must be present to develop the individual employees and establish themas part of a team. This will increase each person's commitment to the company and its goals.In this theory, participation is the most important condition, as it provides a medium throughPage 25The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and Exampleswhich they can express the ideas they will have developed as a result of "identifying" with thecompany. The authors state (p.63) that "to develop the awareness of the need for change inthe organization but to inhibit initiative or action to meet the need will frustrate most rationalemployees".Equity must be present to ensure the employees that they are not being manipulated bymanagement. Equity in sharing any gains from the employees' and the company's improvedperformance through participation will help to "build sustained interest, reliable performance,and mutual trust" (p.53). Management competence was later added as a fourth condition forthe Scanlon Plan (Gowen, 1990). While one of the few major attempts at explaining thesuccess of the Scanlon Plan (Gowen, p.92), the theory of Frost et al "has not proven useful forgenerating or testing hypotheses" (Schuster, 1983; Gowen, 1990).Goodman and Moore (1976) adopted expectancy theory as a framework to study amanufacturing company that had just implemented a Scanlon Plan as an employee incentive.They assumed that the expected rewards from participation, as well as the individual's beliefsin their ability to generate suggestions, would have a large effect on the success of the plan,and further stated that expected rewards would depend on individual variables (ie. education),organizational variables (ie. culture and the nature of work), and interpersonal variables (ie.relationship with superiors).Testing consisted of contacting 95 blue collar workers and managerial employees in amanufacturing firm that used a Scanlon Plan. Structured interviews, questionnaires, andcompany records were used to measure plan variables. Data was collected before the plan wasintroduced, three months later, after the plan was introduced, and six months after that. Aftertesting, they found that there is some differential acceptance of the expected rewards ofScanlon plans among company personnel, and that these differences "seem" related toindividual, organizational, and interpersonal variables. In particular, they found that thePage 26The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and Examplesmanagers' expectancies of success are influenced by individual variables to a greater extentthan the blue collar workers' expectancies, and presume it is due to the managers' betterunderstanding of the plan. For the blue collar workers, organizational and interpersonalvariables had a relatively large effect on expected Scanlon plan success. For example, in caseswhere neither the organizational variables (for example the organization exhibits a lack oftrust and low participation), nor the interpersonal variables (for example the work group haspoor perceptions of the plan, or the supervisor does not appreciate participation) are conduciveto gainsharing, the blue collar workers' expected rewards from its implementation would below. This indicates the importance of company dynamics in gainsharing plan success.While this study provides insights into some of the factors which influence people'sexpectancies of gainsharing plans, it is questionable that these expectancies play a large part inplan success. Some problems with this study, for example a small sample size, measurementproblems, and the short time period (six months), have limited further discussion ofexpectancy theory and the success of gainsharing. Moreover, White (1979) found weakevidence that expectations play a part in gainsharing success.In analysing the Scanlon Plan in 1976, Geare criticized the role of participation inemployee motivation. He says that there are three assumptions found in the literaturesurrounding participation in the work place:1) Employees want to participate.2) This participation will result in productivity improvements.3) Financial motivation is secondary to the motivation provided by theopportunity for participation.However, "the evidence supporting all three of these assumptions is by no meansconclusive". Geare suggests that participation is popular in Scanlon Plans because it is wellPage 27The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and Examplesrewarded financially, not because of its intrinsic motivational capabilities. Furthermore, indiscussing intrinsic rewards in the work place, he says that "some managers are very keen topick up on the idea that all workers really want is participation and self-actualization - it seemsso very cheap". While he does not provide a model to explain why gainsharing works, Gearedoes provide a compelling argument as to the relative ability of participation and financialrewards to motivate employees. In tests of this, however, Rosenberg and Rosenstein (1980)found that productivity increases are more a function of participation than the financial bonusreceived.In 1980, Rosenberg and Rosenstein reported on a study they designed to appraise theeffects of worker participation on productivity in a unionized foundry. By collecting andanalysing records of 262 employee/management meetings over a six year period, the authorstested the hypotheses that manufacturing productivity will tend to increase with participationand that the tendency for manufacturing productivity to increase with participation will beregulated by the level of monetary rewards paid to the participants. Participation wasmeasured in terms of the frequency, relevance, interaction, attendance, and representationassociated with it. They found that there was a significant difference between productivity inthe pre-participation period and after the participation plan was introduced, despite someimprovement in productivity in the pre-participation year. Furthermore, this upward trend inproductivity was sustained over the five years in which the plan was in place. The authorsthen incorporated the effect of a monetary reward into the regression analysis relatingparticipation and productivity to determine the effect it would have on productivity variance.They found that while the reward did regulate productivity, participation, and not themonetary reward, was the principal instrument of change in productivity. However, theauthors contend that it is the output of participation, namely organizational problemThe Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and Examplesidentification, problem solving, and joint decision making, rather than worker satisfaction, thatincreases productivity.One of the more recent models formulated to explain gainsharing was developed byMawhinney and Gowen in 1990. They provide a framework, known as the "matching law", toexplain different levels of adoption rates and effectiveness among gainsharing programs. Thematching law states that "targeted behavioral performances" can be influenced by "valuedconsequences of behaviors". The degree to which the valued consequences can help toachieve the targeted performances depends on the rate, amount, and delay between theoccurrence of the performance and the receipt of the valued consequence. Drawing on thislaw, they hypothesize that the relative importance of intrinsic and extrinsic rewards depends inpart on the delays associated with them. In cases where the financial bonus has a large delay,social reinforcements from peers and other intrinsic rewards, "even if small in amount relativeto the monetary reinforcements, ... might produce relatively large increments in value becausethey would occur with minimal delays". They make other observations on gainsharingeffectiveness, including that the most effective gainsharing programs will have minimal delaysbetween performance and monetary rewards, that the effects of delays will be mitigated bysystem components that increase intrinsic rewards, and that at some critical delay length infinancial rewards, group performance norms will determine program effectiveness. In otherwords, when monetary rewards are given after very long delays, they stop having motivationalpowers.Page 29Gainsharing philosophyandAppropriate managementIntrinsic rewards:recognition of capabilitiesIncreased responsibilitymore communicationmore challengeIncentives to participate:Extrinsic andIntrinsic rewardsImproved corporateperformance, andcontinuous improvement41,Extrinsic rewards:Bonus paymentsThe Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and Examples2.3 GAINSHARING - MORE DETAILGainsharing is a form of incentive that combines a traditional cash incentive, throughthe group bonus payment, with intrinsic incentives, through participative management. It tellsemployees that their bonus depends upon performance, and then gives them the opportunityand incentive to apply the expertise they have in their organizational functions to affect thatperformance. The opportunity is provided by the communication network, and the incentivecomes in the form of the intrinsic rewards of participation and the extrinsic rewards of thebonus payments. The following diagram will make the relationship more clear.Figure 3The Gainsharing IncentiveThis diagram is a great simplification, as it assumes that the gainsharing plan is wellaccepted and well managed. The acceptance and management of the plans can be quitecomplicated, however, and must consider several factors, including company culture,personnel, and the market situation, all of which will be addressed later.Page 30The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and ExamplesGainsharing plans are very flexible and can be customized to reflect different corporategoals and strategies (Hammer, 1988). Some examples of gainsharing plans include ScanlonPlans, Rucker Plans, and Improshare Plans. These plans differ primarily by the parametersused to measure productivity (for example, sales value, value added, labour costs, total costsof goods sold), and the sophistication and design of the communication network.2.4 GAINSHARING - EXAMPLESThis section will introduce three categories of gainsharing plans, Scanlon Plans,Rucker Plans, and Improshare Plans, by describing how their bonus calculation methods andcommunication networks differ.2.4.1 Bonus Format:A bonus that is paid after pre-set work standards are surpassed is common to allgainsharing plans. This bonus is shared between the company and employees according to theratio stated in the plan outline. Depending on the plan, the employees' share of the bonus canhave a fixed percentage deducted and placed in a reserve pool. Generally, the reserve pool isused to reimburse the company in months when labour costs exceed the budget, and thereforeit makes the fortunes of the company less variable. It cannot be negative if employeesconsistently produce below the budget, and in the interests of equity, any positive balance inthe pool is paid out at year end. After the deduction of the reserve pool, the remaining balanceis distributed to employees either on an absolute basis, where everyone receives the same sizebonus, or as a percentage of wages. The decision regarding the method (either absolute orPage 31The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and Examplespercentage) used to distribute the bonus is often the most contentious issue in gainsharingplans (Bovino, 1992). However, if one assumes that those with higher wages are mostresponsible for the productivity increases, it is logical to give them larger rewards forperformance increases, and therefore pay bonuses as a percentage of wages.The method used to calculate the gainsharing bonus is crucial to plan success. The twomost important considerations when determining the bonus are that the bonus parameters aretightly linked to organizational key success factors, and that employees' work performance canhave a large effect on these parameters.The bonus parameters must be linked to organizational key success factors becausebonus payments will become a focal point for all personnel. If these parameters areappropriate measurements of organizational effectiveness, people will be focused on factorsessential to the success of the company. If the bonus parameters are not appropriate keysuccess factors for the business, people's efforts and attention will be diverted from the criticalbusiness factors, and this will seriously threaten the capability of the firm to compete in thelong-term.The employees must be able to affect these key success factors through their workperformance. The ability to directly affect the extrinsic rewards will result in high motivation."Money [as a reward] moves performance if [the reward] is based on factors over whichpeople have control" (Bovino, 1992). If one agrees that extrinsic rewards can moveperformance, it is highly probable that employees would be more motivated by a bonus basedon factors over which they have a great deal of control, than one based on factors over whichthey have little control.Other considerations are that the bonus calculation is easy both for the employees tounderstand, and for the company to measure accurately. For the company to be successful, itis important that employees understand how their work performance relates to the bonuspayouts, and more importantly, what changes in operations must occur in times of low bonusPage 32The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and Examplespayouts to improve performance. Finally, bonus parameters that can be easily and accuratelymeasured by the company will improve its ability to provide accurate, timely information toall interested parties.Once the bonus calculation is set up, its management is also critical to gainsharingsuccess and one of the most difficult aspects of this is the establishment of the parameters thatmust be surpassed prior to bonus payouts. These standards will affect the attainability ofbonuses for employees and will impact the plan credibility, and the employee managementrelationship. The process of setting standards is very exacting, as they must be set so that theyallow adequate bonuses when operations are productive, but do not over-pay during thosetimes or discourage employees by being out of reach.There are two methods often used to set work force standards: Historical analysis andtime studies. Historical analysis involves setting work standards based on the historicproduction rates of comparable products using comparable processes. While quite simple, thismethod suffers from some of the problems associated with piece-rate plans. Namely, itassumes that historic production numbers accurately reflect the true productive capacity of thework force. If this is not true, production could jump, vastly inflating bonuses and requiringan increase in the standards, which could have a deleterious effect on labour relations. Withthis in mind, when there is some doubt about the accuracy of historic information, the workstandards should err on the side of being tough to achieve, as the company will find it fareasier to lower work standards than to raise them. Alternatively, bonus caps can help to solvethis problem, but they too may result in some resentment on behalf of employees, dependingon company policy regarding the excess bonus and the frequency with which the cap isrequired. Furthermore, if the bonus structure is designed properly, placing a cap on bonuspayouts is tantamount to placing a cap on performance gains. This policy may make littlesense in many cases.Page 33The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and ExamplesAnother method of setting work standards is time studies which, while more difficultto use, can more accurately measure the true productive capacity of the employees. Thesehave already been described in section 1.3.2.One factor which will greatly ease the management of standards, as well as otheraspects of gainsharing plans, is the existence of a large amount of trust between managementand employees. One way to achieve this trust (and give people a stake in the viability ofstandards) is to involve employees in the process of standard setting. As Frost, Wakeley, andRuh (1974) state (p.121) "As long as engineers put standards on employees instead of withemployees, they will be mistrusted". With good communication and shared goals, standardsetting can be relatively painless, effective, and enlightening for both management andemployees. Another way to ease the problems associated with standard setting is to define,when developing the gainsharing plans, the conditions which will cause a change in the levelof the work standards. Some considerations may include inflation, or radical changes inproduction methods or technology. Some of the pitfalls in managing the bonus reveal theimportance of the organizational climate in gainsharing plan success.Scanlon PlanThe Scanlon Plan bonus is based on the labour costs required to produce a given salesvalue of production. A base ratio of payroll divided by sales is established based on eitherhistorical analysis or time studies. At the end of each bonus period, the actual labour costs arecompared to the expected labour costs using the base ratio. Any savings in payroll aredistributed between the company and employees after a portion of the savings have been putin a reserve pool. The bonus is usually distributed on a percentage basis, meaning those withhigher salaries receive bigger bonuses. The calculation proceeds as follows, assuming a basePage 341. Sales of new production2. Less sales returns, allowances, discounts3. Net Sales4. Add: increase in inventory (at cost or selling price)5. Value of production6. Allowed payroll costs (20% of value of production, takenfrom the base ratio standard)7. Actual payroll costs (assumed)8. Bonus pool9. Company share (25%)Employee Bonus Before Adjustments10. Reserve for deficit months (25%)11. Employee share - immediate distribution12. Participating payroll costs13. Bonus percentage ($16,875/$168,750)$1,100,00025.0001,075,000125.0001,200.000240,000210.00030,0007.500 22,5005.62516.875 168,75010%The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and Examplesratio of 20% allowable labour costs to sales value production, and a 25/75 company/employeesplit:Table 2Simple Scanlon Plan Bonus CalculationAdapted from Graham-Moore, 1990b.This formula has the advantage that it is easy to understand and administer. However,it does not cover such costs as overhead, materials, and waste, and bonuses are dependent onthe sales value of production. Therefore, its main applications are in labour intensiveindustries (Graham-Moore, 1990b) where the commodity prices are quite stable. It can,however, be made more complex and more versatile by adding other items that can becontrolled by employees, like materials and maintenance costs.Page 35The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and ExamplesRucker PlanRucker Plans base the bonus on the ratio of the company's total payroll to value added(sales revenue minus cost of goods sold) (Hammer, 1988). Because labour costs, materialsupplies, and costs of services are all encompassed in the cost of goods sold, they are includedin the bonus calculation, and any savings in these areas are shared with the employees (Millerand Schuster, 1987). The Rucker standard, which must be surpassed prior to bonus payout,indicates expected labour value added to the product, expressed as a percentage of value added(Graham-Moore, 1990b). This standard can be applied against actual value added in a period,to determine allowable labour costs. If allowable labour costs are less than actual labour costs,the gain is shared with employees. Under this system, therefore, employees will have theincentive to increase value added without allowing a corresponding increase in labour costs.This is in the company's best interests because increasing the value added to a product oftenmeans that the cost per unit is decreasing. An example of the calculation of this type of bonusappears in Table 3, assuming a 50/50 company/employee split, and a Rucker standard wherelabour costs are expected to be 41.17% of value added, determined from historic performance.As can be seen in Table 3, the Rucker formula bonus is quite simple to calculate. Itrewards the employees for efficient use of their time and materials. However, because thesales value of production is included in the formula, the bonus will vary with the market priceof the commodity. In industries that experience large fluctuations in commodity prices,bonuses could fluctuate radically despite a consistently productive work force. This couldcreate a sense of frustration on behalf of the employees regarding their bonuses and decreasethe effect of the incentive.The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and ExamplesTable 3The Rucker Value Added Formula1. Value of production (sales +/- various adjustments) $1,000,0002. Less outside purchases (materials, supplies, energy)materials and supplies^ $500,000other outside purchases, non-labour costs^160.000 660.0003. Value added (1-2) 340,0004. Allowed employee costs (from Rucker standard - 41.17%assumed)139,9785. Actual labour (employee costs) 129.9786. Bonus pool (4-5) 10,0007. Company share (50% * 6) 5.0008. Employee share (6-7) 5,0009. Reserve for deficit months (25% * 8) 1.25010. Bonus pool (8-9) 3.75011. Participating payroll 80,00012. Bonus percentage (10/11) 4.7%Adapted from Graham-Moore, 1990b.ImproshareImproshare focuses on the number of hours required to complete a certain amount ofwork. If the actual hours required to do the work are less than expected (budgeted) hours, again has been realized and is shared between the company and the employees. The mechanicsof the bonus calculation proceed as follows. First, the standard hours required to produce acertain amount of work is determined. The standard hours, or "production hours", can befound using time studies or, as is done in the following example, be taken from a suitable baseperiod. These hours (1600 in Table 4) reflect the hours of those people directly involved inthe production of the units and do not include "non-production" hours like shipping,maintenance, set-up, overhead, and staff hours. A "Base Productivity Factor" (BPF), definedas production plus non-production hours divided by production hours, is established toPage 37A) Development of Base Productivity FactorFacts: 40 direct and 20 indirect employeesProduct A =^20 employees * 40 hours = 0.8 per piece or .8 * 1000 = 800 hours1000 piecesProduct B =^20 employees * 40 hours = 1.6 per piece or 1.6 * 500 = 800 hours500 piecesTotal production hours are therefore 1600 in the base period.Base Productivity Factor (BPF) = total production and non-production hourstotal production hours(40 direct employees * 40 hours)BPF =^(20 indirect employees * 40 hours) production hours2.400 total hours ^= 1.51600 production hoursB) Monthly Bonus CalculationProduct A = 0.8 hours * 600 units * 1.5 BPF = 720Product B = 1.6 hours * 900 units * 1.5 BPF = 2.160Improshare hours (standard hours for units produced) = 2,880Less actual hours (assumed) = 2.280Gained hours^ = LogEmployee share = 50% of 600 = 300/2280 = 13.1%The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and Examplesfacilitate bonus calculations in future periods. By multiplying future production hours by theBPF, we find the total amount of production and non-production hours allowed for the unitsproduced. These hours are called "Improshare Hours". If these hours are greater than actualproduction and non-production hours in the period being measured, a gain has been realized.Table 4The Improshare CalculationAdapted from Graham-Moore, 1990b.Page 38The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and ExamplesOne of the chief advantages of Improshare is that the bonus is independent of the salesvalue of output. It is a measure of work productivity, and there is a direct relationshipbetween the bonus and the work done. Consequently, there can be some motivation to workharder. Also, by using the Base Productivity Factor the bonus calculation can be made at anytime, for any given interval of work. This characteristic allows for weekly bonus payments,and such frequent payments can have a large effect on worker productivity. In cases ofweekly bonus payments, often a four-week moving average of bonuses is used to smooth outthe high and low payouts (Graham-Moore, 1990b). However, the formula as given aboveincludes the productivity of labour only. Therefore, materials and maintenance costs mayincrease to facilitate decreased labour costs, resulting in artificially inflated bonuses. Qualitymay also suffer in the drive to increase productivity. Furthermore, the incentive foremployees to make suggestions regarding non-labour savings is diminished. For this reason,there is usually not a very sophisticated communication network associated with Improshareplans. For the purposes of this research, only those Improshare plans that have some sort ofcommunication network to encourage employee suggestions and opinions will be consideredgainsharing plans.OtherThe above three examples of bonus calculation formats provide some idea of thealternatives available to companies. There are, of course, other possible calculation methodsfor bonuses. For example, a method used frequently in mining is the cost/unit of metalproduced.The bonus standard can be modified to include allowances for changing productionlevels. For example, a bonus line (Bovino, 1992) can be constructed based on the historic costof producing the product at different production rates. This builds flexibility into the bonusPage 3943.4 45.5 48.141.1 43.2 45.738.8 41.1 43.336.5 39.0 41.234.5 36.9 39.132.5 34.9 37.030.5 33.0 34.928.5 31.1 33.026.7 29.2 31.124.9 27.4 29.223.1 25.6 27.421.3 23.8 25.719.7 22.0 24.018.1 20.4 22.416.5 18.8 20.814.9 17.2 19.313.5 15.6 17.812.1 14.2 16.410.7 12.8 15.0^9.3^11.4 13.68.1^10.0 12.23.0^5.1^6.9^8.8^11.01.9^3.9^5.7^7.6^9.82.7^4.5^6.4^8.6No Bonus^ 1.7 3.5 5.2 7.4Payout 2.5 42 6.21.5^3.2^5.02.2^3.81.3^2.92.01.1BONUS (Percent of wages)12.0 15.0 18.4 22.1 24.5 283 31.7 34.7^38.9^41.410.5 133 16.6 20.2 22.5 26.2 29.5 32.4^36.6^39.19.1 11.6 14.8 18.3 20.7 24.1 27.4 30.3^34.5^36.87.7 10.1 13.0 16.4 18.9 22.2 25.3 28.2^32.4^34.56.4 8.6 11.4 14.7 17.1 20.3 23.4 26.1^30.3^32.64.8 7.2 9.8 13.0 15.3 18.4 21.5 24.2^28.2^30.73.5 5.9 8.4 11.3 13.7 16.7 19.6 22.3^26.3^28.84.6 7.0 9.8 12.1 15.0 17.7 20.4^24.4^26.933 5.6 83 10.5 133 16.0 18.5^22.5^25.04.3 6.8 9.1 11.8 14.3 16.8^20.6^23.23.1 5.5 7.7 10.3 12.6 15.1^18.7^21.44.2 6.3 8.8 10.9 13.4^17.0^19.62.9 5.1 7.3 9.5 11.7^15.3^17.83.9 6.1 8.1 10.4^13.6^16.32.7 4.9 6.7 9.1^11.9^14.83.7 5.6 7.8^10.5^13.32.5 4.5 6.5^9.1^11.93.4 5.4^7.7^1032.3 43^63^9.13.2^5.2^7.72.1^4.1^6.4The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and Examplescalculation because at relatively high production rates one expects the unit costs of productionto be relatively low and vice-versa, despite consistent employee work performance. A systemthat uses a bonus line adjusts for different production levels to more accurately rewardemployees for work performance. Figure 4 illustrates a bonus line.$5.005.105.205.305.405.505.605.705.805.90Cost per 6.00Ton of 6.10Product 6.206.306.406.506.606.706.806.907.007.107.207.307.407.507.607.707.807.908.00300 290 280 270 260 250 240 230 220 210 200 190 180Tons of Product Delivered (000's)Figure 4Gainsharing Bonus Chart(Adapted from Bovino, 1992)Page 40The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and ExamplesThis bonus line reflects the fact that low production rates will naturally result in higherunit costs as fixed costs are distributed over a smaller production level. Consequently, itautomatically adjusts bonus levels for changing operating conditions, thus decreasing the needto alter the trigger points. For example, in some mines average haulage distances vary for avariety of reasons. In these cases, when there are large haulage requirements production isexpected to be relatively low and operating costs relatively high, other things being equal. Putanother way, when haulage distances are minimal production and its cost will naturallyimprove, despite employee work performance. In the absence of a bonus line, employees mayreceive bonuses when work performance is actually decreasing. With a bonus line, employeesmust strive to surpass their historic performance in similar ground to earn bonuses, andconsequently they focus on minimizing costs like dilution and maintenance in all areas of themine. In this way, bonus levels are closely linked to employee performance rather thanuncontrollable mine characteristics. Depending on the commodity being produced, both theslope of the bonus line and the values above it can be designed to place different emphases onthe effect that total production and the cost of production have on bonus levels. In theexample above, the market for output is assumed to be limited and consequently the bonusesare focused on the cost of production.Another customization is to make the ratio of sharing of gains between the companyand employees dependent upon the size of the gains. If the employees' share of the gainsincreases as the total gains increase, they will have an even greater desire to improve theirwork performance.Page 41The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and Examples2.4.2 Communication NetworkA communication network that allows management to solicit employee opinions andsuggestions relating to organizational policies is essential to all gainsharing plans. Incentiveplans that have bonus structures similar to gainsharing plans but lack a communicationnetwork are not gainsharing plans, but simply group bonus plans. Many improvementspossible through gainsharing arise because of the communication network, as it can create anenvironment of cooperation and teamwork between personnel and departments that cannot becreated using a group bonus calculation alone. The philosophy of gainsharing is thatemployees have some expert knowledge regarding their function in the organization which, ifexpressed fully, will be beneficial both to the firm in terms of increased efficiency andeffectiveness, and to the employee in terms of intrinsic rewards. The communication networkprovides employees with the opportunity to participate in the work process. The incentive toparticipate is derived from the intrinsic rewards, as participation in groups and access toinformation helps employees realize their level 3, 4, and 5 needs on Maslow's Hierarchy, andfrom the extrinsic rewards if employees believe that their participation will improve theperformance of the company.The importance of this stage in developing a gainsharing plan cannot be overstated.Herzberg (1959) states (p. 117) that the "aspect of participation and of increased responsibilityis the real secret of whatever success the Scanlon Plan and its imitators have achieved". Theeffects of the communication structure can spill over to the entire organization and reinforce,if not drive, the evolution of the corporation in terms of how it treats its employees, interactswith suppliers, customers, and government, and deals with its competition. Like the bonusformats, the communication network can vary from plan to plan. The following sectionprovides a brief outline of the "typical" setup in Scanlon, Rucker, and Improshare plans.Page 42The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and ExamplesScanlon PlanIn Scanlon plans, the communication networks are often a two-tiered system ofcommittees: Production committees and screening committees (Schuster, 1983; White, 1979).Production committees are distributed throughout the organization, and consist of two to fiveemployees from each production centre and supervisory level management. These teams meetabout once a month with upper management personnel to discuss challenges being faced intheir particular production units. The teams develop ideas, evaluate suggestions, and have theauthority to implement ideas that are within pre-specified cost guidelines as long as they donot impinge on the operations of other production teams. These meetings provide anopportunity for the idea exchange and information sharing essential to efficient management.There is one screening committee in the Scanlon Plan. It consists of representativesfrom the production committees and top management (Goodman, Wakeley and Ruh, 1974),and has four primary responsibilities (Schuster, 1983). First, it has the final decision onsuggestions that exceed the cost guidelines given to the production committees. Second, itreviews suggestions that are rejected by the production committees. This review demonstratesthat all suggestions are valued and extracts the information value from all suggestions, as theycould be applied to other production centres, or used at a later time. Third, it considers currentbusiness problems and evaluates long range issues. Last, it oversees the long term planningfor the gainsharing plan and oversees its administration, which involves periodic bonusexplanation and distribution.Rucker PlansThe communication network in Rucker plans can consist of one production committeeand screening committee, or just one screening committee. The production committee willPage 43The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and Examplesgenerally consist of ten to fifteen employees, and some management personnel. Thiscommittee meets monthly on company time to review suggestions and discuss productionproblems. The intent of the committee is more to facilitate communication than to solvespecific problems. The screening committee is composed of some employees, union leaders,and key management personnel. This committee monitors the bonus calculation, addressesproduction and quality issues, and discusses long term economic plans. The emphasis on thecommunication network is not as great in the Rucker plan as it is in the Scanlon Plan, as canbe witnessed by the single production committee.ImproshareThere is nothing in the Improshare structure or philosophy that requires formalizedemployee involvement structures. However, some of the plans have a bonus committee thatoversees the monthly bonus calculations (Miller and Schuster, 1987). Furthermore, there aresome companies that use Improshare plans along with communication structures similar toScanlon Plans (Miller and Schuster, 1987; Graham-Moore, 1990b). Moreover, Mitchell Fein,who developed Improshare plans, favours a communication network that will result in clearcommunications and productivity suggestions similar to those produced in Scanlon Plancompanies (Graham-Moore, 1990b). As a gainsharing plan requires a communicationnetwork with the appropriate bonus structure, those Improshare plans that do not have anetwork will not be considered gainsharing in this paper.OtherOther possibilities for communication networks include having all members ofseparate production centres regularly meet with immediate supervisors and some appropriatePage 44The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and Examplestop management. This ensures that all employees have an opportunity to communicate, anddraws more skills into idea development and evaluation. An overall advisory board, made upof management, employee personnel, and union personnel if appropriate, would monitor,evaluate, market, and develop the gainsharing plan as conditions require. It will also serve asa liaison between the production centres, and serve to increase communications between them.Schuster (1983) states that the typical Scanlon Plan communication systems have an80% acceptance rate, as opposed to the 75% rejection rate of contemporary suggestionsystems. Table 5 summarizes the ways in which the Scanlon Plan overcomes the weaknessesof traditional suggestion systems.Table 5Scanlon Plans and SuggestionsProblems with traditionalincentive systems Scanlon response(1)^Small pay-off to workers. (1) Larger^percentage^of^savingsthrough Scanlon is returned towork force.(2)^Resentment towards suggestionsgiven by fellow workers.(2) Workers get recognition from co-workers for suggestions becausethey also benefit.(3)^Negative^effect^on^foreman-worker relations as suggestionsperceived as challenge tosupervisory competence.(3) Foremen involved in suggestiondevelopment and evaluation.(4)^Determination^of^suggestionownership.(4) No need to determine ownership.(5)^Discourage group discussion anddevelopment of ideas.(5) A committee structure is createdto foster development ofsuggestions by various persons.(6)^Limited^social^interactionbetween^suggestion-maker andevaluator.(6) Committee structure permits giveand take; suggestions evaluatedwhere they originate.Adapted from Schuster (1983, p.59)Page 45The Applications of Gainsharing Incentives in the Mining IndustryChapter 2 - Gainsharing - History, Theory and ExamplesThe following chapter will examine why incentives like gainsharing may be suitable totoday's business environment and explore the effects it can have on various companypersonnel and functions.Page 46CHAPTER 3 - GAINSHARING - DESIGN AND IMPLEMENTATION OFTODAY'S INCENTIVE3.1 WHY GAINSHARING?Initially, gainsharing was mainly implemented as a last ditch effort to increaseproductivity and decrease costs, thereby helping the companies through business downturns.However, today even financially sound companies implement these plans (Ross, Ross, andHatcher, 1986; Ross Hatcher and Adams, 1985). Several reasons have been identified forprompting gainsharing implementation (Gowen, 1990; Bovino, 1992). These are: Aidingcorporate financial turnarounds, improving manager/employee relationships, improvingproductivity, adjusting compensation to match philosophy of the firm, helping to affectorganizational change and development, linking compensation to performance, replacingindividual employee incentive plans, offsetting reduced wages or benefits during unionnegotiations, improving organizational communication, increasing trust, creating a team-likeatmosphere, improving product quality, continuous improvement, and reduction, throughattrition, of unneeded management and labour positions.Gainsharing has many advantages over alternate incentive plans. First, the gainsharingbonus finds some middle ground between management's concern that employee bonuses belinked to the company well-being, and employees' concern that the bonus they get paid shouldfluctuate with their work performance, and not the vagaries of external variables. Forexample, in mining, while company profitability depends in part on somewhat uncontrollableparameters like commodity prices and exchange rates, one parameter that affects profitabilityand is controllable to a certain extent is cost/unit of production. Therefore, a gainsharingbonus that is based on such a parameter is likely to be tied quite closely to companyPage 47The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentiveprofitability while at the same time being influenced directly by employee performance. Theemployees will be highly motivated to perform if they can affect the bonus parameters, and ifthese parameters are linked to company performance, this will have positive ramifications onthe company. If properly structured, a gainsharing bonus is directly related to employeeperformance, and is based on the key success factors for the company. In this respect,gainsharing can be superior to other systems like merit pay, where rewards are permanentregardless of future performance, profit sharing, where there can be a tenuous link between theemployees' bonus and their performance, and piece-rate incentives, where individual employeegoals may not correspond with organizational priorities.A second advantage that gainsharing has is that bonuses are paid on a group basis.This promotes a sense of "oneness" amongst employees and reinforces the fact that successhinges upon how they perform as a team. Information sharing, skill sharing, and teamwork onbehalf of all employees is encouraged to increase overall, not individual, performance.Because companies usually succeed or fail on the basis of group performance, it seems logicalto base incentives on group performance.Third, gainsharing is an appropriate incentive today because it addresses the changingcharacteristics of the work force, and is therefore better suited to motivate people. In Canada,the state of the workers has changed considerably in the past 100 years. However, in manycases the methods used to remunerate and motivate them have not. At the turn of the century,the challenges, priorities, backgrounds, and ambitions of the average worker were quitedifferent than they are today. One explanation for this is the dearth of social securityprograms that existed in the early 1900's. Ninety years ago, the average worker had fewpension benefits, no unemployment insurance, limited welfare plans, and no health insurance.As a result, the needs for food, shelter, and health were not secure: layoffs, old age, or healthproblems could severely diminish people's ability to provide these things for themselves ortheir families. In other words, using Maslow's motivational theory, their "level 2" needs (thePage 48The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentiveneed that level 1 needs are secure) were not fulfilled, and therefore people were motivated tosatisfy them. More money was the only method through which these needs could be satisfiedat the time, and therefore pure monetary incentives at work were strong motivators. Today,however, things are different. In Canada, the creation of universal health care in the mid1960's, the evolution of the old age pensions act from the 1930's to include more people andprovide more substantial assistance, unemployment insurance legislation in 1940, the CanadaPension Plan in 1965, and the Canada Assistance plan in 1966 have helped to change thedynamics of the work force and altered their priorities and needs. With Maslow's level 2needs largely satisfied by the social welfare net in Canada, people are beginning to "move up"the hierarchy of needs, and are therefore now motivated by level 3, 4, and 5 needs.Gainsharing provides a participative mechanism where employees form teams to pool theirknowledge and experience to influence and develop solutions to organizational challenges.Employees belong to a team which respects their suggestions, and this helps to satisfy level 3needs. Through the opportunity to provide ideas and contribute to the development andimplementation of solutions, the skills and capabilities of employees can be recognized,thereby satisfying level 4 needs.Herzberg's (1959) two-factor theory of motivation can also be used to explain theapplicability of gainsharing plans today in the following way. The factors that used to bemotivators, or satisfiers, on the job (for example, pension plans, job security, indexed wages,medical and dental plans) have now become hygiene factors. In other words, workers are dis-satisfied if they are not present, but are not motivated if they are present. As these factorshave shifted from being motivators to being hygiene factors, they have been replaced by newmotivators. These include things like daycare, opportunities for participation and recognition,and increased responsibility. Any firm that gives employees access to these satisfiers willlikely have a highly motivated work force.Page 49The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's IncentiveAside from acting as motivation for employees, the communication network providesan excellent training vehicle through which employees can learn about the interdependenciesin the business and how each production centre contributes to the final product. With thisknowledge, they will better understand how their performance impacts on the final product.For these reasons, gainsharing represents an incentive in line with the changingpersonal needs and goals of today's employees. Of course, gainsharing is not appropriate in allorganizational settings, nor will it help companies to fulfill all of their business strategies. Forexample, young dynamic companies that want to encourage individualistic performance andattract high-calibre employees may want to offer individual incentives (Booth, 1990).However, in some cases it does represent a step in the right direction for the motivation ofemployees in the best interest of the company.3.2 CHARACTERISTICS FAVOURABLE TO GAINSHARING SUCCESSFrom the empirical studies that have been undertaken, some organizationalcharacteristics have been shown to enhance the chances of gainsharing plan success. Ingeneral, gainsharing works best in small companies, as it is easier to develop a team-likeatmosphere with a small group. Nevertheless, the median number of employees in companieswith these plans in the U.S. is 500 (Graham-Moore, 1990b), which suggests that size is not tooimportant a characteristic (Graham-Moore and Ross, 1990a).A certain level of trust, and positive management practices that encourageparticipation, stress continuous improvement, and are based on equality, must exist forgainsharing to work. After implementation, gainsharing will reinforce a good relationshipbetween management and employees, but the implementation of a plan alone will notmagically create these conditions (Graham-Moore and Ross, 1990a). These conditions areThe Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentivenecessary to ensure that communication is initially conducted in an open, genuine manner thatfully taps employee suggestions and reinforces future communications. Initial trust will bereinforced when management adopts gainsharing as a management philosophy, and not justanother pay system. If they give employees opportunities to build their knowledge,understanding, and involvement in the company, increased trust and improved operations willbe the result.Several people (Goodman 1979; Schuster 1983; White, 1979; Richardson 1985) haveindicated that the presence of an internal catalyst for the plan, most preferably the CEO orother top management, can have a large effect on the probability of gainsharing success. Anintensive case study by Douglas McDonald and Haytham Hodaly in 1993 of a mine inGlenrock, Wyoming also supports this position, and this study appears in Appendix 2. Theimplementation of a gainsharing plan is bound to meet with some opposition from bothemployee and management personnel, and strong leadership and perseverance during thosetimes will help the plan last.In industries with high task interdependencies, gainsharing usually works well becauseas it improves communication, workers become aware of bottlenecks in production and workto correct them. Low task interdependent jobs (for example writers, squash players,encyclopedia sellers) do not require a large degree of interaction to produce output. Highinterdependent jobs (for example journalists, soccer players, surgeons) require a large degreeof teamwork and communication, and would benefit from an incentive that enhances theseconditions.If productivity can be influenced by people, or if work is not highly mechanized,opportunities to "work smarter" abound and gainsharing will encourage employees to takeadvantage of these opportunities (Schuster, 1983).Accurate historic data is needed for setting fair bonus standards, and there should alsobe a market for increased productivity to avoid having to lay off employees. Alternatively, thePage 51• Management and employee trust.• Positive management practices.• Highly placed internal catalyst.• High task interdependencies.• Work subject to employees' influence.• Accurate historic data.• Consistent product mix.• Information sharing.• Small number of employees.• Market capacity.The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentivebonus calculation could hinge on cost parameters, thereby encouraging lower cost, and notincreased, production.In addition, changing product mixes can affect the standards against which currentproductivity is measured. Product mixes change when the characteristics of the product beingproduced changes in some way, thus requiring different levels of inputs. If work standards arenot changed with the product mix, the gainsharing plan can result in unexpected (andundeserved) windfalls or cutbacks in bonus amounts. In cases where product mix changes arefrequent, the management of the standards can be troublesome.Information sharing is also crucial to gainsharing success. It will enable managementto make decisions that are supported by the employees, and since they are often the "endusers" of these decisions, it will likely increase decision effectiveness. With more informationabout management's situation, employees will probably have a better understanding ofunpopular decisions. Moreover, with more information, employees will likely generate morecost saving ideas.Table 6Environmental Factors Conducive to Gainsharing SuccessSome of the above characteristics, for example the trust, management practices, andinformation sharing, are related to a somewhat amorphous concept known as "corporateculture". This culture will affect how people interact with each other, how much informationis exchanged, the level of trust in the company, management practices, and the degree toPage 52The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentivewhich employees will believe and support management prerogatives. As these are all factorswhich can have a huge influence on the success of a gainsharing plan, this subject is worthy ofmore investigation.3.3 GAINSHARING AND COMPANY CULTURECompany culture has been defined as "a system of shared values and beliefs thatproduce norms of behavior" (Ivancevich and Matteson, 1987). Patricia Booth (1990) says(p.4) that "to be strategically useful, an organization's compensation philosophy must becongruent with its overall value system, or corporate culture". Therefore, one would think thatthe culture of organizations with successful gainsharing plans, especially Scanlon and Ruckerplans, exhibit qualities of participation and teamwork oriented towards achieving a sharedobjective. This appears to be the case. In a study of 23 firms that had experience withgainsharing plans, White (1979) found that low employee participation is associated with highlevels of failure, and that low managerial confidence in participative management styles isstrongly associated with failure or only marginal success. Therefore, before proceeding with againsharing plan, a company must first assess how well such a plan fits its current andanticipated structures and values.A suitable culture and organizational structure must be present for gainsharing to beeffective. For example, the culture must be characterized by positive management practices,where managers welcome and respect employee opinions and facilitate group idea creationand evaluation in the interests of continuous improvement. Furthermore, gainsharing willlikely reinforce a culture of teamwork and participation in the following way:Page 53Participation in:- Problem solving- Innovation- New work processes- Strategies and goals- Policies- Achievement- Involvement- Influence- Fairness- Trust- Challenge- Security- Loyalty- Productivity- Responsibili t- Commitment- Improved performance- More teamwork- Quality of work lifeInformationInflowsAdapted from Doyle and Doyle (1992)The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's IncentiveFigure 5Participation at WorkThis diagram explains how participation can affect employee experiences, attitudes andfeelings, responses, and ultimately, company culture and performance.Gainsharing plans rely heavily on managerial and employee attitudes and the ability ofthe two, in some cases, to alter their behaviors to work together (Strauss, 1990). A cultureexhibiting some trust and mutual respect must be present for these plans to work. Therefore,companies that do not exhibit positive management practices and a positive labour relationshipbut want to implement a gainsharing plan must undertake to change the shared values andbeliefs that are producing the current norms of behavior.Page 54The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentive3.3.1 Changing Corporate CultureChanging corporate culture requires that workers change their attitudes towards theirjobs. According to Hunter, Davis, and Cohen (1984), attitude can be defined as an affective,evaluative, or emotional response towards an object. Attitudes change as people receivemessages about the object, and the change can be modeled as a function of three variables:The attitude of the receiver to the object, the affective or evaluative content of the message,and the receiver's attitude towards the source of the message. Figure 6 will illustrate thisconcept more clearly.riginal attitude OutcomeMessage source:Like fightingin hockeyLikely noattitude changeScenario 1Prime MinisterMessage:  Fighting willinterrupt the gameMessage source:Scenario 2Uke fightingIn hockeyPrime MinisterMessage: Sets a badAttitude changepossibleexample for kids 111■•■••Message source:Scenario 3Uke fightingIn hockeyDon CherryMessage: Sets a badexample for kidsAttitude changeprobableFigure 6The Process of Attitude ChangeIn Figure 6 we assume that the message recipient is initially pro-fighting in hockey. Inscenario 1, no attitude change is likely as the message is weak and its source is not arecognized hockey expert. In scenario 2, attitude change is possible because while themessage source is not a recognized expert, the message may be perceived as a relevant one. Inscenario 3, a relevant message is being delivered by a recognized hockey expert, and as aresult attitude change is probable. Using this model, the ability of management to change thePage 55The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentiveattitudes of employees about their work will depend on how the employees perceive theirwork to begin with, the content of the message designed to induce change, and how they feelabout management, the message source. Clearly then, in companies with poor labour relationsand low labour morale, the prospect of changing corporate values and beliefs is a challengingone.However, there are a lot of theories as to how management can go about changingcorporate culture. Many of these (Beckhard and Pritchard 1992; Lawler 1988; Fitzgerald1988; Kilmann 1985; Tunstall 1985; Trice and Beyer 1985) focus on developing a vision ofwhere top management wants the company to be at some point in the future, and thencommunicating this to employees in such a way that they believe management's commitmentto the vision and are prepared to participate in its fruition.For example, Beckhard and Pritchard (1992) state that after developing a vision andcommunicating it to employees, management must identify gaps between where the companyis today and where it wants to be in the future. By taking concrete steps to achieve its statedvision, management can increase its credibility in the eyes of employees immeasurably.Management must identify what has to be done, how, and by whom to fill the gaps betweenwhere the company is now and where it wants to be in the future. The authors state thatcorporate issues that should be addressed when filling the gaps include human resourcepolicies, information management, financial management, organization structure, and thereward system. As we have seen, it is desirable that a suitable corporate culture exists prior tothe implementation of a gainsharing plan. However, because gainsharing can have an effecton all of the corporate issues listed above with the exception of financial management, it mayreinforce, and possibly drive, changes in corporate culture.Reward policies can have a large effect on corporate culture. Many authors (Zussman1983; Beckhard and Pritchard 1992; Allen 1985; Sethia and Von Glinow 1985) support thissupposition. To provide an idea of how gainsharing can affect the culture of an organizationPage 56The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentiveand to expand on the positive management practices discussed earlier, the paper "ManagementPractices in Learning Organizations" by McGill, Slocum and Lei (1992) will be summarizedhere. The degree to which gainsharing can help to create a "learning organization" will bediscussed.In their 1992 paper, McGill, Slocum and Lei describe an organization structure theybelieve is suited to the business environment today and indicate steps that can be taken toachieve that structure. A "learning organization" is one that can respond to new informationby altering the networks used to process and evaluate information. In other words, it is anorganization whose very structure is constantly evolving with its changing environment, aprocess otherwise known as continuous improvement. The authors feel that a learningorganization is particularly suited to today's environment because as companies become moreglobally oriented, their success depends on an ability to "quickly and effectively respond to amyriad of changes". They describe five dimensions that should frame managerial policies inlearning organizations and outline practices that can help to achieve these dimensions. Thedimensions include openness, systemic thinking, creativity, personal efficacy, and empathy.1) Openness: This means that management should be open to a wide range of perspectives,and the authors suggest two policies which help to achieve this. The first involves topmanagement suspending the need for control and allowing management close to theproduction centres to formulate the hands-on policies. In other words, top management shouldoutline the corporate goals and objectives, but should allow production managers to figure outhow best to achieve them, as they are closer to the production centre and know their particularsituation the best. "The need for common values replaces the need for detailed informationand micro-management". The shift of authority down the management ranks is consistentwith gainsharing, where production oriented personnel are empowered by being given a loudervoice in production decisions and company operations.Page 57The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's IncentiveThe second aspect requires of management a cultural and functional humility. Culturalhumility means that when making business decisions in foreign markets, management viewsthe culture of that country as no less important than its own. Ethnocentric managementpractices will be hard pressed to satisfy consumer tastes and employee demands in foreignlands. Functional humility means that a combination of experience from all organizationalfunctions, including engineering, marketing, accounting, finance, and human resources areimportant in the decision making process. The communication network associated withgainsharing can help to create functional humility by encouraging interaction betweendifferent production centres in the organization. The authors suggest five practices to promoteopenness:a) Commitment to cultural and functional diversity in selection, development and promotionof personnel.b) Use of multi-functional and cross-functional work groups.c) Absence of jargon, turf, and "expert" domains.d) Training in and use of conflict surfacing/resolving skills.e) Availability of all information to all members.2) Systemic Thinking:. This means the ability and desire to look for connections betweenissues, events, and data points. This mode of operation will provide management with betterknowledge of how the corporation interacts with the "outside" world, and in so doing willprovide it with a competitive advantage. The authors suggest four practices to promotesystemic thinking:a) Share accurate (not white-washed) organizational history to promote a sense of temporalcontinuity.Page 58The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentiveb) Recognize the importance of relationships based on information, goods and servicesexchanges, and feelings, in addition to traditional line authority-based relationships.c) Remove artificial distinction between line and staff.d) Pay explicit attention to the inter-relationship between actions across the organization andbetween the organization and external forces.Gainsharing plans are helpful in fulfilling c and d above. By encouraging meetingsbetween all employees and management they help to remove artificial distinctions betweenline and staff personnel. Also, teamwork and cooperation between employees in differentorganizational work groups can payoff in improved organizational performance and thereforebetter bonuses. This is especially true in companies that have high task interdependencies.3) Creativity: Creative management provides the organization with a way to respond to itschanging environment, and requires both personal flexibility and a willingness to take risks.The ability to alter behaviors in response to changing conditions is vital to long-term survival.In addition, risk taking, and a "willingness to fail" are equally important to corporate growth.The stigma associated with policy failure should be replaced by a learning mechanism whereeach failure is seen as corporate feedback, the knowledge of which is used in developingfuture policies. The authors suggest the following four practices to encourage creativity:a) Long term reward policies.b) Mobility across divisions and functions.c) Growth oriented personal development.d) Supportive "clan" culture.Page 59The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's IncentiveUnder long-term reward policies, people will not be deterred from taking risks thatmay reduce their short term rewards, but will focus on long-term growth. Therefore, suchpersonal rewards as promotions, salary increases, and favourable transfers should be based onlong term performance. Mobility across divisions and functions will provide people with abetter understanding of corporate operations, and increase their ability to formulate effective,appropriate corporate policies. Gainsharing plans support growth oriented personaldevelopment and "clan cultures" by providing employees with opportunities to givesuggestions and ideas, thereby helping to fulfill their level 4 and 5 needs on Maslow'shierarchy. Also, the meetings, if conducted properly, can evolve into supportive "clan"gatherings, and fulfill Maslow's level 3 needs.4) Personal Efficacy: This implies that managers feel they can and should learn, to betterinfluence the direction of the company. Managers exhibiting personal efficacy are activelyself-aware and proactive problem-solvers. Their active self awareness means that they are notonly introspective, but also aware of the effects that their behaviors will have on others. Theirproactive problem solving allows them to learn with the intent of applying this learning tosolve problems before they become major issues. Personal efficacy demands clear vision frommanagement, an appreciation that each person has something to contribute, and an ability tolink learning to action.Again, part of the philosophy of gainsharing is that each person has ideas that can helpto improve the organization. Managers that exhibit personal efficacy and therefore appreciateevery person's contribution to the decision making process are essential in companies usinggainsharing plans.5) Empathy: A concern on the behalf of management for bettering the human condition overtime and an interest and capability in repairing strained relationships will help to foster aPage 60The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentivelearning environment. Empathy for fellow employees will help to achieve this, and can beencouraged in four ways:a) Strong sense of ethics in dealing with employees and customers.b) Active corporate citizenship.c) Recognition and encouragement of employee contributions outside the workplace.d) Willingness to take responsibility for relationships.As outlined above, many of the factors that help to produce what McGill, Slocum andLei (1992) describe as "Learning Organizations" can be provided by a gainsharing plan thatcombines an appropriate bonus calculation format with a communication network andmanagement philosophy, thereby providing both extrinsic and intrinsic rewards. However, againsharing plan alone will not create a learning organization. Corporate policies regardingperformance appraisal, interaction with the outside environment, and even physical officelayout affect culture, and must evolve in a similar direction at an equivalent pace with thegainsharing plan. By modifying organizational practices, however, corporate culture can bechanged, albeit slowly.The above description introduces one systematic approach to changing corporateculture. Such a change will help the organization to respond to the rapidly changing businessconditions occurring today. This example also reveals how gainsharing can reinforce a cultureof teamwork and participation. However, even when there is at least a minimum acceptablecorporate culture in which to implement gainsharing, the process of implementation is by nomeans an easy one. Of primary concern is the effect that the plan will have on management,employees and unions.Page 61The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentive3.4 GAINSHARING AND COMPANY MANAGEMENTThe implementation of gainsharing plans can be highly stressful for management.Several people (Schuster 1983; Goodman 1979; Graham-Moore and Ross 1990b) have notedthat middle managers can be forced to alter their management styles drastically. Thisphenomenon was also noted in the case study of Glenrock Coal (Appendix 2). The stress onmanagement personnel can be especially great when a substantial change in organizationalculture accompanies gainsharing implementation. For example, in some cases managementstyles must become less autocratic as many managers serve as chairpersons of productioncommittees. With the assumption that the employees will work in the company's bestinterests, the need for supervisory management decreases, and this allows management tocontribute more directly to corporate growth. Their roles develop from being supervisory tobeing facilitative, where the object is to organize team meetings, and provide information,direction, and encouragement to help generate ideas. However, these managers may have a lotmore to lose than gain from the implementation of a gainsharing plan, for a variety of reasons.First, as information passes down the ranks, their power base decreases (Schuster,1983). Their subordinates begin to make work suggestions and do other tasks that used to bethe domain of the manager. This may make some managerial positions redundant in thecompany, leading to a decrease in management personnel (Lawler, 1988).Second, a reduced power base may also erode some of the distinction betweenemployees and management, thus reducing some of the prestige associated with a managementposition.Third, any change in management styles required by gainsharing can be verythreatening, as gainsharing can demand a reversal in the way management interacts withemployees. This is especially true in industries that traditionally have top-down authoritarianmanagement. The gulf between authoritative management styles and those associated withPage 62The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentivegainsharing, where employee suggestions are expected and solicited, information flows goboth up and down the corporate ranks, and gains are measured based on group performance, isa large one. Many managers will be uncomfortable, unprepared, or unfamiliar with their newroles in the organization under gainsharing. These feelings may be compounded asgainsharing plans are often associated with increased demands, in terms of information andexpertise, placed on management by employees. Managers often find themselves explainingnot only what to do, but why to do it, and they may find themselves unable to respond to theincreasing demands of the employees. Despite the fact that management may feel threatenedby these changes, information sharing and positive management practices are essential togainsharing success. The sharing of information by management results in better suggestionsby employees, more communication between management and employees, and an increase intheir mutual trust. As employees witness the implementation of their ideas, their involvementin the committees may grow. Because gains are paid on an organization-wide basis, workersare encouraged to co-operate with each other as well as with management, to advise each otherand determine for themselves the most efficient way of doing things. The opportunity tointeract with each other to identify problems and generate solutions creates intrinsic rewardsthrough the recognition by ones peers and the opportunity for increased responsibility. Asalready stated, this opportunity hinges on management practices that encourage participation,involvement, idea exchanges, information flows, and continuous improvement (Strauss, 1990;Bovino, 1992). Therefore, if managers are unsure of how to use positive managementpractices, they must undergo thorough training in participative management and facilitationtechniques.Finally, there is a natural human inclination to resist change. As stated, for gainsharingto work, a management philosophy that employees have ideas of value that they can and willcontribute if given the chance must be believed. Inflexible management will go through themotions of participation but not deliver the goods. This will be recognized quickly byPage 63The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentiveemployees and if the situation is not changed, participation will decrease and the plans willcease to be effective. For this reason, top management must be aware of the inclination toresist change, especially when that change decreases ones perceived powers. Management,through either a lack of training or a lack of will to change, can act as a barrier to the successof a gainsharing plan, or any participative management plan, by simply not changingmanagement styles or by not recognizing, through actions, employee contributions. Anexample of the need for management recognition of employee suggestions is revealed in ahuman resource study of the Canadian Mining industry by employment and immigrationCanada (April, 1992). This study reported that in one case employee frustration resulted whenmining management solicited equipment recommendations from employees but failed toprovide them with feedback concerning the final purchase decision. Ninety percent of theemployees chose one piece of equipment over the other, but the firm ignored the choice andpurchased the least desired piece, without any explanation. Employee frustration developed,more from the lack of feedback than from the decision itself. If management had a trulyparticipative approach, they would have recognized the employees' contribution and explainedtheir reasons for choosing the least-favoured alternative, thereby helping to avoid employeefrustration.3.5 GAINSHARING AND EMPLOYEESThe philosophy of gainsharing is that people prefer to express themselves fully in allsituations, and that in doing so they can be both constructive and supportive to the groups inwhich they are participating. This philosophy suggests that both the employees and theorganization will be better off with employee participation.In fact, the majority of literature on gainsharing supports this suggestion (Schuster,1983; Hammer, 1988; Gowen, 1990). Empirical tests show that employee involvementPage 64The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentiveschemes like gainsharing can reduce organizational resistance to change, enhance creativeproblem solving, decrease employee turnover, decrease absenteeism, and improvecommunication, cooperation, trust, pay satisfaction, and productivity. Participation can alsobenefit employees through increased job satisfaction, higher motivation, and greater productknowledge. However, with all of the positive reviews of participatory management styles,very little has been written on their possible deleterious effects on employees. Baloff andDoherty (1989) identified three sources of negative consequences on employees: Peer grouppressure, management coercion, and reentry difficulties.Peer group pressure can occur when one member of a group exhibits deviantbehaviors, or behaviors that are contrary to the behavioral standards of that group. Forexample, participation may be viewed as deviant and discouraged by ones peers in situationswhere it is a new activity. It is partly for this reason that the organizational culture prior togainsharing implementation is very important. The degree of peer pressure will varydepending on the situation, but could be anything from mild chiding to blatant acts ofviolence, and would result in a decreased motivation to participate and work creatively in theindividual. This would in turn decrease the overall effectiveness of the plan.Management coercion, where managers "use their power to influence the participatoryprocess or outcome in a non-participatory way" can also pressure employees. According toBaloff and Doherty, coercion is always risked unless three somewhat naive assumptions aremade:1) Managers and employees, having different amounts of power and formal authorityin an organization, can work collaboratively to reach joint decisions withoutmanagers' exercise of power differentials to unduly push employees toward adesired behavior or outcome.Page 65The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentive2) Managers will not discipline participators for their behavior or attitudes as a resultof their involvement in the participation activity.3) The employee participator believes that the managers will be neither coercive norpunitive and therefore participates in an open, sincere, and constructive mannerthroughout the activity.These assumptions are least valid when traditional organizations with distinct powerdifferentials and no history of participation adopt gainsharing plans. In these situations,management training is essential in successfully implementing a gainsharing plan. Coercioncan be easily overlooked, as it is often hard to recognize. However, Baloff and Doherty namesome conditions under which it is likely to occur:1) The manager's stake in the outcome of participation is high.2) Management has had little experience in "power sharing" with employees.3) Power differentials are large, and management actively maintains these differences.Reentry problems can occur when gainsharing programs cease to operate, or when spotgainsharing programs are terminated (spot gainsharing is a form of gainsharing which aims ata particular organizational problem, involves only those people directly associated with theproblem, and terminates when the problem is corrected, or after a specified time period haselapsed). The reentry problems can have two sources: The participation may have beenintrinsically rewarding, and therefore the return to normal operations could lead to dis-satisfaction and decreased motivation, and the cessation of participation may disruptemployees' social contacts with their peer groups. Employees that desire the participation andflourish with it (in many cases the most productive employees) will be the ones most affectedby reentry problems.Page 66The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's IncentiveIn addition to the factors mentioned by Baloff and Doherty, there are other aspects ofgainsharing plans that will concern employees. First, employees must be given theopportunity to participate, and management must either act on the suggestions or providereasons for not acting. This is crucial to any gainsharing plan. When employees' pay is basedon work performance, they will become frustrated if they are denied opportunities to applytheir ideas and improve their performance.Second, bonus formats can emphasize the fixed and variable components of pay tovarying extents. Employees who are risk averse will want a high fixed proportion of paywhile those who are prepared to take a chance will want a high variable proportion of pay.Third, employees may also perceive gainsharing as being just another carrot beingdangled in front of them to induce performance. Training and positive management practicesmust convince them otherwise.Finally, employees will be concerned about how their paycheques compare to industrystandards and how well they are rewarded for their contributions. They will also likely want avoice in choosing new employees, to ensure the new employees will not inhibit their ability toearn gainsharing rewards.While many studies suggest that gainsharing has positive effects on employees, it isimportant to bear in mind the potential problems that it can create for them. Consequently,whoever develops the plan must have a good understanding of employee dynamics. A goodway to achieve this is to involve the employees in the development of the plan. This will notonly make the plan more sympathetic to their concerns and give it more credibility in theireyes, but it will also give them a stake in its long-term success.Page 67The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentive3.6 GAINSHARING AND UNIONSThere are different opinions regarding the effect gainsharing has on unions. Somepeople (Davenport 1950; Helfgott 1962; Ross and Ross 1990a) argue that unions should be infavour of gainsharing because they are strengthened. A common argument is that aprecondition to plan implementation is management acceptance of the union as therepresentative of the work force and that management that tries to implement a gainsharingplan without union approval cannot expect gainsharing to work. Some even state that unionsare essential to gainsharing success. The reason given for this is that without a union, workerswill not feel safe enough to express their viewpoints openly, for fear that they will lose theirjobs. "In the process of providing protection to workers for wages, job security, workingconditions, benefits, and health and safety, the union also empowers the workers to be able tospeak out on how to make their workplace more efficient" (Ken Georgetti, 1993). Thepresence of a union may give the employees the requisite authority to effectively communicatetheir knowledge and experience. Furthermore, some argue that the communication networkwill benefit the union and employees through greater employee recognition, an improvedrelationship with management and, due to their access to some of the company documentationand the improved relationship, less volatile collective bargaining sessions. Other possibleunion benefits are associated with the spin-offs of working with a successful operation, andinclude such things as an increased union membership and job security (Ross and Ross, 1990a;Gowen, 1990; Ross, Hatcher and Adams, 1985).Others (Ross and Ross, 1990a) believe that unions are not enthusiastic aboutgainsharing, and that they support it only when it is offered as a wage concession duringeconomic recessions. Reasons often cited for the lack of enthusiasm are the fears thatmanagement may try to substitute gainsharing bonuses for wage increases, managementcannot be trusted in setting performance standards, peer pressure to perform may increase,Page 68The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentivethus damaging union member's relationships, bonus calculations cannot be understood ortrusted, union influence is undermined, increased productivity may allow for job cutting (Rossand Ross, 1990a; Ross, Hatcher and Adams, 1985), and union members actually have littlecontrol over the bonus measure, thus making the argument that the bonus size is in their handsillusory.Of course, in practice the attitudes of unions to gainsharing will depend on specificsituations. The key determinant of their attitudes will likely be their experiences when dealingwith the company in the past. In many cases it is natural for unions to be skeptical becausegainsharing plans appear to offer "something for nothing". However, it seems that employeeacceptance of the plan is a more vital component than union acceptance in determininggainsharing success. In the Glenrock Coal case study given in Appendix 2, we see that despiteinitial union skepticism of the gainsharing concept, the majority of employees supported itwhen it was implemented, and it is likely this direct employee support that helped the plan tobecome successful. A trusting labour management relationship is integral to a gainsharingplan regardless of whether or not employees are represented by a union. In general, Ross andRoss (1990) believe that unions will support the plans if their power is not threatened, unionmembers are not threatened, and management is honest in its reasons for implementinggainsharing.In order to successfully implement a gainsharing plan in the presence of a union, Rossand Ross (1990a) suggest that involvement in the plan be participatory, results of the plan beshared, knowledge of anticipated costs and benefits be shared, management be responsive tounion input, and the plan be separate from the union contract, to avoid collective bargainingcomplications. Getting the union "on-side" from the outset will greatly increase the chances ofplan success. In a study of participative decision making in a union-management context,Schwarz (1989) reported that when the programs were developed by both management andunions, they were seen as being more equitable, more responsive to problems, morePage 69The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentivemotivating, and more satisfying than when management designed the programs alone.Furthermore, when there is an unlimited market for the output, management can stress thatgainsharing will be used to identify bottlenecks in the production process. Employees canthen be re-trained to balance the production process, thereby increasing production andavoiding labour cut-backs.3.7 CONSIDERATIONS WHEN IMPLEMENTING GAINSHARINGThe introduction of a gainsharing program into an organization can be a complicatedprocess. Schuster (1987) outlined six steps that help to ensure successful implementation ofgainsharing plans: Seminar, feasibility study, review and plan design, implementation,monitoring, and evaluation. These steps provide the broad strokes required whenimplementing a gainsharing plan.Schuster says the introduction should begin with a senior-management seminar on thebackground and philosophy of gainsharing plans. The involvement of all senior management,and in some cases senior union representatives (Ross and Ross, 1990b) at both the head officeand the plant will educate key members and provide an indication of potential problems. Theoutcome of the seminar will be a decision regarding further study.The next step, feasibility, will measure the extent to which gainsharing will help toachieve organizational objectives, and the degree to which it is suited to the company. Thisstage will determine the fit between gainsharing and the organization by analysing the firm'sstructural, managerial, and financial characteristics, and comparing the projected results of aprototype plan design with the goals of the company. The characteristics considered indetermining the fit of gainsharing have been discussed in section 3.2, and include thecommitment of highly-placed management to the plans, the current management style, thePage 70The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentivelabour relations history, company culture, plant size, product mix and the extent to which itwill affect bonus calculations, work force interdependence, work force composition (ascompanies with mature employees who have good pay and benefits and have met theirfinancial commitments may be risk averse and want a high fixed wage set up), the potential ofthe company and market to absorb increased production, and the degree to which employeeeffort can further corporate objectives.Plan design will consider which employees should participate in the plan, the amountof employee involvement desired and the communication infrastructures required for this levelof communication, the specifics of bonus measurement (with particular attention paid to theease of measurement and the ability of this measurement to gauge performance), time frameused in bonus calculations, and implementation date (it is advisable to implement the plansprior to cyclical upswings). All stages of the plan design must be approached within theframework of the overall strategic objectives of the firm, whether they are to increaseproductivity, improve labour relations, or address other concerns discussed in section 3.1.Furthermore, the bonus should be kept as simple as possible, to facilitate plan adoption (Ross,1990).The fourth step in plan introduction is the gainsharing announcement. It is importantthat both managers and employees understand their roles in the new organization by this pointif the plan is to succeed. Company-wide education, as well as mechanisms to encouragefeedback will aid implementation.The fifth step, monitoring, will help the company be receptive to questions andcomplaints about the new system. The plan should be evaluated on a monthly basis for thefirst year, and less frequently thereafter. Monitoring will be most effective when the companyis aware of the specific hazards that it faces, and has developed a consistent way to measurethese hazards.Page 71The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's IncentiveThe last step, evaluation, is an ongoing process that reviews the plan in the light ofchanging business conditions, personnel, corporate objectives, and capital outlays. This step isessential to the long term success of the plan.While the method recommended by Schuster for plan implementation is by no meansthe only one possible, it does provide a methodological, systematic approach toimplementation. Such an approach will help to ensure all factors are addressed, and willgreatly enhance the chances of gainsharing success. However, Schuster's method may haveoverlooked some important steps.One is an employee survey (Bovino, 1992), which should be done in the feasibilitystage, to measure the amount of trust and job satisfaction between company personnel. Thissurvey will achieve several purposes.First, it will reveal if there is a requisite amount of trust to initiate a gainsharing plan.Second, it will provide management with an idea of what the employees considerimportant, and therefore may help to tailor the reward system to their needs. For example, itis reasonable to assume that different employees will react differently to gainsharing rewards,in particular the intrinsic rewards. For this reason, employee demographics and attitudes mustbe considered when developing the communication network so that the intrinsic rewardsoffered match the employees' profile.Third, the formation of groups of management and production personnel to discuss thesurvey results can be cathartic for all people involved. Typically, once the process is initiated,people are keen to discuss problems they experience at work if the discussions are open,honest, and if there is no fear of retribution. Therefore, discussions of the survey will not onlyincrease the trust and mutual understanding between management and employees, but it willbe a good basis for initiating the communication basic to all gainsharing plans. After a periodof time, group discussions can evolve from considering the survey to considering production-oriented problems (Bovino, 1992).Page 72The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's IncentiveFinally, the employee survey will provide a suitable baseline to measure the degree towhich changes in trust and job satisfaction have progressed after gainsharing implementation.This will be indispensable when evaluating the success of the plan in the future.Another consideration is that management and employees must fully understand thegainsharing plan and what it means to their job. Management must be trained in positivemanagement practices and group leadership skills for gainsharing to be effective. Ideally, theywill be re-trained periodically. Employees should be trained in basic business concepts, thebonus calculation, and factors that affect the bonus calculation, for gainsharing to be effective.For example, they must understand that it is not production, but the price at which productionis bought that determines company health and bonus amounts. All new hires, whetheremployee or management, should be trained in the responsibilities and expectations associatedwith gainsharing for it to succeed in the long term. In short, sufficient training will help toensure that some of the "evils" Louden identified with piece rate plans in the early 1900's donot re-appear in gainsharing plans in the 1990's.An additional consideration when implementing gainsharing includes determining howthe plan will affect total labour costs. A key consideration is that total wages paid aresufficient enough to attract and retain the desired employees and reward them sufficiently fortheir efforts. Furthermore, in some cases consideration must be given to the effect that agroup-based incentive may have on star performers used to earning a great deal of moneyunder piece-rate plans. It is possible that they will not appreciate having their exemplaryefforts used to subsidize the bonus of their less efficient counterpart's salaries, and will leavethe firm. On the other hand, depending on the individual, they may enjoy teaching otheremployees better ways to do things, and therefore improve company performance. Thesecond option represents a great opportunity for the company. Obviously, the reaction willdepend on the individuals involved, but one way to manage star performers is to offer themsupervisory roles, so that other employees, and the company, can benefit from theirPage 73The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentiveknowledge. It is essential that management addresses all issues of concern whenimplementing gainsharing, especially those regarding the effect it may have on wage increasesand layoffs. A statement that the plan will not directly cause any layoffs will help its overallsuccess (Appendix 2).3.8 GAINSHARING IN THE LONG TERMOne of the criticisms of gainsharing is that even if it does improve organizationaloperations, its effects disappear after the first few years (Goodman and Dean, 1990). Forexample, Richardson (1985) examined four participative management styles, one of whichwas a gainsharing plan, being used in four companies in mature industries and identified adistinct life cycle common to them all. The cycle has six stages: Becoming interested,wooing the work force, consummating the union, romantic interlude, complacency, andrenewal or failure.Becoming InterestedAccording to Richardson, the catalyst for a participatory management style is ideallysomeone in plant management, who feels that greater employee involvement in the work willresult in lower unit costs. When the idea originates with plant management, the success of theplans are greater, as they are not seen as pointless directives from an out-of-touch head office.Rather, the plant management is aware of the plans upside potential, and has a stake in itssuccess. Of course, the support of the employees and the head office is crucial; however, ascommitment of site management can be the most difficult aspect of gainsharing plans, theirsupport from the outset will enhance gainsharing success.Page 74The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's IncentiveWooing the Work ForceData from Richardson's four company study suggests that the union, along with about10% of the work force is usually negative towards these plans, while 10-20% of the workforce welcomes them, with the remainder being indifferent. To win over the majority, themutual management/employee benefits of the plans should be demonstrated, changes must beimplemented (as opposed to preached), and regular crew meetings should be held to discussoperations and invite questions or comments.Consummating UnionThis stage involves getting the union on-side, and can be achieved by getting unionrepresentation in discussion groups and inviting union comments and suggestions.Romantic Interlude Soon after proper implementation of a participative management scheme, Richardsonfound that workers often expressed more interest and took more care in their work, had fewergrievances, decreased maintenance costs, increased their productivity, and provided manysuggestions to improve operation efficiency. Managers therefore spent less time "fightingfires", and could devote more of their time to company, rather than personnel, relatedproblems.ComplacencyAbout one to two years into the four participation programs, Richardson noticedcomplacency, as the management and supervisors started to take participation for granted.This complacency could be identified by any or all of the following factors: Managementcommunicating and listening less, management making unilateral decisions when previouslysuggestions would have been sought, and the cessation of crew meetings. Another source ofPage 75The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentivecomplacency that he identified was decision paralysis, as managers wavered with employeeopinions and failed to make any decisions at all. The use of participative management doesnot make authoritative management obsolete. To quote McGregor (1960, p.31) "If authorityis the only tool in a manager's kit, he cannot hope to achieve his purposes very well, but itdoes not follow that he ought to throw away this tool. There are times when he will need it,when other tools will not be appropriate for his purposes". Individuals' motivation willdepend on the extent to which they believe in the goals set by the company, the opportunitiesthey have to help the company achieve those goals, and the payoff to them for helping toachieve the goals. If some people do not support these goals, the use of authority may beneeded to achieve adequate production. Richardson noted that other negative things likelayoffs adversely affected the plans. Chronic opponents of the participatory schemes point toproblems associated with it to discredit it, thereby exacerbating the difficulties.Renewal/FailureThe route taken in this stage depends on the ability of management to recognizecomplacency and implement policies that can revitalize and "institutionalize" the program.A study by Goodman and Dean (1982) found that in companies that adopted a newform of work organization successfully, only one third of the programs lasted beyond four orfive years. However, the Scanlon Plan was the most persistent of these organizationalchanges. Table 7 summarizes some methods that can be used to re-vitalize and maintain againsharing plan (Bovino, 1992).Page 76The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's IncentiveTable 7Policies to Maintain a Gainsharing Plan• Maintain production meetings.• Summarize the success of the plan to date, and give reasons for success.• Identify the best suggestions, and recognize the group responsible.• Periodically rotate gainsharing committee's to generate new ideas.• Expand notion of involvement.• Develop monthly and quarterly productivity slogans.• Communicate productivity information on electronic boards in lunch room.• Communicate examples of poor productivity.Another consideration when evolving the plan with time is that increased employeeknowledge of the business may allow, or require, changes in the plan structure. At some pointin the plan life, employees may identify as closely with company profitability as withoperational statistics like labour costs. At this time, depending on the industry and subject toemployee acceptance and understanding, such things as return on investment or otherprofitability measures may be adopted as parameters to gauge work performance. If theemployees' business knowledge and commitment to the firm have expanded to the point thatthey understand the profitability concepts and feel capable of influencing them, bonus payoutsbased on profitability will more closely link company performance with bonus payments.Furthermore, at some point employees may want to apply their ideas throughout theorganization, and not be limited to their own production centre. Therefore, another changethat may be required as the plan ages is an expansion of the team concept. Employees mayeventually exhaust their supply of ideas pertaining to their own productivity centre, and at thispoint they can be rotated throughout other production committees. This will broaden theirskills, enhance their understanding of the company's value-added chain, and encourage ideasthat enhance intra-departmental operations.In a further analysis of gainsharing plans in the long term, Goodman and Dean (1990)name five factors that affect plan institutionalization, or the degree to which the plan becomesPage 77The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentiveaccepted and utilized in an organization. Institutionalization is affected by training,commitment, reward allocation, diffusion, and feedback and correction.Training is important when the plan is implemented, after it has been in place for awhile, and when new employees join the organization. There is some evidence that decreasesin employee training contribute to the decline of gainsharing and similar plans (Goodman,1979).Commitment refers to the degree to which people get involved in the program, withhigh levels of commitment leading to institutionalization. Commitment can be measured bythe degree to which participation is voluntary. In one study (Goodman, 1979), programdecline was partially attributed to its being implemented in an organization whose work forcedid not desire it.Reward allocation refers to the types of rewards offered, the links between behaviorsand rewards, and the equity in reward distribution. Generally, the most institutionalized planshave both intrinsic and extrinsic rewards (Goodman and Dean, 1990), a strong link betweenperformance and rewards, and equitable disbursement of any gains made possible through thework improvements of the employees (Goodman and Dean, 1990).Diffusion refers to the natural spread of the program from one part of the organizationto others. In large companies, program diffusion from one operation to another results inmore institutionalization than implementing a "blanket" gainsharing plan that covers all of thecompany's operations (Goodman and Dean, 1990). This is because people in non-gainsharingplants can witness the positive effects of gainsharing prior to adopting it in their own plant,and therefore they have an easier time buying into the concept. A diffusion process that trainsnew participants and gradually spreads the plan throughout the organization is therecommended route to institutionalization in large companies.Page 78The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's IncentiveFeedback and correction involves a constant monitoring of the program by theorganization. Formalized evaluations of the programs, as well as mechanisms for feedbackand correction will help to ensure the long term success of gainsharing plans.The research by Richardson and Goodman and Dean will help companies to recognizewhen problems begin with their plans, and will give them ideas about how to overcome theseproblems. Moreover, it is encouraging to note that even if the plan does have a natural lifecycle, where it has been successful it will have provided management with a responsive,participative employee base to work with when developing new corporate strategies for thefuture.3.9 POTENTIAL PROBLEMS WITH GAINSHARINGDespite the positive reviews of gainsharing, success is not guaranteed. In fact, thereare many factors that can retard the effectiveness of these plans. A dysfunctional incentivesystem can have disastrous effects on organizational efficiency: in deed, it can be worse thanno incentive at all if it distracts people from the goals of the company or leads to poor labourrelations. Most of the factors in Table 8 have already been addressed in different sections, butthey will be summarized here. The factors have been noted by Gowen (1990), Bovino (1992),and Ross (1990) as reasons for problems with gainsharing plans.The importance of company culture and management belief in the philosophy ofgainsharing has already been discussed. It is crucial in developing a trusting relationshipwhere participation is open and effective. Furthermore, it appears (Richardson, 1985; Bovino,1992) that the majority of problems with these plans begin when management fails to continuethe philosophy of the plan, or to adjust its parameters to reflect changing realities.Other potential problems with gainsharing have been touched on earlier. Theseinclude the possibility that a group-based bonus could drive away production stars, and thePage 79The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's Incentivelikelihood that employees will demand more information and guidance which management,either through a lack of training or desire, may not be able to provide. Furthermore, somemanagement may allow an ancient evil, rate-cutting, to creep back into practice. This wouldinvolve the manipulation of standards such that, when production improves in one period, thestandards are set higher in the following period. This will result in smaller bonuses being paidto employees, despite improved production. Before long employees will recognize thepractice and produce at the rate that they believe will maximize their bonus while notencouraging management to increase the standards. In almost all cases, this will not be anoptimal arrangement.Table 8Reasons For Gainsharing Problems• Poor bonus formula design.• Extended periods of low or no payouts.• Managerial resistance to employee participation.• Lack of continuing support from the top.• Little perceived need to change the existing system.• Complex bonus formula calculations that obscure the employees' understanding of arelationship between productivity and rewards.• Productivity meetings cease or degenerate.• Unfair management manipulation of standards to company's benefit.• Supervisors feel threatened when sharing responsibility for initiating change with theemployee participation system.• Failure to evolve the plan as operational environment of the company changes.• Management lacks necessary skills.• Lack of actual openness, trust, and communication.• Failure to explain reasons for changes to employees.• Administration costs that exceed the benefits of the plan to the firm.• Radical technological or product mix change.• Dysfunctional behavior, in the form of decreasing bonus formula-related costs at theexpense of greatly increasing cost factors that are not included in the bonus formula.• Lack of stable productivity and cost measures.• Management fails to get contributions from all employees.• Employee apathy, due to indifference to monetary incentive or participatory system.• Cessation of production meetings and other forms of communication due tocomplacency.Page 80The Applications of Gainsharing Incentives in the Mining IndustryChapter 3 - Gainsharing - Design and Implementation of Today's IncentiveAnother consideration is that organizational policies must reinforce the ideology ofgainsharing and develop with it to remove any structural organizational hypocrisy which maydetract from plan effectiveness. For example, a company that encourages participation byimplementing a gainsharing plan but employs autocratic management styles is sending amixed message to its employees.Another potential problem associated with gainsharing is related to group dynamics.Although group decision making has many advantages over individual decision making,primarily due to its access to greater scope of knowledge and experience, it does have someweaknesses. Most of these weaknesses arise when the group is not managed effectively.Groups tend to make decisions that are more risky than those an individual would make(Myers and Lamm, 1976). The reason for this can be attributed to the tendency for opinionsto be more extreme after discussion occurs (Lamm and Myers, 1978; Myers and Kaplan,1976). Risky decisions are not necessarily a bad thing, as they may represent innovativesolutions to problems confronting a firm. However, they should arise as a result of carefulanalysis, and not only as a result of group dynamics.Another well documented weakness associated with group dynamics is known as"group think", and was initially discussed by Irving Janis in 1971. Group think is defined as"the deterioration of mental efficiency, reality testing, and moral judgment" in the interest ofmaintaining group solidarity (Janis, 1983). It typically occurs in highly cohesive groupswhich exhibit illusions of invulnerability, a belief in the moral righteousness of their position,a dismissal of outside information that opposes the group's viewpoints, high pressure toconform, and a feeling of unanimity in decision making. These illusions can vastly distort thegroup's ability to objectively evaluate alternatives and implement them effectively.Many of these the above factors will affect the success of any firm, regardless of paystructure. However, knowledge of them, combined with ways to counteract them, willenhance the chances of gainsharing success.Page 81CHAPTER 4 - EMPLOYEE INCENTIVES AND THE MINING INDUSTRYThis chapter will begin by providing a brief history of employee incentives in themining industry, followed by a discussion of some of the current applications of profit sharingplans and piece-rate incentives in the industry. Finally, pertinent characteristics of theindustry will be summarized and the degree to which gainsharing addresses thesecharacteristics will be discussed.4.1 A BRIEF HISTORYProduction incentives in mines have a long and creative history. In fact, innovativecompensation schemes existed in some mines long before piece work and profit sharingbecame popular. An example is the system used in the mines of Cornwall and Devon in theearly 1800's. The work in these mines was classified into three groups: Tutwork, or the workinvolved in sinking shafts, driving levels, or stoaping [sic] ground, Tribute, the work involvedin raising and dressing the ore, and Dressing, extracting the excess economic ore left by theTributors. Approximately every two months, work in the mines would cease, while the mine"captains", or managers, defined and estimated the amount and value of work to be done overthe next two months. This work was then auctioned on a contract basis to the miners. Adescription of the bidding process follows (Taylor, 1814)."About the middle of the day the men are summoned and assemble inconsiderable numbers, as not only those who worked in the mine the former twomonths, but all such that are in want of employ attend on these occasions, whichindeed is the cause of the competition so often observed. The business beginsby reading over what is called a general article, or set of rules and conditionssubject to which every contract is made, and which article prescribes fines forfraud or neglect in the performance of the work. When this is read thePage 82The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining Industrymanaging captain generally begins with the tutwork, and puts up a shaft or level,declaring the number of men required, and sometimes limiting the extent of thebargain to a certain depth or length...Offers are made...until noone is inclined tobid less, when the captain throws up a small stone, and declares who is the lastofferer." (p. 309)Payment for the work was made as follows."An account is opened at the counting house with the taker, or principle man ofthe [winning bidding group], wherein he is debted with the value of all toolsdelivered to him by the smith, and the expenses of sharpening and repairingthem during the taking, or term of the contract, also, with the candles, gunpowder, and other articles used by him and his partners, with the charges ofhauling the waste to the surface, and likewise with cash advanced, called subsist.After the taking is out, the account is credited with the amount arising from themeasurement of the ground at the agreed price, and with the tools and otherarticles returned unemployed. The pay-day is generally about a fortnight afterthe taking ends, when the balances are paid." (p. 309)This system had some advantages, in that it "not only instigates the miner to discoverand produce as much as he can, but leads him to consider every circumstance which maydiminish the expence [sic] of returning it, or may enable him to produce the greatest quantityof each metal at the lowest charge of dressing as well as raising" (Taylor, 1814).There is no question that this compensation scheme would provide each mining crewwith the incentive to draw on all of its skills to extract the most profitable ore as cheaply aspossible. However, it is also likely that a certain amount of secrecy will surround each crew'swork, to provide information advantages at bidding time. The strong competition betweencrews, as their jobs are directly linked to their productivity, would also discourage the sharingof innovative ideas to enhance overall productivity. Furthermore, this plan discourages safemining practices. While safety standards did exist, it was in the miners best interest tocircumvent them when they felt they could, as the time devoted to safety could threaten theirproductivity, and ultimately their jobs.Page 83The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining IndustryA little more than 60 years after Taylor's article was written, another form of incentive,known as "sliding scales", began to appear in the British mining industry and by 1884 onequarter of all coal mines in the U.K. had one (Munro, 1885). In his paper, "Sliding Scales inthe Coal Industry", Munro describes a sliding scale as "a method by which wages, based on astandard wage payable at a standard price, rise or fall an agreed percentage with every agreedrise or fall in the average price of coal at the mines, such average price having beenascertained at fixed intervals." The principle of this sliding scale, again in Munro's words, was"that the miner and Colliery owner are engaged in a common enterprise, and that the produceis to be shared between them". They were generally written as a contract between employeesand employers, and signed by representatives of both groups. A scale used in Somerset in1876 was set up such that the standard coal price was 10 shillings, and wages increased(decreased) by 7.5% as the coal price increased (decreased) by one shilling. This particularcontract had a ceiling and floor set on the possible wages paid, but this was not commonpractice in those times.The advantages of the sliding scales were said to be two-fold. First, they provided a"steadiness to trade" by automatically adjusting the miners' wages as the price of coal changed,thus decreasing the chances of strikes. Therefore, management resources could be devoted tobusiness matters other than industrial disputes. Second, by helping to ensure long-termemployment (as the company would not have to lay off as many people when the commodityprice fell), the sliding scales provided a "steadiness to wages". Most miners no longer livedhalf of the year in poverty and the other half in riches, but were employed for the entire year.The effect that these scales had on labour relations is hard to measure. On one hand,they got both parties working together and instilled the employees with at least some interestin the business of mining. On the other hand, there were alternate views on the average priceof coal per period, and the price at which the standard wage is paid. Furthermore, manyPage 84The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining Industryemployees may not have wanted to be exposed to the downside risk of the price of coal whilenot being able to affect the upside potential.As incentives, these sliding scales will likely have only a minimal effect. These scalesare more useful as vehicles through which to link employee wages with company profits thanas incentives to improve employee performance. The cost of production will not affect wages,so labour will not have any desire to work more efficiently. Furthermore, tying wages to thecommodity price may increase the employees' knowledge of the operating environment of thecompany, but if a participation network is not established where employees can exercise thisincreased knowledge, frustration is the most likely result as they will only be able to affecttheir pay to a very small degree. The employees' work performance will not affect their wagerates, and they will not have an opportunity to contribute their ideas to the company.4.2 INCENTIVES USED TODAY IN CANADIAN MININGAn intensive telephone survey in early 1993 at U.B.C. of 149 operating mines inCanada is representative of the extent to which piece-rate, profit sharing, and gainsharingincentives are used today. Figure 7 indicates that 5% of Canadian mines use gainsharingplans, and during the survey an additional 7% said they have considered using theseincentives. By comparison, in the U.S. a 1992 survey of the salaries, wages and benefits in theMetal, Industrial, and Coal mining industries (165 mines responded) by the Mining CostService, reported that 48% of the mines use incentive plans, and of these mines 26% usegainsharing plans.Page 85Piece-rateand ProfitSharingThe Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining IndustryFigure 7Incentive Plans in CanadaThe approximate breakdown of the degree to which incentives are used in open pitmines versus underground mines is as follows.Figure 8Incentive Use in Underground Minesn=80Page 86The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining IndustryFigure 9Incentive Use in Open Pit Minesn=41These charts provide an estimation of the degree to which underground and open pitmines use incentives and the types of incentives they use. The most striking result is thenumber of underground mines that use incentives in comparison with the amount of open pitmines that use them. The reason for this difference may well be because the difficulty insupervising people in underground mines requires that they be given extra motivation to workhard (Solski and Smaller, 1984). Another interesting result is that both piece-rate incentivesand profit sharing are more common in underground mines, while gainsharing appears to beequally common in both, on a proportional basis. This may indicate that gainsharingincentives are equally applicable in both mine environments. A comparison of the results thatgainsharing generates in open pit versus underground mines will be provided in the followingchapter.4.2.1 Mining and Piece-Rate PlansThirty percent of operating mines in Canada use piece-rate plans, making them themost popular incentives in Canadian mining. Often referred to as "production bonus", theyPage 87The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining Industryprovide an incentive to work hard by making bonus payments contingent on the amount ofwork done. Although these incentives can be quite variable, a general design can proceed asfollows. The time requirements for a particular job are measured using time study techniquesand assuming that the job is being performed by an average qualified employee working at anormal pace under typical operating conditions (Burkett, 1981). Normal pace can be equatedto walking at three miles per hour on level ground and includes a 15% allowance forrelaxation, and a "typical" job may include, for example, inserting one type of rock bolt.Using these time measurements, work areas can be assigned total allowable man hours bymultiplying the units to be extracted by the standard time per unit. Once the "standard" timesare established, they become the benchmarks against which to measure future performanceand calculate bonuses. Typically, the size of the group covered by the incentive is the smallestthat can be readily identified with a measurable output (Burkett, 1981).Table 9Example of Piece-Rate Calculation in a Mine Step 1 .$ tep 2101Step 4Facts: - Standard time allowed per unit = 0.1 work hours.- Number of units^= 200.- Bonus formula: 0.5(percent performance - 80%).Total allowable work hours (TAWH): 0.1(200) = 20 hours.Actual hours (AH) (assumed)^= 16 hours."Percent Performance" = (TAWHJAH)100% = 125%.Percent Bonus = .5(125% - 80%) = 22.5%.Individual's Incentive Earnings:Assume he worked 16 hours, base wage = $20.00/hour.Bonus Payout = 16 hours(20)22.5% = $72.00.Page 88The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining IndustryThe standard hours allowed are expressed as a percentage of actual hours to determinethe "percent performance". The bonus percentage is then calculated according to thespecifications of the plan - in Table 9, 80% is subtracted from the percent performance and theresult is multiplied by 0.5. Individual employee earnings are the percent bonus multiplied bythe base wage and the hours charged.Table 10 shows the actual bonus amounts paid to employees doing rock bolting at theCominco Sullivan Mine in Kimberley, BC, according to their collective agreement that waseffective from July 1990 to September 1992 (Cominco, 1990). In this case, employees arepaid a fixed dollar amount per conventional rock bolt. The bonuses paid in Table 10 varywith the rock bolt length, type, and diameter, and include the time taken for the drilling andplacing of bolts. The bonuses also include times for checking and setting up the equipment,all barring required and time needed to make the workplace safe, minor operator repairs,interference by engineering personnel, final clean up, and gathering of routine supplies andequipment. Finally, the rock bolts must be installed to a supervisors specifications. Table 10demonstrates some of the complexity in setting work standards for piece-rate contracts.Contracts for other mining duties, for example tramming, can be further complicated byswitch point locations and the location of the production stope in the mine.Burkett (1981) states that the less productive incentive miners earn at least 120% oftheir base rate, while the most efficient miner may earn 200% of his base rate. The averagebonus earned by miners at one mining complex in Ontario was 43% in 1991. Usually, areasonable base earning rate is guaranteed and incentive earnings are paid monthly.Page 89The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining IndustryTable 10Bonus Payments per installed rockbolt at Sullivan MineStar Plates (price per plate)^ $1.00Screens (weld mesh or rolled, drift or raise) - (6x8)^$10.00Swellex Bolts (1-3/8" hole)^- 3 ft.^$3.01- 5 ft.^$3.76- 7 ft.^$4.70(1-1/2" hole)^- 3 ft.^$3.34- 5 ft.^$4.18- 7 ft.^$5.22Split Sets (without straps)^- 3 ft.^$2.92- 6 ft.^$4.38- 8 ft.^$6.57(with straps)^ - 3 ft.^$3.04- 6 ft.^$4.56- 8 ft.^$6.84MKD Bolts (without straps)^- 6 ft.^$4.60- 8 ft.^$6.25(with straps) - 6 ft.^$4.80- 8 ft.^$6.66Rebar (in grout)^ - 6 ft.^$4.50- 8 ft.^$5.63(in resin) - 6 ft.^$5.01- 8 ft.^$6.26Piece-rate incentives give employees a great deal of control over their incentiveearnings and provide a very direct link between their work performance and reward.Moreover, the monthly bonus payments are closely tied to recent job performance andtherefore can provide a strong reinforcement of positive work practices. For these reasonsPage 90The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining Industrythey can provide strong motivation to employees to work hard. There are some problems withthese incentives, however.Piece-rate plans offer only extrinsic sources of motivation to employees, as they payindividuals for their work performance but do not encourage communication and suggestioncreation and evaluation. In fact, in some circumstances they may discourage suggestions ifthose suggestions do not bear directly on the individual's bonus, and if that individual has tosacrifice productive work time to make them.The difficulty inherent in designing piece-rate plans is ensuring that when employeesstrive to maximize their own gains, they also maximize the gains accruing to the mine. Thisprovides an indication of one of the primary weaknesses of the plans: Their design does notencourage employees to identify with the mine's goals and therefore alter their work habitswhen the incentive provided by the bonus and the goals of the mine differ. Piece-rate plansare designed so that employees, by maximizing their personal earnings, will indirectly work inthe best interests of the company. In cases where the incentive provided by the bonus and thegoals of the mine diverge, the employees will likely choose the option that maximizes theirwealth. For example, if employees are earning substantial bonuses while using traditionalextraction methods, they may reject innovations that would increase overall productivity butdecrease their individual bonus. In this respect, worker flexibility suffers. At these times,efficiency demands that management establish new directives to re-align employee goals withmine goals. When and if a divergency between individual incentives and mine goals isrecognized, its solution can be both time consuming and temporary. Any incentive that canlink employee goals and behaviors directly to organizational well-being rather than makingcorporate health a fringe benefit of individual wealth maximization, will be self-regulating andwill circumvent problems encountered when employee priorities and mine objectives do notcoincide.Page 91The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining IndustryThere has been considerable discussion and some research on the relationship betweenpiece-rate bonuses and accidents in mines. Some argue that the increased production andcompetitiveness under these incentives comes at a "blood" price as miners overlook safetyprecautions in the interest of maximizing their gains. Some papers (Burkett, 1981) haverecommended that government legislates an end to individual or small-crew incentive plans toimprove the safety performance in mines. While the contention that piece-rate bonus schemeslead to increased accident rates in mines may seem reasonable, it is far from certain whether ornot miners sacrifice their own safety to make more money. Some people (Hopkins, 1984)(Billette and Laflamme, 1987) point out that linking accident rates to bonuses is a complicatedprocess as the miner's age and experience, total work time per shift, training, social pressures,and the jobs themselves must be considered, and piece-rate bonuses cannot be implicated as amajor cause of mining accidents.Piece-rate incentives have been used in mines for a long time and are jealously guardedby many miners and their representatives who are aware of the earning power associated withthem. An example of this is the Sullivan Mine strike in Kimberley, BC which began inFebruary, 1990. The company shut down the mine citing increased production costs and thedecrease in the price of zinc. However, at the time there was a "widespread feeling that one ofthe issues in the shutdown was an ongoing labour-management conflict" (Northern Miner,1990). The previous bonus contract had expired in October of 1989 and the company refusedto negotiate a new contract, preferring to offer day-rate pay instead. It is likely that theexorbitant wages being earned by some miners prompted the company's position regarding thebonus contract. As a result of the day-rate pay policy, production between November, 1989and February, 1990 dropped to 33% of its historic levels (Northern Miner, 1990). This dropin production was likely a retaliation for the un-renewed bonus contract, and lead to a longand costly work shutdown.Page 92The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining IndustryOne method that companies sometimes use to decrease the money paid out underpiece-rate production bonuses is to offer profit sharing plans as concessions for decreasedpiece-rates. This ensures that the employees will benefit if the company makes enoughmoney, and reduces the emphasis on the piece-rate bonuses.4.2.2 Mining and Profit SharingProfit sharing plans are quite popular in the Canadian mining industry today, as 17%of the operating mines use the plans either exclusively or in conjunction with other incentives.Although quite flexible, these plans typically require that the mine reach some threshold levelof profits before any bonus is paid out. A minimum industry-average base wage isguaranteed, and bonus payments usually occur once per year. In some plans, employees havethe choice of receiving payments immediately or deferring them.Companies that favour profit sharing do so because it allows for large bonus paymentswhen the company is making money, but requires only base salary expenses during hardtimes. In the cyclical mining industry, labour costs that decrease in down-swings can have asubstantial impact on the risk profile of the mine. Management also likes the idea of tyingbonuses to company performance as it is seen as a way to make the employees aware ofoverall company performance. With employees more in tune with the company's health,management feels that they will work harder during downturns, and be more willing to makewage concessions when needed. Furthermore, employees will be able to share in companyprofits when the mine is doing well.An example of a profit sharing plan being used at a mining complex is the plan in useat the Sudbury operations of INCO Ltd. This plan was initially introduced to salaried staff inthe fourth quarter of 1987, and has subsequently been expanded and modified to include otherPage 93The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining Industrypersonnel. As of June 28, 1991, over US $50 million had been distributed to participatingemployees. Table 11 provides an example of the profit sharing plan offered to salariedemployees at INCO. Bonuses are paid to employees as a percentage of their salary when thequarterly operating earnings of Primary Metals exceeds US $20 million. The maximumpayout is capped at 25% of an employee's salary.Table 11Profit Sharing Plan at INCO Ltd. (1991)Primary MetalsQuarterly OperatingEarnings (US $M)Percentage ofQuarterly BaseSalaryPrimary MetalsQuarterly OperatingEarnings (US $M)Percentage ofQuarterly BaseSalary20.0 1.10 260.0 14.3040.0 2.20 280.0 15.4060.0 3.30 300.0 16.5080.0 4.40 320.0 17.60100.0 5.50 340.0 18.70120.0 6.60 360.0 19.80140.0 7.70 380.0 20.90160.0 8.80 400.0 22.00180.0 9.90 420.0 23.10200.0 11.00 440.0 24.20220.0 12.10 450.0 24.75240.0 13.20 455.0 25.00The profit sharing plan at INCO was not intended purely as a motivator, but as avehicle through which employees could increase their identification with the company andshare in its success (Ames, 1992). As such, the company pays its employees industry averagebase salaries in addition to the job benefits. Furthermore, INCO has adopted employeeinvolvement and management training plans to improve the flow of communication andPage 94The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining Industryparticipation in the company and allow the employees to exercise the increased interest theyhave in the company as a result of the profit sharing plan. However, despite the efforts atimproving communication, it is questionable whether the profit sharing plan is producing thedesired results. In an on site interview in August, 1992, it became clear that in some cases theprofit sharing plan did not provide a strong enough incentive to miners to act in the bestinterests of the company.In other profit sharing plans, there is often no explicit mention made of employeeparticipation. Rather, it is hoped that because the bonus is tied to company financialperformance, employees will become interested and participate voluntarily. While thissupposition may apply to some extent, worker participation and cost control will never bewhat it could be. In fact, pro-active participation is less likely to occur in the mining industrythan in many other industries for reasons stated earlier. Specifically, the employee has littlecontrol over company profitability and therefore has little incentive to work towards corporateobjectives. Market prices, exchange rates, management decisions, and accounting practices,all of which are beyond the employees' control, can have a far greater impact on companyprofits than employee work performance, making employee contributions seem futile. Forexample, in one case employees produced adequate amounts of ore, and despite an increasingcommodity price received only a very small bonus. The reason for this was that to hedge itsrisk, management had previously sold the commodity at a relatively low price on the futuresmarket, resulting in less than expected profits. Needless to say, the employees were notimpressed with this decision, and their faith in management's capabilities can only havediminished. When confronted with situations like this, it is easy to understand employees'perceptions regarding the tenuous link between company profitability and saving, for example,half a can of driller's grease.Many companies combine profit sharing plans with individual piece-rate incentives. Inthese cases, the incentive generated by the profit sharing plan to provide suggestions, work asPage 95The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining Industrya team, and implement cost-saving measures is quite small. This is because employees mayhave to sacrifice time they could devote to increasing their individual piece-work bonus tosuggest and present ideas which may never be implemented. Furthermore, time spent tryingto improve team performance is time lost pursuing a large individual bonus. This point willbe particularly apparent when the individual bonus earned can represent a substantialpercentage of base wages.As profit sharing plans are not the subject of this study, they will not be consideredfurther. However, it is useful to note that the companies contacted that use these plans realizethat improved worker awareness of company objectives can have a positive impact on thebottom line. Furthermore, they are prepared to implement plans which they believe willaccomplish this improved awareness.4.3 GAINSHARING AND THE MINING INDUSTRYIn analysing the applications of gainsharing in the mining industry, the characteristicsof the industry will be combined into three broad characteristics: Micro characteristics, macrocharacteristics, and labour characteristics. This section will reveal the major characteristics ofthe mining industry in Canada, and discuss how gainsharing addresses these characteristics.4.3.1 Micro CharacteristicsThe micro characteristics of the mining industry include factors related to theenvironment in which the miners work, and factors associated with the extraction of productfrom the ground.Page 96The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining IndustryThe process of efficiently converting several tons of ore into one ounce of goldrequires a multitude of skills at several different production centres. One could say that thereare many "customers" in a mine. For example, the blasters are the customers of the drillers, asthey receive the product of the drillers, and their own productivity will hinge on the quality ofthe driller's work. In a similar way, put simply, muckers are the customers of the blasters, andmillers are the customers of the muckers. Mine productivity depends on the ability of theproduction centres to transfer and transform the product as cheaply as possible. With suchinterdependent production, any incentive that gives each production centre knowledge of theneeds of its customers and creates the desire to fulfill those needs, will have a positive effecton profitability. Theoretically, gainsharing is such an incentive, as employees are made awareof each other's needs through productivity meetings, and have an incentive to fulfill thoseneeds and thereby benefit from increased bonuses and intrinsic rewards.Mining is becoming more automated every day. In most cases, the miners' productionno longer depends on the rate at which they can manually shovel ore into a tram. Much of theequipment can extract the ore with minimal physical exertion required by the miner.Therefore, in many cases production today depends more on the ability of the miner to worksmarter, rather than harder. Incentives that encourage employees to apply themselvesmentally to their jobs and ensure that employee goals correspond with those of the companywill become even more advantageous as the mining industry develops more automation. Inany industry technological changes can have radical effects on production and labour. Theapplication of new technology requires changes in the standards upon which bonuses arecalculated and often requires changes in the skill levels of employees. The adoption of newtechnology can be a daunting prospect for all employees. However, the worker flexibility andorganizational communication associated with gainsharing will ease the incorporation oftechnological advances into operations.Page 97The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining IndustryAll mines differ from most other businesses in that they are finite entities that are oftenonly involved in the production of one or two products. These characteristics of mines mustbe taken into account during gainsharing design to aid effectiveness and prevent ideastagnation. It will be difficult to achieve employee commitment in a mine that has verylimited reserves. Knowledge that the mine has reserves of one or two years may create a senseof futility among employees, and the notion of "continuous improvement" may make littlesense, for obvious reasons. Because of the product homogeneity in most mines, after thegainsharing plan has operated for a while the idea pool may slowly dry up. Section 3.8provides some suggestions that may be applicable after employees have gained knowledge andexperience with the gainsharing plan. These can involve the expansion of the bonusparameters to include profitability criteria and the rotation of employees on productivitycommittees to enhance the team concept. Whatever methods are used to renew interest in theplans, because the product produced rarely changes, the flow of ideas to improve productivitywill decrease with time, so steps must be taken to rejuvenate the plan if it is to survive in thelong term.In most cases, the factor which impacts most on a mining company's success and islargely controllable by the company is the cost per unit of producing the final product. Otherfactors, like commodity prices and exchange rates have a large impact on mine profitabilitybut cannot be controlled by employees, and can be only marginally controlled by managementthrough futures markets. If properly structured and implemented, gainsharing plans focuspeople's attention on those key success factors that they can control, and this will help themine to better survive the vagaries of the market place. Furthermore, in many mines the costof production is well monitored and relatively consistent. This helps both in setting workstandards and providing information to employees about their performance.In Canada, many mines are located in remote areas, with work schedules set up in sucha way that people spend a fixed time at the mine, followed by time off in a neighboring city.Page 98The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining IndustryWhile at the mine site, employees are immersed in the mine culture. If they do not enjoy goodrelations with each other and company management, morale will likely be low and this willaffect work performance. Gainsharing gives employees the opportunity to participate inmanagement and share monetary rewards from improved performance. If it is appropriate toassume that employees and their companies flourish with participation, gainsharing shouldhave a positive affect on morale.Mining can be a dangerous business. In such an environment, policies that encouragethe discussion of safety procedures and provide a positive incentive to practice them willlikely have a large affect on labour relations, mine culture, and productivity. Even if weignore the immeasurable costs of the human tragedy associated with mining accidents, thecosts of unsafe practices can still be substantial. Everything from the short term outcomes likecompensation costs and accident down-time to the possible long-term outcomes like poorlabour relations, distrust of management, and low morale, can adversely affect mineoperations and can be a direct result of poor safety practices. Some papers (Sanders et al1976; Smith et al 1978) indicate that participative management plans have a positive effect onsafety in mines. If this is true, the environment created by gainsharing plans should havepositive ramifications on safety in mines. Furthermore, if the gainsharing bonus is based inpart on the cost of production, the cost of accident compensation will affect the cost ofproduction and therefore the reward payments. Consequently, both the "intrinsic" and the"extrinsic" components of gainsharing plans may encourage safe production.Underground mining is very difficult to supervise. It is partly due to this thatindividual production incentives are popular, as they are perceived as instruments that canensure that every miner works hard in the absence of supervision (Solski and Smaller, 1984).Some effort must be made to ensure that underground miners have adequate incentive to usetheir time effectively when working. By providing an extrinsic reward and helping employeesto identify with and participate in company goals, gainsharing provides an incentive to work.Page 99The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining Industry4.3.2 Macro CharacteristicsThe macro characteristics of mining, which include factors that are beyond the controlof individual mines, also affect incentive management. One of the most notablecharacteristics of the mining industry which can affect incentive structure is the volatility ofthe commodity price. In most cases, the price at which the output is sold is subject to a largeamount of variability. Thus, as stated earlier, any incentive that relies on the sales value ofoutput, like profit sharing and some forms of gainsharing, may lead to employee frustrationand apathy as their bonus would fluctuate greatly due to factors that are beyond their control.This problem can be avoided by linking the bonus and productivity measurements tofactors that the employees can control, like the cost per unit of metal produced. However, thiscan give rise to more difficulties, again as a result of the volatile market price. For example,in the case of stellar employee performance and poor market prices, management mayencounter cash flow problems as they may not have the revenues to draw upon to pay thebonus. This likely would not be too troublesome if it was a one-time occurrence, but if thatsituation persisted, management may have to choose between seeking other sources to pay thebonus, and foregoing the bonus payments. In this case, the good employee performance willbe resulting in less than expected losses. Therefore, it is highly advisable to pay theemployees, as the company would still have their share of the employees' productivity gains todecrease the loss, and would continue to have a motivated work force, a huge asset in troubledtimes. In the other scenario, where there are high market prices but low labour efficiency,labour may become frustrated when they do not receive a portion of the company's largeprofits, and may perceive the work standards as being unfair.Price volatility can make incentive management in the mining industry a trickybusiness, and gainsharing is susceptible to the problems it causes, as is any other incentive.However, by insulating the employees' bonus payments from the effects of uncontrollablePage 100The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining Industryprice volatility, gainsharing can create a highly motivated and productive work force whichcan in turn insulate the company from price volatility.Mining is becoming more and more international every day. As countries vie for agreater share of the finite global mineral market, the competition in the market will increase.While there are many factors that can have a huge affect on a country's ability to compete thatare to a large degree beyond the control of government and mining experts, for exampledeposit size, grade, and accessibility, other controllable factors can have a large affect on theability to compete. Many of these, like taxation, land use policy, environmental regulations,political stability, country infrastructure, and skills availability, are beyond the realm ofinfluence of an incentive plan and will not be addressed here. However, any incentive that canincrease labour productivity and tap the full capabilities of the human resource can alsoincrease the competitiveness of individual mines and the countries in which they are operating.It has been argued earlier (section 3.1) that in many cases gainsharing is the superior vehiclethrough which to achieve a motivated, productive work force.4.3.3 Labour CharacteristicsAccording to a human resources study commissioned by Employment and ImmigrationCanada (1992), people in the mining industry are well paid, and although each operation isdifferent, in many cases the operation and production personnel have grade 12 education.There is a large amount of knowledge sharing between trades people, and training and re-training in product use is common. A large, well trained and skilled resource of productionpersonnel should be able to participate effectively in the development and implementation ofcompany policies. Gainsharing will allow the people to exercise their education andknowledge in a pro-active manner.Page 101The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining IndustryThe history of labour relations in mining is quite bleak. Volatile market prices,hazardous working conditions, and autocratic management styles are not conducive toharmonious industrial relations. Gainsharing requires a participative approach to managementin which information and ideas flow between employees and management, thereby increasingmutual trust, confidence, and understanding. Of course, wherever a wage bargain situationexists labour relations will be troublesome. However, wage bargaining should be a lot lesstroublesome in an environment where the two parties start off on cordial, honest terms.It was argued earlier (section 3.1) that employees in general are changing. Thisargument applies to the mining industry and when one considers this in conjunction with thenew technologies in mining which are demanding a higher-skilled work force, it becomesapparent that employee dynamics are different today than they were in previous generations.To be effective, incentives must be tailored to the needs of employees. If it is true thatemployees have changed, incentives used in the past may no longer be the most effectivevehicle through which to maximize the efficiency of resource extraction.A good example of a mine currently using a gainsharing plan is the Glenrock Coalmine in Wyoming, which implemented a plan in 1988 in an attempt to improve productionand prevent mine closure. An extensive case study, made possible by a site visit where 76employees and 15 management personnel were interviewed, indicates that the plan has beensuccessful. In fact, the mine manager feels that the mine would now be closed if the plan hadnot been implemented. Some of the improvements at the mine include improvedcommunication, increased knowledge of mine interdependencies, increased discussions inways to improve mine operations, better productivity, more involvement in purchasingdecisions, better relations between employees and management, improved productivity, andpossibly improved safety.A large portion of the improvement in the mine's operations has been made possible bythe increased participation by the employees in the mine's business. The mine manager statedPage 102The Applications of Gainsharing Incentives in the Mining IndustryChapter 4 - Employee Incentives and the Mining Industrythat the employees' desire to participate had always been present, but for the most part wasdiscouraged by management that did not listen to and act upon their suggestions.The mine has encountered problems with the plan over the five years, however. Oneof the problems has been idea stagnation, as the employees' productivity improvement ideasgradually "dry up". Another problem has been the management of the bonus line, which hasnot been adjusted for the effects of inflation over the years. For a full discussion of thegainsharing plan at the Glenrock Coal Mine, please refer to Appendix 2.The above overview of the characteristics of the mining industry seems to indicate thatgainsharing may improve the operating efficiency in some mines. The following chapter willlook at some specific applications of gainsharing plans in mines, discuss the plan structures,and conduct a preliminary examination of their effectiveness.Page 103CHAPTER 5 - SURVEY OF GAINSHARING IN THE MINING INDUSTRY5.1 INTRODUCTIONDespite our knowledge of characteristics that are conducive to gainsharing, there is anoted absence of theory associated with it (Milkovich, 1986; Schuster, 1983). This makes itsomewhat difficult to determine ex ante whether gainsharing implementation will besuccessful in any given situation. For this reason, we will examine data collected from minescurrently using gainsharing plans and draw upon what we know from their applications inother industries to discuss their applications in the mining industry.5.2 THE SURVEY5.2.1 Purpose:The survey "Gainsharing in the Mining Industry" has three primary objectives. Thefirst is to find how many mines in Canada use gainsharing plans. The second is to find whatgainsharing plan structures are common in the mining industry, how they are implemented,and management techniques used in conjunction with them. The third objective is to evaluatethe gainsharing plans being used.Page 104The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industry5.2.2 Targets:Mines that combine a group-based bonus system that covers virtually all employeesand is based on parameters over which employees have control, with a communicationnetwork through which employee suggestions and opinions can be funneled and which allowsinformation exchanges between employees and management, are considered suitable targetsfor the study. Plans with bonuses based on profits are not considered gainsharing for thissurvey because profitability is not a good indication of employee work performance in mining,for reasons already discussed in sections 1.3.2 and 4.2.2. The above definition made theidentification of target mines difficult, as there is room for large variations within it.Furthermore, not all suitable targets labeled their incentives as "gainsharing plans", and somemines had incentives called "gainsharing plans" which bore little resemblance to thedescription above. For this reason, a telephone survey of all operating mines in Canada wasconducted, to more accurately identify what incentives are used in these mines. These resultswere presented in section 4.2. Eight mines were identified as using gainsharing, seven ofwhich were sent questionnaires.Five of the seven Canadian mines that were sent questionnaires have participated inthis study. Two U.S. mines have been included to increase the sample size. The Canadianmines participating are owned (in no particular order) by Placer Dome, Cominco Ltd.,Syncrude Canada Ltd., Homestake Mining Company Ltd., and the Potash Company ofAmerica.5.2.3 Method:Two identical copies of a 12 page survey entitled "Gainsharing in the Mining Industry"(Appendix 1) were sent to each target mine, where one copy was completed by managementPage 105The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryand the other by a "typical" employee. This typical employee was chosen by management,and the managers were asked to choose the employee who best represents worker attitudestowards the plan. Although this method suffered from potential management bias whenchoosing employee respondents, responses from both management and employee personnelprovided a measure of the success of gainsharing plans from two different perspectives, andled to some interesting results.5.3 CASE STUDIESThe analysis of each case will be divided into six parts. First, the mine's initialphysical operating conditions will be described, along with the relationship betweenemployees and management. In addition, the measure used by the mine for productivity willbe revealed, and the objectives of the gainsharing plan will be described.Second, because the process used to implement gainsharing can have a large impact onsuccess, the methods used to introduce it will be discussed. This will consider who initiallythought of gainsharing, who developed it, key considerations in its development, whether andhow people's opinions of gainsharing were measured, training methods used inimplementation, and the degree of support from management personnel for the plan.Third, the plan structure will be discussed. This will consider the mechanics of bonuscalculation, as well as the management of the calculation. The management of the calculationwill consider the frequency with which standards are changed and the information provided toemployees with the bonus calculations. This section will also measure the opportunitiesprovided to employees for communication by measuring the number of meetings held,meeting attendance, management styles, and degree of information sharing.Page 106The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryFourth, on-going plan management will be revealed. This will consider on-goingtraining and evaluation methods, and may reveal practices which can lead to long-termsuccess.Fifth, the plan results will be discussed. These results will measure employee interestin participation, changes in management style, changes in productivity, and effects oncommunication, safety, labour relations, cost control, and labour costs.Sixth, the plan will be evaluated and discussed, in view of the mine's initial operatingconditions. The evaluation will primarily consider overall satisfaction with the plan, thequantitative and qualitative results, the match between plan objectives and mine key successfactors, whether their are opportunities for communication and participation, whether thebonus is controllable by miners, and whether the calculation is easily understood.This evaluation excludes one very important factor when measuring plan success,namely the ability of the plan to encourage long-term continuous improvement in the mine.The reason for this is that one survey alone is insufficient to objectively match particular planswith continuous improvement. For example, a one-year old gainsharing plan may improvemine productivity because it was well designed, managed, and implemented in a well preparedcompany, or simply because it is passing through the "romantic interlude" stage ofRichardson's life-cycle. Based on observable results like employee and management attitudestowards the plan and changes in operating statistics, this survey would likely report thesedifferent hypothetical plans as being equally successful. Without the benefit of long-term planresults, our ability to match plan design with continuous improvement is limited. A far betterindication of the long term success of these plans would be provided by a time series of"snapshots" of plan results, which would minimize the influence of extraneous factors likeplan age on results, and therefore allow us to better match plan design and management withplan success. This survey provides a solid basis for further study of this type.Page 107The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryIn order to compensate for this weakness, future plan performance will be projectedbased on what is known about gainsharing in other industries. This will consider on-goingplan monitoring and training, as well as the factors used previously to measure plan success.Future surveys of gainsharing in these mines may substantiate or reject the projectionsdeveloped here.After describing the case studies, any trends discovered regarding the use ofgainsharing will be discussed.5.3.1 Case #1Mine DescriptionThis non-unionized mine consists of approximately 75 employees and has beenoperating for less than five years. Gainsharing was implemented a little more than one yearprior to the survey, and became the first incentive system used at the mine. No other incentiveplan is used in conjunction with gainsharing, and while management felt that the extraction ofore had been relatively consistent in the past, the employee respondent felt that it was not, dueto changes in ore composition.Both the management and employee respondents strongly disagreed with the statementthat prior to gainsharing implementation, labour relations were very good. Furthermore,management strongly disagreed, and the employee disagreed, with the statement that "therewas considerable trust between management and employees prior to gainsharing". Theemployee agreed that "employee participation and interest in management decisions prior togainsharing was very high", and that "prior to gainsharing, mine development was proceedingas projected", while the management respondent disagreed with these statements.Page 108The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryThe employee feels that the objectives of the gainsharing plan are to increaseproductivity, decrease costs, and promote employee involvement with incentives, whilemanagement feels it is to provide rewards to all employees for performance above a base-linenorm. The production measure most commonly used at the mine is the cost per ounce of goldproduced.Plan ImplementationBecause of the low level of mutual trust at this mine, plan implementation is a crucialstep, as both management and employees must believe that communication and trust is bothpossible and desirable.Management originally thought of implementing the gainsharing plan, and aftereducating top management on the concept of gainsharing, they developed the plan with thehelp of an outside consulting group. The key considerations in development includeduncontrollable production variables and seasonality. Employee opinions regardinggainsharing were not solicited prior to implementation, possibly due to the reducedcommunication associated with a low level of trust. Management was trained by theconsulting group in group facilitation skills, and both management and the consultants trainedemployees in group participation. This plan received a lot of support from top minemanagement, head office, crew chiefs, and department heads.Plan StructureBonus:The bonus at this mine is based on the cost per ounce and the number of ouncesshipped. Bonuses are paid to all personnel as a percentage of wages when two month movingPage 109The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryaverages of the cost per ounce and the number of ounces shipped outperform standards. Thestandards were established based on historic cost performance at different production rates.Therefore, this mine uses a bonus line and the cost per ounce required to achieve a bonus eachperiod will vary with the production rate in that period. Bonuses are calculated monthly, andthe company receives 80% of performance gains. There is no cap on the bonus payouts.Management sets mine-wide work standards at this mine, based on historicalperformance data. These standards have changed once so far, due to changes in factors thatare beyond the miner's control. When announcing bonuses, detailed cost and production datais circulated with the payroll, along with the reasons for payout or non-payout.Opportunities To Communicate:Monthly productivity meetings are held at this mine. All employees in the sameproduction centres (usually ten to twenty people) meet with first line supervisors and usuallysome top mine management to discuss suggestions, management decisions, the bonuscalculation, and costs. The meetings are on company time, and last for about two hours.These meetings have been accompanied by a change in management style, as managers havemoved "towards coaching" to encourage employee involvement and empowerment.Employee participation is sought in management decisions like production schedules, methodsof achieving production, and purchases that can affect bonus payout. All pertinentinformation, including goals, costs, and financial analysis is provided at the meetings. Whendecisions contrary to employee opinions are made, it is standard policy to provide reasons forthese decisions.Page 110The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryOn-Going Plan ManagementManagement is re-trained in the management styles associated with gainsharing on aquarterly basis. The management respondent states that new personnel are not trained ingainsharing, while the employee respondent states that they are. Finally, there is an annualevaluation of the gainsharing plan which consists of meetings with employees and an internalaudit by management.ResultsEmployee interest in productivity meetings is rated as "high" by the managementrespondent, and "moderately high" by the employee respondent. Moreover, the change inmanagement styles has had positive repercussions on several "culture" related variables.Management said gainsharing had a "very positive" effect on communication between workcrews, communication between work crews and management, and labour relations, and a"positive" effect on employee participation in decision making, information sharing betweenemployees and management, safety procedures, and concern for cost control. The employeerespondent stated that the plan had a "very positive to positive" effect on information sharing,labour relations, and concern for cost control, a "positive" effect on employee participation indecision making, communication between work crews, and communication between workcrews and management, and a "neutral" effect on safety procedures.Management estimated that there had been a 15% increase in productivity, a 10%decrease in safety violations, a 50% increase in suggestions, a 25% decrease in employeeturnover, and a 10% increase in recovery. There had been no change in injury down-time,absenteeism, materials costs, or dilution. The employee respondent did not complete thissection of the survey because he was not sure of the precise numbers, but felt there had beenPage 111Are people satisfied with the plan?Are quantitative results positive?Has the plan improved mine "culture"?Is the bonus based on operation's key success factors?Is there a real opportunity to communicate?Is the bonus controllable by employees?Is the bonus understandable?Is training on-going?Is the plan monitored?yesyesyesyesyesyesyesyesyesThe Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryimprovement in productivity, costs, and recovery. When asked to indicate which factorsbesides gainsharing could have affected the data, management indicated an employee opinionsurvey had helped address problems, and the employee indicated that weather and ore-gradecan affect the data.Total labour costs have increased with gainsharing implementation, and this increasewas "matched or exceeded" by a corresponding increase in mine revenues. Manpowerrequirements have not changed, and the monthly bonus payments have evolved as follows:12.6%, 0.0%, 0.0%, 0.0%, 5.3%, 11.7%, 7.3%, 0.0%, 17.2%, 9.2%, 0.0%, 0.0%, 0.0%, 0.0%.Table 12GAINSHARING CHECK LIST- MINE #1Evaluation and DiscussionJudging from the initial mine description, this mine appeared to be a somewhatmarginal candidate for gainsharing. Most importantly, there was little, if any, trust betweenmanagement and employees as the labour relations history was poor. Furthermore, theconsistency of the extraction of ore is questionable, making the management of standardsdifficult. However, some advantages included the small number of employees (75) at themine, which made it relatively easy to establish a team-like atmosphere and positive minePage 112The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryculture. Moreover, since employee interest and participation in decisions was high, there wasevidence that a gainsharing plan may effectively tap a substantial hidden human resource.The gainsharing plan at this mine appears to be effective. It is clear from the structureof the meetings, the respondents assessment of them, and the increase in suggestions, thatthere is an opportunity for employees to communicate. Furthermore, although the weatherand ore grade can affect rewards, the bonus calculation is largely based on factors controllableby miners, and the plan gives them the incentive to increase gold production and decreasecosts, and this is certainly a key success factor for the mine. Both the management andemployee respondents stated that they "would advise other mining companies to install a planlike this one", and both were "satisfied" with it. Based on this information and theimprovement in operating statistics, this plan would have to be considered successful.When implementing the plan, problems with mutual trust were addressed through thegainsharing training provided to management and employees, and by a survey alluded to in amanagement response, where employee opinions and work related complaints were collectedand discussed. The subsequent change in management style (perceived by both respondents)along with the provision of information, monthly two-hour production meetings, andparticipative decision making has likely reinforced the increased trust. Management seems tounderstand that gainsharing requires a large commitment and states that "making gainsharingwork requires a large commitment from all parties. While I advise other mines to look atgainsharing plans, I tell them not to develop it if the commitment is not there."The potential problem of the variable ore and its impact on setting work standardsseems to have been partially overcome by the bonus structure and by the increase in trust atthe mine. The bonus line (determined in advance based on historic data) automatically adjuststhe work standard (in this case cost per ounce) to different production rates. As a result,employees can earn a bonus at the mine even when difficult, costly ore is encountered or whenthe weather is bad, as long as they surpass the cost per ounce performance achieved previouslyPage 113The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryunder similar conditions. Similarly, they do not receive bonuses just because they encounterfavourable conditions; again, they must surpass cost per ounce performance previouslyachieved on similar ground. It must be noted, however, that the success of using historicinformation in setting work standards depends on the accuracy and the degree to which thisinformation represents the employees' best efforts at the work place. Furthermore, themanagement of standards is made relatively simple in an open, trusting environment, and theemployee survey and subsequent discussion of employee opinions and complaints at the minehelped to create this environment. This is an encouraging case, as a very pooremployee/management relationship appears to have been changed within 1.5 years.While the results of this plan appear very positive, it must be remembered that it is notyet two years old. Some things that may threaten plan survival include recent lack of bonuses,vulnerability of the bonus to the weather, and a possible lack of training provided to newpersonnel. The employee respondent states that ore grade and weather can have a very largeeffect on recovery, "requiring the employee to work harder even though he knows no payoutcan happen." However, though the plan is quite young and challenges do exist, the long-termprognosis looks good. This is because of the bonus structure, the apparent change inmanagement style, satisfaction with the plan on behalf of both management and employees,re-training provided to management, the yearly evaluations of the plan, and the improvementin mine operations that the plan seems to have encouraged.Page 114The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industry53.2 Case 442Mine DescriptionThis non-unionized open-pit mine consists of approximately 190 employees and hasbeen operating for 5-10 years. Gainsharing was implemented in January of 1989 and replaceda company contributed stock-purchase plan. No other incentive is used in conjunction withgainsharing, and both respondents felt the extraction rate of ore had been relatively consistentin the past, although the management respondent noted that capital investments and equipmentdown-time have had a large effect on the extraction rate.Management agreed with the statement that "prior to gainsharing implementation,labour relations were very good", while the employee disagreed with it. Furthermore,management agreed with the statements that "employee participation and interest inmanagement decisions prior to gainsharing implementation was very high", and "there wasconsiderable trust between employees and management prior to gainsharing", while theemployee strongly disagreed with these statements. Finally, both respondents disagreed withthe statement that "prior to gainsharing, mine development was proceeding as projected".Both respondents agreed that the objectives of the gainsharing plan were to decreasecosts and increase safety. The productivity measure most commonly used at the mine is thecost of gold production, and the management respondent stated that safety is included as well.Finally, the plan used at this mine is not referred to as a gainsharing plan.Plan ImplementationThe employee respondent states that management originally thought of gainsharing,while the manager states that both employees and management thought of it. Upper minePage 115The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industrymanagement was educated in the concept of gainsharing prior to implementation. Theemployee respondent states that the plan was developed by management, while themanagement respondent says it was developed by both management and employees. Themanagement respondent states that key considerations in development included suitability toemployees, the labour relations history, and the existing management style, while theemployee respondent states that the suitability to employees and uncontrollable productionvariables were important. He also states that employee opinions of gainsharing were notsolicited prior to plan implementation, while the manager states that they were, although hedoes not answer how, or state what the results were. The management respondent states thattraining in the fundamentals of gainsharing, including why it was implemented and what itsbenefits were, was provided to both employees and management, while the employee statesthat they were not trained. However, both strongly agreed that the plan has received a lot ofsupport from top mine management, head office, crew chiefs, and department heads.Plan StructureBonus:The bonus at this mine is based on the cost per ounce of gold produced, production,and lost time accidents. Bonuses are paid quarterly to all personnel as a percentage of theirthree month salary when budget forecasts are improved upon. The gains are shared 50/50, andthe manager stated that there is no cap, while the employee states that bonuses are capped at13% of gross pay but that the cap has not yet been used. Lost time accidents decrease theamount of bonus paid out to the employees.Both management and employees set the mine-wide work standards, based on timestudies and budgeted forecasts. The standards change more than once per year, due to changesin factors beyond the miner's control, and to make the bonus size reasonable. All budget,Page 116The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryproduction, and cost figures are shared with employees to help them understand the bonuscalculations.Opportunities to Communicate:Quarterly productivity meetings are held at the mine. Three elected employees fromthe same production centres meet with three managers, the mine manager, minesuperintendent, and safety coordinator, to discuss the bonus calculation, suggestions,management decisions, and future challenges. The meetings are not held on company time,and they last for approximately 2-3 hours. The management respondent says that there hasbeen no change in management styles associated with gainsharing, while the employee statesthat foremen "take suggestions more seriously than before". Employee participation is soughtin decisions concerning production targets, safety, cost reduction, as well as general ideas. Allcompany books are made available to employees at department meetings, crew meetings, andon bulletin boards to provide necessary information for participation. Decisions contrary toemployee opinions are sometimes made, but it is standard policy to provide reasons for thesedecisions.On-Going Plan ManagementThere is no on-going training for management in the management styles associatedwith gainsharing. The management respondent states that new personnel are trained in therequirements and expectations of gainsharing, while the employee respondent states that theyare not. A quarterly gainsharing evaluation takes place, where management meets withemployees to discuss the plan.Page 117The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryResultsBoth respondents agree that employee interest in the quarterly meetings is "very high".Moreover, they agreed that the gainsharing plan had a "very positive" effect on safetyprocedures, communication between work crews, communication between work crews andmanagement, and information sharing between employees and management. They agreed thatthe plan had a "positive" effect on labour relations. The management respondent felt that theplan also had a "positive" effect on concern for cost control, and employee participation indecision making, while the employee respondent felt that it had a "very positive" and "neutral"effect respectively.Management indicated an increase in productivity, suggestions, and recovery, and adecrease in maintenance costs, machinery downtime, safety violations, lost days due to injury,absenteeism, grievances, turnover, materials costs, and dilution. However, management didnot provide specific numbers. The employee did not complete this part of the survey, as hedid not have the appropriate information. Developments cited by management that may haveclouded the information include personnel changes in the management team. Total labourcosts decreased with gainsharing implementation, and there have been no changes inmanpower requirements since implementation. Quarterly bonus payments, since 1991, haveproceeded as follows:8.15%, 4.06%, 7.52%, 2.86%, 10.31%, 8.11%, 3.8%.Page 118Are people satisfied with the plan?Are quantitative results positive?Has the plan improved mine "culture"?Is the bonus based on operation's key success factors?Is there a real opportunity to communicate?Is the bonus controllable by employees?Is the bonus understandable?Is training on-going?Is the plan monitored?yesyesyesyesyesyesyesnoyesThe Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryTable 13GAINSHARING CHECK LIST - MINE # 2Evaluation and DiscussionJudging from the mine description, this mine appears to be a somewhat marginalcandidate for gainsharing, due to the low trust employees placed in management and the lowparticipation and interest they had in management decisions. Furthermore, employeesperceived labour relations as being poor prior to plan implementation. However, theconsistency of the extraction of ore was high, and management trusted employees and felt thatthe labour relations were good.Based on the available information, the implementation of gainsharing has beenpositive for this company. Since the employees have "very high" interest in the productionmeetings, and the management style seems to have changed to be more open to suggestions,there appear to be opportunities for participation. Furthermore, a bonus based on mineproduction, mill throughput, cost per ounce of gold produced and safety is tied to a mine's keysuccess factors, and is controllable by miners. Also, the management respondent was "verysatisfied" with the plan while the employee was "satisfied" with it, and both feel that othermining companies should "seriously consider" implementing a gainsharing plan. Finally, themanager stated that the plan has "great positive effects in many areas - safety, production,work attitude, employee relations, and department cooperation". The employee felt that "thePage 119The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryplan does help to pull the different production areas together and it improves employeeattitudes". Based on this information and improvements in operating statistics, this is asuccessful gainsharing plan.Problems with mistrust were probably alleviated somewhat by having employeesparticipate in setting work standards. This was likely a very important step, when oneconsiders that employees were very mistrustful of management originally, were not asked oftheir opinions of the plan, and were not given an opportunity to voice their complaints in anemployee survey. The change in management style perceived by the employee respondentalso likely had a positive impact on trust. This is another encouraging case, as an environmentinitially characterized by low trust seems to be operating effectively with a gainsharing plan,which seems to have improved labour relations.There are, however, some concerns with this plan. First, skills in participativemanagement may erode if on-going training is not supplied. Second, only three electedemployees from each production centre go to the production meetings. This may isolate otheremployees from the participation process. Third, if work standards change constantly toreflect all changed work parameters, the gainsharing bonus may eventually be perceived as anentitlement. If standards change all of the time, lack of bonus payout will likely be blamed onthe level of the work standard, rather than employee performance.Overall, this plan appears to have an encouraging future, especially if management canmaintain their current participative style. The plan has already been in place for four years,and seems likely to continue to encourage efficient operations in the future.Page 120The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industry5.3.3 Case #3Mine DescriptionThis non-unionized mine consists of approximately 380 employees and has beenoperating for 44 years. Gainsharing was implemented in January of 1992, and operates inconjunction with an individual production bonus for underground employees. Themanagement respondent felt that ore extraction had not been consistent in the past due tocapital investments and changes in the mining method, while the employee respondent felt theextraction rate had been relatively consistent. Both respondents stated that the mine is close toretirement.The management respondent agreed with the statements that "prior to the gainsharingimplementation, labour relations were very good", "employee participation and interest inmanagement decisions prior to gainsharing implementation was very high", and "prior togainsharing, mine development was proceeding as projected", while the employee respondentdisagreed, was neutral (stating that there was interest in participation, but it was not highlyaccepted), and strongly disagreed respectively. The management respondent was neutral tothe statement "there was considerable trust between employees and management prior togainsharing", while the employee respondent disagreed with it.The objective of the gainsharing plan is "teamwork towards better productivity"according to the employee respondent, and to "reduce unit operating costs" according to themanagement respondent. The management respondent stated that the "most common measureof productivity used" was the cost/ounce of gold produced, while the employee said that it wastons produced and footage advanced, perhaps reflecting the incentive produced by theunderground individual incentive plan.Page 121The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryPlan ImplementationThe management respondent states that management originally thought of anddeveloped gainsharing, while the employee states that the employees originally thought of it,then developed it with management. Information about gainsharing was provided to uppermine management prior to gainsharing development. The employee was unaware of the keyconsiderations when developing the plan, but the manager states that they included thesuitability to employees, work force interdependence, and simplicity. The managementrespondent states that employee opinions of gainsharing were not solicited prior to planimplementation, while the employee respondent states that they were solicited throughmeetings with employee representatives, and that "probably all" the employees were in favourof it. There was no training provided with the implementation of the plan, and the employeerespondent agreed, and the management respondent strongly agreed, that the plan received alot of support from top mine management and head office, and they both agreed the planreceived a lot of support from crew chiefs and department heads.Plan StructureBonus:The bonus at this mine is based on the cost per ounce of gold produced and the totalproduction. Bonuses are paid to everyone except department heads and the mine manager onan absolute basis, when quarterly performance improves over the budget. Bonuses are split50/50, and are capped at a maximum annual payout per employee of $5000.00. If the bonus iscapped, it will be "taken into account for review of next year's plan".Page 122The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryThe standards are based on historic data, and are set by management. These standardshave not yet changed. However, an interview with a manager at the mine revealed that eachyear the standards would increase, so that employees must exceed previous performance toearn gains. Information shared when announcing bonuses consists of all cost and productioninformation.Opportunities To Communicate:The management respondent stated that there are 2-3 hour meetings held monthlywhere between 15-20 management personnel and usually 50-100 employees gather to discuss"anything". These meetings were used prior to gainsharing and have not changed since itsimplementation. The meetings are not held on company time, and any employees can attend.The employee respondent stated that there are no "meetings held between management and theemployees covered by gainsharing". No change in management style has been associated withthe gainsharing plan. Employee participation is sought in decisions concerning work methods,and ideas for safety and productivity gains are sometimes sought. Usually, a statement of theproblem is provided to employees, and "employees usually have enough information fromwork experience to contribute to the discussion/decision". Decisions contrary to employeeopinions are sometimes made, but it is standard practice to provide reasons for the decisions.On-Going Plan ManagementThere is no on-going training in the management styles associated with gainsharing,and new personnel are informed of, but not trained in, the requirements and expectations ofgainsharing. Management states that there is an annual review of the plan, which consists ofan internal audit by management, while the employee states that there is no evaluation.Page 123Are people satisfied with the plan?Are quantitative results positive?Has the plan improved mine "culture"?Is the bonus based on operation's key success factors?Is there a real opportunity to communicate?Is the bonus controllable by employees?Is the bonus understandable?Is training on-going?Is the plan monitored?yesyesyesyesnonoyesnoyesThe Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryResultsEmployee interest in meetings (as answered by management only) could range from"low" to "very high" depending on the issues being discussed. Management stated that theplan had a "very positive" effect on information sharing between employees and management,and concern for cost control, and a "positive" effect on safety procedures, communicationbetween work crews, communication between work crews and management, employeeparticipation in decision making, and labour relations. The employee respondent stated thatthe plan had a "very positive" effect on concern for cost control, a "positive" effect oncommunication between work crews and management, information sharing betweenemployees and management, and labour relations, a neutral effect on safety procedures andcommunication between work crews, and a negative effect on employee participation indecision making. Because the plan is young, and because several recent changes (includinglarge-scale layoffs and capital investments) cloud results, little is known about the effectgainsharing has had on operations. There was no first quarter bonus payout, but the secondquarter payout was $1350/ employee.Table 14GAINSHARING CHECK LIST - MINE #3Page 124The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryEvaluation and DiscussionJudging from the initial mine description, this mine appeared to be a marginalcandidate for gainsharing. Although labour relations and trust were quite low in the eyes ofthe employee, they were not abysmal. Furthermore, the fact that there was interest on behalfof employees in participation but it was not "highly accepted" indicates the presence of anuntapped human resource. Some concerns, however, include the short remaining mine life,and the large number of employees.The bonus calculation itself appears to be based on factors controllable by miners, costper ounce of production, and this is a key success factor for the mine. The employeerespondent states that he is "satisfied" with the plan, while the management respondent is"very satisfied" with it. Finally, although the plan is young, it appears from the second quarterbonus that the plan can get the results desired. Therefore, based on this information, and usingthese parameters to measure success, it is a successful plan.However, a site visit revealed practices which will likely limit the plan's longevity andeffectiveness. First, there has been no explicit communication network developed to supportgainsharing and solicit and encourage participation, and it is doubtful that one existed prior togainsharing. This is because the employee respondent stated that prior to gainsharing, therewas interest in participation but it was not highly accepted. According to both survey's,management practices have not changed with gainsharing implementation to rectify thissituation. This is likely a direct result of no change in the communication network occurringwith gainsharing implementation. An example of this is the disagreement between the tworespondents as to the measure of productivity most frequently used at the mine.Second, the management practices associated with this plan make it terminal. Aninterview with management personnel at the mine revealed that the policy regarding gains isthat quarterly performance must exceed previous performance for a gain to be realized andPage 125The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industrybonuses to be paid. Therefore, in theory employees will eventually reach peak performanceand the mine will be operating efficiently. However, this philosophy will certainly terminatethe gainsharing plan. Periods of superlative performance will result in a one period bonus, butwill require that employees perform even better in the future to get any bonus. This will proveextremely difficult, especially as managers were not initially predisposed to listen to employeesuggestions that may improve productivity, and have not changed this style since gainsharingimplementation. To this extent, the bonus is not very controllable by the employees, and doesnot reward them fairly for their work performance. Therefore, the employees will likely cutback on their productive efforts before maximum productivity is reached, for the same reasonsthat employees under piece-rate incentives did it in the late 1880's when rate-cutting was awide-spread practice.Third, there has been no training nor any change in management styles associated withgainsharing. Naturally, there is no on-going training in the styles, and this also makes thefuture of the plan look doubtful.Finally, in the site interview, management stated that there was a return of "strong"management practices, which have made the gainsharing plan possible. The reason given wasthat the lack of alternate jobs available has given management a lot of power. This is hardlyan example of the positive management philosophy associated with successful gainsharingplans.The positive results associated with this plan are likely due to what Richardson referredto as the "romantic interlude" stage of participative management plans. The fact that it isgiven a positive evaluation emphasizes the weakness associated with the "snapshot" nature ofthis study. Barring any changes in the plan, it is likely that future "snapshots" would revealquantitatively the weaknesses described above.Page 126The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industry5.3.4 Case #4Mine DescriptionThis non-unionized underground mine consists of 130 total employees, and has beenoperating for 1.5 years. It is a fly in/fly out operation, with about 87 employees on the site atany given time. Gainsharing was implemented with mine startup, and therefore there is nodata available with which to compare gainsharing results. No other incentive is used inconjunction with gainsharing. The management respondent stated that the extraction of orehas been affected by changes in mining method, and the development of more stopes, whilethe employee respondent stated that the extraction has been relatively consistent.The objective of the gainsharing plan, according to management, is to "encourageincreases in gold production and decreases in operating costs, compared to reasonablyexpected standards, by sharing those gains with employees". Another objective is to "continueto develop and reinforce the team concept, and provide the climate for an "ownershipmentality" in the enterprise, on the part of employees". The employee describes the objectiveto be "for everyone on the property to have a hand in saving monies in their variousdepartments in which they work to make a saving which then is distributed amongst all of theemployees".Plan ImplementationManagement originally thought of implementing gainsharing in this mine, and aftereducating upper mine management about the concept of gainsharing, they developed it. Thekey considerations in development included the uncontrollable production variables,suitability to employees, work force interdependence, the existing management style, and thePage 127The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industrycompetitiveness of the total pay package. Employee attitudes regarding gainsharing were notmeasured prior to gainsharing implementation, and no specific training was provided tomanagement. Employees state that their training involved being advised of the goals of theplan, while management states that there were several meetings to "demonstrate calculations,explain target production logic, and operating cost budgets". Management and the employeerespondent strongly agree that the plan has received a lot of support from top minemanagement and head office, and management agrees that it has received a lot of support fromcrew chiefs and department heads, while the employee disagrees with this statement.Plan StructureBonus:The bonus at this mine is based on the cost of production, and is the actual production(TPD * budgeted grade * actual recovery) multiplied by any positive difference betweenbudgeted cost per ounce and actual cost per ounce. Budgeted grade is used because"fluctuations in mine grade would create swings in gainsharing unrelated to employee efforts".The employee respondent stated that the bonus calculation is a "very confusing issue as thereis no set formula. This creates some distrust with the management, as they seem to changenumbers at will, creating their own final payouts". Bonuses are calculated monthly, shared ona 70/30 company employee basis, and paid to employees on a percentage basis. Twenty fivepercent of the employees' gains are placed in a reserve fund which hedges the company frompossible fluctuations in employee performance by reimbursing the mine if it experiences aproductivity loss in any gainsharing period. However, the fund cannot be negative, and anypositive balance is paid out at year end. The bonus is capped at 30% of earning for timeworked. The mine manager and controller are the only personnel not covered by thegainsharing plan.Page 128The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryManagement sets the work standards based on the historic data, and these standardshave changed on average once per year. Management states that they have changed to reflectcapital investments, and to reduce the bonus size, as production estimates at the outset of theprogram were too conservative. The employee states that standards change because"management does not like to make any reasonable payout for performance. Therefore, theykeep upping the tonnage required to make a gain ... it becomes harder all the time".Opportunities To Communicate:Monthly meetings between management and employees are held on company time atthis mine, and they last approximately 1.5 hours. Management personnel range from the firstline supervisor to the mine manager, and about 8-12 employees attend the meetings.Employees elected by the crews attend, as well as volunteers. The employee respondent statesthat "as there seems to be no way to check the validity of the numbers or changes any ofmanagement's decisions, [meetings] seem pointless. Therefore, interest is low". Theemployee respondent states that no change in management style has been associated withgainsharing, while the management respondent states that there has been a change, as there is avery open planning and decision process which is often open to debate. The managementrespondent states that employee participation is sought in equipment choices, processmodifications, and task methodology while the employee respondent states that "after viewsare expressed quite strongly...some changes in regard to ground control but it is not a commonpractice". The management respondent states that supervisors and management areencouraged to "communicate information to employees and discuss the job, while theemployee respondent left the answer to "What information is provided to employees toaugment this participation?" blank. Information is provided by word of mouth, andmanagement states it is also provided in crew meetings. Operating decisions contrary toPage 129The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryemployee opinions are sometimes made, and management states that it is standard policy toprovide feedback to participation, while the employee respondent stated that it is not.On-Going Plan ManagementThere is no formal on-going training in the management styles associated withgainsharing, although the management respondent states that there is "a considerable on-the-job group learning process". New personnel are trained in the requirements of gainsharing,and management states that there is a semi-annual formalized evaluation of gainsharing, whichconsists of an internal audit by management. The employee respondent states that there is noformalized, periodic gainsharing evaluation.ResultsEmployee interest in the meetings is listed as "moderately high" by management and"moderately low" by the employee respondent. The management respondent stated thatgainsharing has had a "very positive" effect on communication between work crews,communication between work crews and management, and information sharing betweenemployees and management, and a "positive" effect on employee participation in decisionmaking, labour relations, and concern for cost control, and a neutral effect on safetyprocedures. The employee respondent states that the plan has had a "positive" effect on safety,a neutral effect on communication between work crews, communication between work crewsand management, information sharing between employees and management, labour relations,and concern for cost control, and a negative effect on employee participation in decisionmaking. The management respondent states that the gainsharing plan has resulted in a slightincrease in productivity and recovery, a slight decrease in dilution, and a good increase in totalPage 130Are people satisfied with the plan?Are quantitative results positive?Has the plan improved mine "culture"?Is the bonus based on operation's key success factors?Is there a real opportunity to communicate?Is the bonus controllable by employees?Is the bonus understandable?Is training on-going?Is the plan monitored?yesyesyesyesnonononoyesThe Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryproduction (influenced by increased cooperation between departments). The employeerespondent states that there has been an increase in recovery. However, based on experiencein other mines where individual production incentives are used he feels that the undergroundproduction with gainsharing is far less than what it could be. On the surface, he feels that ithas had a positive effect.Table 15GAINSHARING CHECK LIST - MINE #4Other factors that may cloud the data include the miners gaining more experience, andthe aging of underground equipment (the costs of which have been contained somewhatbecause miners "don't abuse it".) There have been no changes in manpower requirements withgainsharing. The bonus payments have evolved in the following manner, where the firstpayment was given a base of 1.00 and each number represents an average of five months ofpayouts:1.0, 1.3, 1.64, 1.81.Evaluation and DiscussionThis mine appears to be a reasonable candidate for gainsharing. Because gainsharingwas implemented at start-up, labour relations were neutral. The same is true for the level ofPage 131The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industrytrust on the site. One potential problem, however, with initiating gainsharing at mine start-upis the lack of historic information. This makes standard setting very difficult, as managershave little information as to what amount of production is reasonable. The fact that employeesspend all of their time on the site for 28 days emphasizes the need for a positive mine culture,and therefore makes the development of an incentive like gainsharing desirable. On one hand,the creation of a "team like" atmosphere will be eased by the fact that only about 85employees are on the site at one time. On the other, because employees spend fourteen days ata time away from the mine, the team-like atmosphere will be difficult to create.Based on available information, this is not a successful gainsharing plan. This isbecause the bonus is not controllable by miners, as they perceive management to manipulatethe standards. Furthermore, it is questionable that the plan is fulfilling the stated objective ofthe team concept because of management practices that do not encourage teamwork. Theimproved operation statistics are likely a result of Richardson's life cycle. The managementrespondent is "satisfied" with the gainsharing plan, and states that "there has been a notablewillingness to work a little harder to avoid hiring an extra man. One of the most impressivebenefits to me has been the spirit of cooperation and working towards a common goal - thishas improved the overall operating efficiency. For example, traditionally there is a large gulfbetween miners and mill operators....we have found mill operators working very hard tosupply the mine with hydraulic backfill because it is well known that ore tonnage produced isdirectly related to the quantity of backfill. Similarly, miners break up oversize pieces of orerather than sending them to the mill to jam the grizzly. Mechanics and miners help each otherunderground etc. etc. I am convinced this "common goal" motivation is responsible for [9%)of our current production". The employee respondent, however, feels the overall idea "mayhave some good intentions". However, despite the fact that the bonuses are paid as apercentage of wages, he feels that the miners are inadequately compensated when one takesinto account the huge effect their individual work effort has on gainsharing parameters asPage 132The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industrycompared with a "secretary in the office". This effect is magnified as equipment used at thismine is quite "physically demanding", and therefore the risk of permanent injury is greater.Finally, he believes that this plan was made possible by the poor economic times, and that "ifthere was a shortage of quality miners in the work place you would never have seen this planput in place". His suggestions to rectify the situation include increasing the percentagegainshare provided to the miners, or basing the bonus on department performance.The management respondent seems to understand the philosophy of gainsharing. Hestates that "Of course, the psychology of the situation dictates the results. Employees have tobelieve the system will work before it will work, they have to believe that as individuals theycan have an impact. Credibility of management is often critically examined, the "system"must be seen to be honest and open". However, based on the employee's response, they do notbelieve the system would work, and the system does not seem to be honest and open. Thereare three primary reasons for this.First, training was not provided to all management in the styles required for thegainsharing philosophy to work. As a result, employees perceive no change in managementstyle, and think that crew chiefs and department heads do not support the plan. Furthermore,the employee has the perception that gainsharing has had a negative effect on participation indecision making, likely a result of the crew chiefs and department head's low support for theplan. The management respondent states that crew chiefs and department heads areencouraged to communicate information to employees to encourage suggestions, but it appearsthis does not occur. Without training, they may be uncertain as to how they shouldcommunicate information, and how they can facilitate participation.Second, insufficient training was provided to employees about gainsharing. They findthe bonus calculation confusing, and are likely not aware of work practices which would havea positive affect on the bonus.Page 133The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryThird, the bonus calculation itself is not perceived as being honest and open. This canlikely be attributed to the lack of historic production information available to management,and their consequent uncertainty about reasonable work standards. Whatever the reason, theperception is that "[management] seems to change numbers at will, creating their own finalpayout". This type of comment is indicative of low levels of trust, which is not conducive to againsharing environment. If employees believe that management manipulates their bonuspayouts, their incentive to perform is severely compromised.Finally, it is disconcerting that the most common measure of productivity at the mineis tons per man shift, and not the parameter used for bonus calculation. This may distractpeople from the truly important key success factor, cost per ounce produced, and may cloudtheir perception of important performance measurements.This mine has been generating some positive results with this plan. However, becauseof the problems associated with it the future is uncertain. It is clear, though, that if theproblems are addressed and corrected the plan may have a long and productive future.5.3.5 Case #5Before commencing with the analysis of this case, it must be noted that only one copyof the survey, management's response, has been returned.Mine DescriptionThis non-unionized mine consists of about 4400 employees and has been operating formore than ten years. Gainsharing was implemented on July 1, 1991, and became the first andPage 134The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryonly incentive to be used at the mine. The extraction rate at this mine has been affected bydifferent production process requirements.The management respondent agrees that "prior to the gainsharing implementation,labour relations were very good" and "prior to gainsharing, mine development was proceedingas projected", and is neutral towards the statements that "employee participation and interest inmanagement decisions prior to gainsharing implementation was very high", and "there wasconsiderable trust between employees and management prior to gainsharing". The objectivesof the gainsharing plan are to involve the employees in the business, reduce the unit cost ofproduction, lower absenteeism, and support employee empowerment initiatives. The mostcommon productivity measure is the unit cost of production.Plan ImplementationManagement and employees originally thought of implementing gainsharing at thismine, and after educating upper mine management, management developed the plan alongwith an outside consulting group. The key considerations in development included thesuitability of the plan to employees, work force interdependence, and the existing managementstyle. Employee opinions regarding gainsharing were not solicited prior to implementation,and no training associated with gainsharing was provided to employees, although managementreceived an overview of the program. The respondent strongly agrees that the plan hasreceived a lot of support from top mine management, head office, crew chiefs, and departmentheads.Page 135The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryPlan StructureBonus:Bonuses are paid at this mine when quarterly unit cost targets are improved upon andthese cost savings are then factored by total production. Bonuses are paid to all personnelexcept contract and temporary people on a percentage basis, calculated on quarterly results.The company employee split is 70/30 respectively, and there is no cap on the bonus level.Work standards are set by management and are based on standards established in thefive year long-term plan. The standards have not been changed, and all details regardingbonus calculations are shared with employees.Opportunities To CommunicateQuarterly 4 hour meetings on company time are held at this operation. First andsecond line supervisors attend these meetings, as do all employees. Issues discussed in thesemeetings usually include employee suggestions, management decisions, and anything else ofmutual interest and importance.A change in management style has been required by gainsharing, as "in order toempower employees it is necessary for management to be more willing to listen and act onemployee suggestions". Employee participation is sometimes sought in managementdecisions, especially those concerning allocation of overtime, changes in shift configurations,purchases of new equipment, and work methods. As much information as is required to"enable employees to significantly participate" is provided in department meetings and crewmeetings. Operating decisions contrary to employee opinions are sometimes made, but it isstandard policy to provide feedback to employee participation.Page 136The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryOn-Going Plan ManagementThere is on-going training in the management styles associated with gainsharing,provided every two years. New personnel are not trained in the requirements or expectationsof gainsharing. There is a formal review of gainsharing which will be used every two years.While this review has not yet been developed, the plan is to "involve employees to the greatestextent possible".ResultsEmployee interest in the quarterly meetings was described as "moderately high" at thisoperation. The gainsharing plan has had a "positive" effect on communication between workcrews and management, information sharing between employees and management, employeeparticipation in decision making, and concern for cost control, and a "neutral" effect on safetyprocedures, communication between work crews, and labour relations.Management estimates that there has been a 12% increase in productivity, a 30%decrease in absenteeism, and a 25% decrease in employee turnover. Factors that may cloudthis data include an overall philosophy of continuous improvement being adopted, increasedcommunication of business plans and results, significant leadership training, and the businessclimate and long-term outlook. It should be noted that the first three of the above four factorsare theoretically associated with gainsharing plans. Manpower requirements have changedsince gainsharing implementation, but this change has been unrelated to the plan, as "reductiontargets were established before gainsharing". Bonus payments have evolved as follows:0.0%, 0.0%, 3.6%, 4.5%, 1.0%.Page 137Are people satisfied with the plan?Are quantitative results positive?Has the plan improved mine "culture"?Is the bonus based on operation's key success factors?Is there a real opportunity to communicate?Is the bonus controllable by employees?Is the bonus understandable?Is training on-going?Is the plan monitored?yesyesyesyesyesyesyesyesyesThe Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryTable 16GAINSHARING CHECK LIST - MINE #5Evaluation and DiscussionBased on management's response, this mine appears to be a reasonable candidate forgainsharing. Initial trust, and participation and interest in management decisions is neutral,and labour relations are quite good. Issues of concern, however, include fluctuations in theextraction rate of the product, and the large number of employees. A company with this manyemployees must be committed to a training program to ensure all personnel are knowledgeableof the plan and aware of their responsibilities and opportunities with it. The gainsharingphilosophy will not spread by either word of mouth or management meetings alone in acompany of this size.Based on available information, this plan appears successful. The bonus calculation isbased on organizational key success factors, the unit cost of production, and is controllable byemployees. The management respondent is satisfied with the plan, and it has resulted inorganizational improvements.The structure of this plan appears to be appropriate. However, the lack of training atthe implementation phase is cause for concern, as it is difficult to establish the "team concept"in any company, let alone one with 4400 employees. For this reason, it is questionablewhether the employees identify with the gainsharing plan and the goals of the company, andPage 138The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industrywhether management is sufficiently trained in the styles associated with gainsharing. Theanswer to this question could have been provided by an employee response to the survey,which unfortunately was not returned. However, some management is cognisant of thephilosophy associated with gainsharing. This is characterized by the final comment"Gainsharing will probably not work if it is not implemented as part of a strategy whichfocuses on continuous improvement through the harnessing of employee brain power. Thisnecessitates a different style of leadership; one in which employee involvement is sincerelydesired and rewarded".The evaluations of the gainsharing plan will aid the long-term survival of this plan, andthe same is true for on-going training in the management styles associated with gainsharing,although this is somewhat confusing as it was indicated that there was no training in themanagement styles associated with gainsharing in the first place. However, it is essential thatall management adopt the plan as a management philosophy to fully utilize its humanresources.5.3.6 Case # 6Mine DescriptionThis non-unionized underground mine consists of 350 employees, and has beenoperating for more than 10 years. Gainsharing was implemented one year ago, and is the onlyincentive plan being used at the mine. Both respondents felt that the extraction of ore hasbeen relatively consistent, although the employee states that equipment downtime and changesin ore composition can affect it.Page 139The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryThe management respondent agreed with the statements that "prior to gainsharingimplementation, labour relations were very good", and "prior to gainsharing, minedevelopment was proceeding as projected", and was neutral to the statements that "employeeparticipation and interest in management decisions prior to gainsharing implementation wasvery high" and "there was considerable trust between employees and management prior togainsharing". The employee respondent was neutral to all of the above statements.The objective of the gainsharing plan is to "reduce the cost/ton of product, whilemaintaining product quality" according to the employee respondent, and to "reduce operatingcosts and waste, and improve productivity and quality of work through suggestions" accordingto the management respondent. The most common measure of productivity used at the mineis "tons of product" according to the employee respondent, and "unit cost based on tonsproduced" according to the management respondent.Plan ImplementationManagement initially thought of implementing gainsharing, and after introducingupper mine management to the concepts, developed and implemented it. Key considerationswhen developing the plan included its suitability to employees, work-force interdependencies,and the labour relations history. Employee opinions of the plan were not collected prior togainsharing implementation. Employee training consisted of one meeting to overview theprogram, but those employees selected for the gainsharing committees were given "in-depthinsight" into the program. Management training consisted of a meeting with all managers toreview the program, its goals, and the importance of support and active participation. Themanagement respondent strongly agrees that the plan has received a lot of support from topmine management and head office, and agrees that it has received a lot of support from crewchiefs and department heads.Page 140The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryPlan StructureBonus:The bonus at this mine is based on cost savings under a pre-determined budget. Ifappropriate, quarterly bonuses are paid to everyone, with the exception of three seniormanagement personnel, on an absolute basis. Bonuses are split 50/50 between the companyand employees, and 50% of the employees' share goes into a reserve pool, which reimbursesthe company when negative gains are made, but is distributed to the employees at the end ofeach year if there is a surplus.Management sets the work standards by using historic data to create the budgets. Thestandards will be changing due to capital investments, changes in ore composition, miningmethod, and other factors beyond the miners control. Information that accompanies bonuspayments consists of a detailed production and cost analysis which is posted on a bulletinboard, and elected employees on the gainsharing committees can view the figures at thegainsharing meetings.Opportunities To Participate:There are monthly meetings held at this mine on company time between managementand employees. The mine and the mill have two separate meetings. For each meeting, fourmanagement personnel representing different production centres meet with four electedemployees. The meetings last for about two hours, and employee interest in the meetings isdescribed by both respondents as moderately high. Subjects discussed in the meetings includebonus calculations, employee suggestions, management decisions, and future challenges.There has been no change in management styles associated with the gainsharing plan.Employee participation is sought in some management decisions, for example regardingequipment performance and methods of work, and it is standard policy to provide reasons forPage 141The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industrydecisions contrary to employee opinions. The gainsharing committee is responsible forconveying employee ideas to management. When asked what information is provided toemployees to augment their participation, the management respondent said they provideinformation to assist in suggestions regarding operation improvement, while the employeerespondent did not answer. The employee respondent states that information is conveyed byword of mouth and on bulletin boards, while the management respondent says that departmentmeetings, crew meetings, and bulletin boards are used to convey information.On-Going Plan ManagementAs there is no new management style, there is no ongoing training associated with thegainsharing plan for management. The management respondent states that new personnel aretrained in the requirements and expectations of gainsharing, while the employee respondentstates that they are not. There is a formal evaluation of the gainsharing plan, which consists ofmeetings with employees and an internal management audit, and it is used once per month.ResultsThe two respondents agree that the plan has had a "positive" effect on communicationbetween work crews, communication between work crews and management, informationsharing between employees and management, and labour relations. The employee respondentfeels it has had a very positive effect on safety procedures and concern for cost control, whilethe management respondent feels it has had no effect and a positive effect respectively.Finally, the management respondent feels the plan has had a positive effect on employeeparticipation in decision making, while the employee respondent feels that it has had no effect.Page 142Are people satisfied with the plan?Are quantitative results positive?Has the plan improved mine "culture"?Is the bonus based on operation's key success factors?Is there a real opportunity to communicate?Is the bonus controllable by employees?Is the bonus understandable?Is training on-going?Is the plan monitored?yesyesyesyesnoyesyesyesnoyesThe Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryManagement indicated an increase in productivity and suggestions, and a decrease inmaintenance costs, machinery downtime, lost days due to injury, absenteeism, and materialscosts. However, management did not provide specific numbers. The employee respondentindicated a 2% decrease in productivity, a 27% decrease in machinery downtime, a 100%increase in suggestions, and a decrease in materials costs and recovery. No otherdevelopments aside from gainsharing could have affected this data. Total labour costs havedecreased with gainsharing, as the work-force has been reduced by three people, and this isthought to be partly due to the gainsharing plan. Quarterly bonus payments have evolved asfollows:$145.60, 748.80, 68.32, 184.06, and a end-of-year reserve pool of 1,146.72.Table 17GAINSHAR1NG CHECK LIST - MINE #6Evaluation and DiscussionThis mine appears to be a good candidate for gainsharing, as themanagement/employee relationship is not negative, there is an abundance of availableinformation on historic production rates, and the extraction of ore is relatively consistent.Based on available information, gainsharing appears to have had a positive effect onthis mine. The employees have "moderately high" interest in the gainsharing meetings and thePage 143The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryplan has resulted in more communication between various mine departments. The bonus istied to a mine key success factor which is controllable by employees, and quantitative resultsappear positive. Furthermore, both respondents state that they are satisfied with the plan andwould advise other mining companies to seriously consider installing a similar plan. Themonthly monitoring of the plan should help management pin-point problem areas, and willhelp them to adapt the plan to make it more successful, if required.There are some concerns about this plan, however. First, there was no training formanagement in the participative styles associated with gainsharing. This may detract from theparticipative culture if managers are unable or unwilling to accept participation. In hisresponse, the employee respondent had a neutral opinion regarding the support given the planby crew chiefs and department heads, indicating that some training may be needed at thislevel. Second, only a few employees meet with management, and as a result some employees'ideas may not be given the chance to develop with discussion. Third, the employee definesproductivity as "tons of product" while the gainsharing plan and the management respondentdefine it as the "unit cost of tons recovered". If the unit cost is indeed the most importantoperating parameter, this employee has yet to recognize that. This would indicate that theincreased communication and information sharing has not yet resulted in common goals.Finally, the work standards change quite frequently. As already indicated, this policy maylead to the bonus being viewed as an entitlement, and may create tension if themanagement/employee relationship is strained.Overall, this plan appears to have a challenging future. It is still young, and hasalready generated positive results. However, the problems described above, especially thelack of management training, may hinder the effectiveness of the gainsharing concept. Themonthly monitoring may well identify the problems described above, and if appropriate actionis taken the plan could continue to generate positive results into the future.Page 144The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industry5.3.7 Case # 7Mine DescriptionThis unionized open pit coal mine has been operating since 1958 and currentlyemployees 173 people. Gainsharing was implemented in March of 1988 and is the onlyincentive used at the mine, with the exception of a small yearly reward for perfect attendance.Both respondents felt that the extraction rate of coal had been relatively consistent in the past.The employee respondent strongly disagreed with the statements that "prior to thegainsharing implementation, labour relations were very good", "employee participation andinterest in management decisions prior to gainsharing implementation was very high", and"there was considerable trust between employees and management prior to gainsharing". Themanagement respondent was neutral to the first statement and disagreed with the other twostatements. The employee noted that a recent reduction in the work force was responsible forthe poor labour/management relationship prior to gainsharing. Finally, both respondents feltthat prior to the gainsharing plan, mine development was proceeding as projected.Both respondents agree that the objective of the gainsharing plan is to reduce the costper ton of the coal shipped, while the employee notes that a secondary objective is to divideany savings between employees and the company. Both respondents also agree that the mostcommon measure of productivity at the mine is the cost per ton shipped.Plan ImplementationThe mine manager originally thought of implementing gainsharing at this mine andafter educating upper mine management on the concept, developed the plan structure with anoutside consulting company. The key considerations in the development of the plan includedPage 145The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industrycoal variability and other uncontrollable production variables, suitability to employees,existing management style, work force interdependencies, the cost per ton of coal shipped, andwhich costs would be included in the bonus measurement. The management respondent statesthat employee opinions regarding the gainsharing plan were solicited prior to itsimplementation, and that 60% of the employees supported it, while the employee respondentstated that their opinions on gainsharing were not solicited.The management respondent states that considerable training time was spent withsupervisors on the concept of being a coach and leader and on how to facilitate a meeting,while the employee states that there was little training given to first line supervision, butextensive training given to upper management. The management respondent also says thatthere were training and orientation sessions to introduce gainsharing to the employees so theywould understand what their roles were and how they could participate, while the employeerespondent states that there was only minimal training offered to them.Finally, both respondents strongly agree that the plan has received a lot of supportfrom the mine manager and head office, and the employee respondent strongly agrees that ithas received a lot of support from crew chiefs and department heads, while the managementrespondent agrees with this statement.Plan StructureBonus:The bonus structure at this mine is very similar to the structure in case study # 1.Specifically, a bonus is paid to all employees except the mine manager and his direct reportson a percentage basis when a combination of the two-month moving averages of the cost perton and the tons shipped outperform standards. The standards were established based onhistoric cost performance at different production rates, and therefore this mine uses a bonusPage 146The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryline to measure performance. Bonuses are calculated monthly, are not capped, and thecompany receives 75% of the performance gains. The bonus standards are mine wide andhave not changed since the plan was implemented. Bonus calculations and all measured costsare made available to the employees.Opportunities to Communicate:Monthly production meetings are held at this mine on company time, and allemployees in the same production centres meet with first line supervisors to discusssuggestions, management decisions, and generate productivity improvement ideas. Thesemeetings are mandatory and can range from 8 to 20 people. The meetings last for about onehour and are "facilitated" by either the first line supervisor or an employee who has beentrained in facilitation methods. Both respondents agreed that there has been a change in themanagement styles used at the mine, as the management respondent says that "managementmust listen and respond to employees' ideas concerning improvement", and the employeerespondent says that "first line supervision has become more open to suggestions fromemployees". Employee participation is sought in some management decisions and allmeasured costs and the monthly calculation information is shared with the employees.Furthermore, employees can attend vendor presentations, visit other operations, andparticipate in the interview process to help make the decisions. Decisions contrary toemployee opinions are sometimes made, but it is common practice to provide feedback toemployee participation.On-Going Plan ManagementThe management respondent states that there is annual re-training in the managementstyles associated with gainsharing, and that new personnel are trained in the requirements andPage 147The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryexpectations of gainsharing. However, the employee respondent disagrees with the managersposition in both cases, saying that there is no re-training and no introduction to gainsharing fornew personnel. Once every month there is an evaluation of the gainsharing plan conducted bythe "gainsharing advisory board" which consists of an equal representation of hourly andmanagement personnel.ResultsEmployee interest in production meetings is rated as "moderately high" by themanagement respondent, and "moderately low" by the employee respondent. Bothrespondents strongly agree that the plan has had very positive effects on information sharingbetween employees and management. The management respondent feels it has also had a verypositive effect on communication between work crews and management, and a positive effecton communication between work crews, employee participation in decision making, andconcern for cost control. The employee respondent feels that it has had a very positive effecton concern for cost control, and a positive effect on safety procedures and communicationbetween work crews and management. He feels it has had a neutral effect on communicationbetween work crews, employee participation in decision making, and labour relations, whilethe management respondent feels the plan has had a neutral effect on safety procedures andlabour relations.Management estimated that there had been a 10% increase in productivity, a 10%decrease in maintenance costs and machinery downtime, a 100% decrease in absenteeism, a50% decrease in dilution, and a 100% increase in the number of suggestions. He felt there hadbeen no change in safety violations, lost days due to injury, grievances, or employee turnover.The employee respondent did not have exact figures, but guessed there was an increase inproductivity and the number of suggestions, and a decrease in safety violations, absenteeism,Page 148Are people satisfied with the plan?Are quantitative results positive?Has the plan improved mine "culture"?Is the bonus based on operation's key success factors?Is there a real opportunity to communicate?Is the bonus controllable by employees?Is the bonus understandable?Is training on-going?Is the plan monitored?yesyesyesyesyesyesyesyesyesThe Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryand materials costs. When asked to indicate whether factors other than gainsharing may haveaffected the data, the employee respondent stated that a reward for perfect attendance mayhave affected the absenteeism figures, and the management responded cited other factors likebetter management, economy, and higher expectations.Labour costs have decreased with gainsharing implementation, as the manpowerrequirements at the mine have been reduced. The management respondent stated that thereductions had been brought on by the gainsharing plan while the employee respondent did notanswer that question. The monthly bonus payout since the plan was implemented in 1988 hasaveraged 6.6%.Table 18GAINSHARING CHECK LIST - MINE #7Evaluation and DiscussionThe description of this mine prior to gainsharing implementation reveals a very poorlabour management relationship, and this alone makes it a questionable candidate for againsharing plan. However, having operated for a long period of time, there was sufficienthistoric data with which to build an accurate bonus line. Moreover, discussions with the minemanager revealed that at the time the mine was a very marginal enterprise, and knowledge ofPage 149The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryits imminent closure may have inspired employees and management alike to give thegainsharing plan a chance at success.There is little doubt that this gainsharing plan has had a very positive effect on thismine. Although the employee respondent did not express a great deal of enthusiasm for theproductivity meetings, the change in management style perceived by both respondents, theincrease in suggestions, and the increased information sharing between employees andmanagement has resulted in a "very positive" impact on concern for cost control, according tothe employee respondent. The bonus is based on costs controllable by the miners and is tied tothe historic cost per ton at different production rates. This means that the bonus payment islargely controllable by the employees, and based on factors key to the success of the mine.The management respondent is very satisfied with the plan, the employee respondent is neutraltowards it, and both would advise other mining companies to install an incentive plan like thisone.This plan had been operating successfully for five years prior to this survey, and thereare some clear reasons for its success.First, prior to plan implementation, management was trained in facilitation methods andgroup processes. This helped to prepare them for the employee participation that wasencouraged through the productivity meetings. The mine manager stated that the employees'desire to participate had always been present, but had not been encouraged by positivemanagement practices. Having been trained in how to accept employee participation,management did not kill the participation through a lack of feedback and action.Second, an employee survey helped to reveal criticisms of the company and subsequentdiscussions of the survey helped to initiate communication between employees andmanagement. Action on employee criticisms helped to lend management some credibility.Third, the bonus line has not changed throughout the life of the gainsharing plan. Thisstable work standard was very beneficial in the early years of the plan because it was neverPage 150The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industrynecessary for management and employees to argue over the work standards after they wereinitially set, and as a result their relationship was not threatened by a combustible subject. Thisstability was in large part due to the bonus line, as work standards did not have to be changedwith changing production rates. Lately, however, there has been some employeediscontentment as they realize that inflation has been making the work standards progressivelyharder to achieve, and as a result the stable bonus line is beginning to threaten the plan.Shifting the bonus line to reflect inflation will appease the employees and help to preserve theemployee management relationship.Fourth, aside from the bonus line, the plan has been flexible and has adapted to suitpeople's preferences and plan requirements. For example, initially all first line supervisors wererequired to facilitate the productivity meetings. However, as the plan progressed it becameapparent that some supervisors were not comfortable with this role, so employees who wereeager were trained and given the responsibility of meeting facilitation. Another example is the"gainsharing advisory board". The board was developed after the plan was implemented tofacilitate intra-departmental communication, ensure that all suggestions are evaluated, andmaintain plan effectiveness. This board has helped to institutionalize the gainsharing plan at thismine.Finally, upper mine management has been very committed to this plan throughout itslife. This is best shown by the comments of the management respondent in the survey. "Truegainsharing is not a production bonus. Productivity improvements must be able to be quantifiedin terms of dollars. Gainsharing requires a total and unwavering commitment by managementfor the long term. It needs constant attention and support. Leadership from the top is a must!"Despite the hurdles that confront this plan in the form of bonus line adjustments andpossibly waning employee interest, the commitment shown in the past to the plan and theflexibility to alter the plan suggests that it will continue to be successful into the foreseeablefuture.Page 151The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industry5.4 GENERAL TRENDSA statistical analysis of the gainsharing data will not be conducted due to the smallsample size. Rather, this section will discuss and summarize the applications of these plans inthe mining industry. Table 19 is constructed from the information in the previous section andsummarizes the major characteristics of the plans studied.5.4.1 Plan Design, Implementation, and ResultsFor the most part, these plans resemble typical gainsharing plans in that they combinecommunication networks with group-based bonuses contingent upon controllable parameters.In most of the mines there seems to be a genuine effort to encourage all employees tocontribute their productivity improvement ideas to the mine. So far all of the plans seem to begenerating positive results and all respondents are satisfied with them. However, althoughthey can all be classified as gainsharing plans, there are some notable differences in the plandesigns and the management structures that support them.For example, mine #1 splits the productivity gains on an 80/20 company/employeebasis while mines 2, 3, and 6 use a 50/50 split. While we do not have the exact amount of theproductivity increases in the mines using the 50/50 split, we do know that the mines whichkeep a larger proportion of the gains than the employees have reported improvements inproductivity. Based on this information we can conclude that, at least in the first years of thegainsharing plans, the share ratio of the gains is not a critical factor in plan design.Page 152TABLE 19SUMMARY OF GAINSHARING PLANS STUDIEDMinePlanStartPlan made by Bonus basedonBonusCapReservePoolShare Ratio(co./empl.)PaymentFrequencyBonusFormatBonus AmountsCommunication Setup Results1 1991 Management Cost/unit. No No 80/20 Monthly % of 12.6%, 0.0, 0.0, Monthly meetings of Improved communication,Open Pit and wages 0.0, 5.3, 11.7, production centres with labour relations, informationConsultant. 7.3, 0.0, 17.2, front-line supervisors and sharing, cost control. 15%9.2, 0.0, 0.0, 0.0, some management. increase in productivity, 10%0.0. decrease in safety violations,50% increase in suggestions,10% increase in recovery.2 Jan., Primarily Cost/unit and Yes ? 50/50 Quarterly % of 8.15%, 4.06, Quarterly production Increase in productivity,Open Pit 1989 Management lost time wages 752, 2.86, meetings - elected recovery, suggestions,accidents. 10.31, 8.11, 3.8 employees from eachproduction centre meetwith top management.cooperation, and safety.3 Jan., Primarily Cost/unit and Yes No 50/50 Quarterly Equal $0.00, Monthly mine-wide Productivity increase, moreUnder-ground1992 Management safety. Amount $1,350.00 meetings. cooperation and informationsharing.4 March, Management Cost/unit. Yes Yes 70/30 Monthly % of (First pmt. = Elected employees meet Improved productivity,Under-ground1991 wages base of 1.00): 1,13, 1.64, 1.81monthly with managementpersonnel.recovery, and total production,modest decrease in dilution,improved cooperation.5 July, Management Cost/unit. No Yes 70/30 Quarterly % of 0.0%, 0.0, 3.6, Quarterly meetings 12% increase in productivity,Open Pit 1991 wages 4.5, 1.0 between first and second-line supervisors and allemployees.30% decrease in absenteeism,25% decrease in employeeturnover.6 Jan., Management Cost/unit. No Yes 50/50 Quarterly Equal $145, 748, 68, Monthly mine and mill Increased concern for costUnder- 1992 Amount 184, (reserve meetings between control, more infotmationground pool pay = management and sharing and communication,1146) employees. improved labour relations.7 March, Management Cost/unit. No No 75/25 Monthly % of Averaged 6.6% Monthly meetings of 10% increase in productivity,OpenPit1988 and consultant wages since beginning production centres withfront-line supervisors.100% increase in suggestions,large increase in concern forcost control.The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryFurthermore, the presence of bonus caps and reserve pools appears to have little impacton plan success. Mines 1 and 7, which have neither a bonus cap nor a reserve pool, appear tobe just as successful as mines that have one or both of these components. Additional surveyswill help to reveal the effect that these components have on operations as the gainsharing plansage. It is possible that if bonus payments are tightly linked to factors controllable byemployees, if a bonus line is used to automatically adjust work standards to changingoperational conditions, and if bonuses are based upon a moving average of two to four months'results, both the bonus cap and reserve pool will be redundant in the bonus formula. In thesecases, their presence may just increase the complexity of the bonus calculation.The communication networks used in these mines are quite variable. Some mines (forexample mines 1 and 7) have monthly meetings on company time between a small number ofemployees and first line management personnel who work in the same production centres,while other mines (for example mine 2) have quarterly meetings between elected employeesand top mine management outside of company time.It is not surprising that these differences in plan designs have little effect on the successof the gainsharing plans at the above operations. After all, gainsharing is more of a philosophythan a generic plan design, and each plan must be tailored to its environment. One would,however, expect to find significant differences in the effectiveness of the gainsharing plans inthose situations where the philosophy behind the plan structure is different. While most ofthese mines share the same philosophy, there are some (for example #3) that do not seem toembrace the gainsharing concept. In mine #3, the management style being used may be themost appropriate one under the circumstances and may improve operations, but it is not onethat will be conducive to the operating environment that all gainsharing plans strive for.Despite the requirement that all plans be customized to their environment, however,there do seem to be some trends developing with the gainsharing plans in Table 19 that may notbe appropriate to their applications in mines.Page 154The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining IndustryFirst, most of the above plans pay bonuses quarterly. Some theorists suggest thatfrequent rewards can better reinforce positive behaviors because they are more closely linkedin time to the behaviors in question (Mawhinney and Gowen, 1990). If this is true, increasedmotivation may result if payments are made monthly instead of quarterly. If the mine doesnot want to expose itself to monthly efficiency spikes and troughs it could base monthly bonuspayments on a moving average of the previous two to four months' performance parameters.This will stabilize bonus payments and provide more frequent reinforcement to employees.Second, most mines periodically establish one cost parameter from historicproductivity data which must be surpassed in order to generate gainsharing rewards. Thesemines do not use a bonus line and therefore require that management adjusts the costparameter to reflect changing budgeted production levels and associated cost levels. In someinstances, this inflexibility can terminate the plan. For example, the Sigma mine implementeda gainsharing plan in 1990, and although everyone at the mine was satisfied with it, theycanceled it at the end of 1992. This was because changing ore grades necessitated a change inthe work standards, but the mine did not know what production and associated cost levels toexpect in the new ore. Instead of adopting a bonus line (perhaps legitimately if they hadpreviously always had homogenous ore), they chose to cancel the plan. In some cases singlecost parameters can be the most desirable method of setting work standards if a large amountof trust exists between management and employees, if the extraction environment ishomogenous, or if there is not a great deal of accurate historic production informationavailable with which to construct a bonus line. However, in cases where accurate historicproduction information is available, a bonus line will minimize the need for management toadjust the work standard and this will lend the plan some credibility in the eyes of theemployees. This advantage of the bonus line is especially useful in environments such assome of the mines surveyed where there is little initial mutual trust between employees andmanagement. In the absence of a bonus line, frequent adjustment of the work standards willPage 155The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industrybe required and this will be viewed with skepticism by employees and will threaten plansuccess.Combinations of single cost parameters with quarterly production meetings can beespecially dangerous to gainsharing plans, depending on the environment in the mine. Thesingle cost parameters will likely require frequent adjustments by management, and thequarterly meetings may not be frequent enough to teach employees about the bonuscalculation and the ways in which the work standards are set. In these cases, there is a chancethat employees will perceive management to be meddling with the bonus payouts, and the linkbetween their work performance and their bonuses may be weakened, thus decreasing theincentive to work well.Third, most of the plans have been developed primarily by management with littleinput from employees. Furthermore, with the possible exception of mines 2, 3, and 7,employees were never questioned as to whether they wanted a gainsharing plan or felt theycould contribute to it. Employee involvement in the development of the plan will help to trainmanagement in the participatory styles needed for gainsharing, ensure that the plan is suitableto employees, and give the employees a stake in its success.Finally, while Table 19 provides some information on the communication setup inthese mines, it cannot be concluded that a significant amount of pro-active communicationexists simply because a network is in place. Pro-active communication in the mines is aidedby the communication network, but it is contingent on a management team that encouragesparticipation, information dissemination, feedback, and action and an employee group thatunderstands the mine's key success factors and feels partly responsible for its success. In suchan environment the credibility and effectiveness of the meetings will be very high. However,a communication network by itself, regardless of its design, will not create the managementpractices that are fundamental to effective gainsharing plans, or instill in employees greaterknowledge of mine key success factors. Therefore, intensive training is required to helpPage 156The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryencourage these qualities and fertilize the communication. However, in most of the Canadianmines surveyed there was not a great deal of training associated with gainsharingimplementation. This may explain a surprising result obtained by the survey. In mines 3 and4, the employee respondents stated that the gainsharing plans had a negative effect onemployee participation in decision making, and the employee respondents in mines 2 and 6said the plans had a neutral effect. The results are not ones that should be associated withhealthy gainsharing plans and indicate that there are some shortcomings in these particularapplications. Because of the importance of the management philosophy in gainsharing successand the gulf that often exists between this philosophy and typical management practices inmines, inadequate training and preparation may be one of the most dangerous trendsdeveloping in gainsharing applications in Canadian mines.There are, however, some encouraging trends associated with these gainsharing plans.First, virtually all of the mines use a combination of the cost per ounce and total production tomeasure work performance. This ties the bonuses to factors that are both controllable byemployees and key to the success of the mine. Consequently, employees are encouraged toidentify with the success of the mine and work in its best interests.Second, all of the programs have generated positive results, for example increasedcommunication, increased knowledge of mine interdependencies, improved safety practices,and increased concern for cost control. Whether because of well-designed plans or simplybecause the plans are following Richardson's life cycle, productivity has improved in all of themines surveyed. Part of the increases in productivity in the mines studied could be attributedto the "Hawthorne Effect". This effect was noted in the 1920's when some Harvard efficiencyexperts were hired to evaluate worker performance in a plant in Hawthorne, Illinois. Sixwomen in the plant participated in the study by working under different conditions while theresearchers measured productivity changes. The researchers found that productivity increasedwith every change that they made, including changes in the payment system and the workPage 157The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryschedule. However, when they switched back to measure the productivity under the initialconditions, the employees' performance continued to improve. It was concluded that the extraattention and privileges unintentionally given to the women had affected their productivity,and not the changes in the working conditions that the researchers had intentionally created."The women felt special because their advice was sought and attended to throughout the study,which was a very unusual experience in those days. The women reacted to this pleasantchange by working harder and producing at a higher level." (Brigham, 1986).A similar phenomenon may be occurring in the mines with gainsharing plans, as theseplans require that management seeks and attends to the advice of the employees, and this is anunusual experience in some mines today. This may lead to a productivity increase in the firstcouple of years for all of the plans if employees believe their advice is valued by management.After this point, the plans may reach a critical juncture where continued success depends uponthe degree to which management continues to seek and attend to advice. The Hawthorne effectmay help to explain the romantic interlude, complacency, and renewal/failure stages ofRichardson's life cycle. Nevertheless, whatever the reasons for productivity increases, itappears that the gainsharing plans have had a positive effect on the mines in which they areused.Third, a couple of the above mines (mines 1 and 7) invested considerable time andmoney in training personnel about the requirements and expectations of gainsharing. Thisindicates that they are aware that the gainsharing philosophy requires work and time if it isgoing to be effective, and signifies a recognition of the commitment needed for the plans towork.Fourth, despite inadequate training preparations in some of the mines, there does seemto have been a culture change in most as measured by changes in the management styles beingused. For example, in mines 1, 2, 5, and 7 both the employee and management respondentsindicate an increase in participative management, as indicated by improved communicationPage 158The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industrybetween employees and management, better labour relations, more participation in decisions,and increased information sharing. It is worth noting, however, that these mines have investedtime and money in creating this culture change, as they have either ensured adequate trainingfor participants or involved all participants in the plan design. The culture change has notsimply appeared after the implementation of the plan. Training and preparation are key tocreating these changes.Fifth, all of the plans studied cover everyone at the mine with the exception of sometop management personnel, and all of the mines base the bonus payments on mine-wideperformance measures. This helps to reinforce the team concept in the mines.Sixth, it seems that the employees in these mines do value the opportunity to contributetheir ideas to the operations, as the number of suggestions provided by them increased in mostof the mines surveyed. Appendix 2 indicates that all that may be needed to prompt employeesto communicate their ideas is a receptive management style.Of the three underground mines in this survey, only one (mine 3) used anotherincentive system (piece-rate) in addition to gainsharing. Combinations of incentives must becarefully constructed to be effective. For example, it is possible that the individual incentiveprovided by the piece-rate plan in mine 3 will minimize the gainsharing plan's ability toencourage the pursuit of a common goal. However, in general, the objectives of thegainsharing plans in both the underground and open pit mines studied seem to be to emphasizethe pursuit of a common goal and tap the human resource, and so far the plans appear to beequally applicable in both types of mines. Consequently, the potential applications inoperating mines in Canada is wide in scope.Page 159The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industry5.4.2 Other ObservationsContrary to some previous research in gainsharing, the mines studied seem to indicatethat the number of employees covered by the gainsharing plan does not have a significantimpact on plan success, and this helps to confirm Graham-Moore's opinion (1990a). Forexample, mine #5 employs 4400 people and yet seems to have been as successful with its planso far as other mines which employ a fraction as many people. Furthermore, the existence ofa positive employee/management relationship prior to gainsharing implementation does notseem too important, as several of the mines studied, for example 1, 2, and 7, appear to havesuccessful plans despite poor initial labour relations.However, this survey and the case study (Appendix 2) reinforce the hypothesis that thecommitment of all management personnel is important to plan success. Moreover, there canbe little doubt as to the importance of a mine leader who is committed to plan success andprepared to persevere. It is likely that this commitment is especially important in thosesituations where the initial labour relationship is poor. Often, a strong commitment to changewill arise when the alternative is mine closure, and this may explain some of the success of someof the plans (for example 3 and 7). Mine #4 helps to underline the importance of an accuratedatabase of production information prior to plan implementation. In this case, despite amanagement respondent who seems well versed in the requirements of gainsharing andstrongly committed to its success, there seems to be a high degree of employee suspicion ofthe plan, largely due to a perception that management manipulates the bonus payments. It ispossible that because the plan was implemented when the mine was opened, there was notsufficient data to construct a bonus line and as a result management is unsure of appropriatework standards.Given the success of the mines with gainsharing plans, the assertion by some(Georgetti, 1993) that unions are prerequisites to true participative environments in minesPage 160The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industryseems groundless. The one mine that is unionized (mine 7) has a successful gainsharing plan,but it has not had the full support of the union throughout the plan life, even though theemployees seem to favour it (Appendix 2). This indicates that union support is not essential toplan success. However, employee support is essential, and in cases where there is employeesupport for a gainsharing plan but no union support, management must recognize that theemployees' attitudes should drive the policies of the unions, not vice versa. Management shouldbe secure in the knowledge that if they choose to implement a plan, it will be the support of theemployees, and not the union, that will drive its success.5.5 COMMENTS ABOUT THE SURVEYWhile this survey is interesting and helps to reveal trends in gainsharing design in themining industry, at this point there are some limitations associated with it which should beconsidered when reviewing its results. The first limitation has already been discussed, andinvolves the "snapshot" nature of the study. Because we have information on planperformance from only one point in time, our ability to link individual plan structure andmanagement practices with long term plan success is limited to subjective evaluation based onexperience with gainsharing in other industries. As yet there is little quantitative data tosupport suppositions about the ability of each plan to foster continuous improvement.The second consideration is related to the surveys received from each mine. Oneemployee and management respondent cannot accurately reflect the opinions of all employeeand management personnel at these mines. For example, it is entirely possible that thesubjective components of these results (questions which require the respondent to express hisor her opinion) could be skewed by the individuals mood when answering the questions.Increasing the number of respondents from each mine would have minimized this problem, asPage 161The Applications of Gainsharing Incentives in the Mining IndustryChapter 5 - Survey of Gainsharing in the Mining Industrywould have interviews with personnel on site where several people could have been involvedand follow-up questions could have been pursued. However, budget limitations precludedthese options. The single survey responses do provide some indication, however inexact, ofthe cultural issues associated with gainsharing plan success.In developing the survey, the primary issues of concern included the informationrequired from each mine, and the survey length and simplicity. There was a tradeoff betweenthe information desired and the length of the survey, and in some cases the former wassacrificed to keep the survey length reasonable. It was feared that if the survey was too longand cumbersome, the responses would degenerate. However, although the survey is twelvepages, the adoption of the multiple choice format where possible helped to minimize responsedegradation.Although participants in the survey were assured of their confidentiality, most mineswere not too concerned about revealing information about their incentive plans. In fact, mostparticipants were keen to provide information for the survey in order to build a database of themines in Canada that use gainsharing and the plan structures that they are using.Page 162CHAPTER 6 - CONCLUSIONS AND RECOMMENDATIONS6.1 CONCLUSIONThis research has reviewed the development of gainsharing plans from their origins in1935 to their applications today. It has explored the motivational advantages that gainsharinghas over some other incentives, discussed its compatibility with the dynamics of today'semployees, and explained how it can be used to improve operational efficiency. Afteranalysing the gainsharing concept and its possible applications in general, this researchdefined gainsharing in the mining context and explored the challenges and payoffs associatedwith implementing gainsharing in the mining environment. A telephone survey of operatingmines in Canada has quantified the degree to which employee incentives are used in themining industry and measured the popularity of piece-rate incentives, profit sharingincentives, and gainsharing plans in both underground and open pit mines. A surveydeveloped and sent to the mines using gainsharing plans has gathered information on planstructures and results and helped to identify the benefits and challenges associated withimplementing these plans in mines. Moreover, it has established a solid foundation fromwhich to study these plans in the future.In summary, gainsharing plans are employee incentives that combine a group-basedfinancial incentive with a formalized communication network characterized by managementpractices that encourage, through actions, employee participation and communication in theworkplace. Gainsharing plans increase the employees' stake in the business and give them adual incentive to participate in its success. These incentives have been used successfully in avariety of different industries for many years now, and there has been considerable researchdone on their applications in these industries. Examination of the characteristics of the miningPage 163The Applications of Gainsharing Incentives in the Mining IndustryChapter 6 - Conclusions and Recommendationsindustry and a review of the previous research indicates that gainsharing plans may beparticularly useful in the mining environment, and the results of the survey of Canadian minesusing gainsharing reveal that all of the plans are generating gains. However, gainsharing planscan require a large change in the management philosophy and always require a great deal ofplanning, commitment, perseverance, and some sacrifice in order to work properly. Some ofthe mines using gainsharing have not implemented the plans in the way dictated by experiencewith them in other industries, and time will determine whether or not these plan structures aresuccessful. Nevertheless, the fact that mines are considering and in some cases implementingthese plans demonstrates that the mining community is continuing to search for strategies thatwill generate competitive advantages into the future. This outlook has positive implicationson the ability of the Canadian mining industry to compete in the years to come.6.2 FINAL COMMENTS ON GAINSHARING PLANS IN MININGThe following section will summarize what this research has revealed aboutgainsharing plans in general and their applications in the mining industry in particular byproviding recommendations and comments on the desired initial mine characteristics, planimplementation procedures, plan structures, and on-going plan management.6.2.1 Initial Mine CharacteristicsThe mines studied seem to indicate that the number of employees covered by the plandoes not have a large impact on plan success, and that the employee management relationshipprior to plan implementation is not of great importance. What does appear important is astrong commitment from all management personnel to change their management styles,especially in those cases where there is little employee/management trust prior to gainsharing.Page 164The Applications of Gainsharing Incentives in the Mining IndustryChapter 6 - Conclusions and RecommendationsFurthermore, a plan champion, who is a high-level manager committed to change and preparedto persevere, will enhance chances of plan success.Consistent operating conditions will have a positive impact on plan success, as the workstandards will not require frequent changes and therefore the employee/managementrelationship will not be jeopardized. However, if operating conditions are inconsistent, a bonusline will minimize the need for management to alter the work standards, and thereforeconsistent operating conditions, although desirable, are not essential to plan success.Accurate historic production information will help to ensure that the initial workstandards are set realistically. Furthermore, in cases where bonuses are based on the cost ofproduction and total production, the ability to link each period's production with its associatedcosts is important if the employees are going to appreciate the link between their workperformance and the bonus payouts.Finally, the mine should ensure that it has settled all personnel and technologydevelopments prior to gainsharing implementation. All projected layoffs should be complete sothat the mine can start fresh and build a new employee management relationship without havingto endure the strain of layoffs. Furthermore, adopting new technology prior to gainsharing willhelp to avoid changes to the work standards and will encourage plan consistency. In manycases, plan consistency will be closely related to plan credibility. If possible, the newtechnology should be adopted far enough in advance of gainsharing to give some priorindication of the new expected production levels.6.2.2 Plan Preparation and ImplementationThis is likely the most important step in determining gainsharing success, as it is thepoint at which the objectives of the plan are developed and the personnel at the mine areprepared for the changes associated with the plans.Page 165The Applications of Gainsharing Incentives in the Mining IndustryChapter 6 - Conclusions and RecommendationsThe first stage is a gainsharing seminar for senior mine personnel. This seminar willexplain the concept and ensure that the gainsharing philosophy is consistent with the managers'vision, strategies, and products.The second stage will determine the plan's scope and identify factors that should impactthe plan structure. It is recommended that everyone with the possible exception of two or threetop mine managers be covered by the plan. In large plants with several mines, it is advisable toadopt a plan in the mine in which it is most likely to be successful and then allow the concept todisseminate throughout the organization. If gainsharing is successful in the first mine, theculture change will evolve more smoothly and naturally throughout the plant if peoplerecognize the advantages of the plans prior to implementation. Things that should frame theplan design include anticipated employment and technology, available production data, currentmanagement style, ore reserves, products, available resources, and employee and unionperceptions.The third stage will be the initiation of in-depth training for managers in the gainsharingphilosophy. This training will proceed from this point up to the gainsharing announcement dateand will be focused towards those managers who have the most direct contact with theemployees. Training will continue after the gainsharing plan is announced as well.The fourth stage is the employee survey. This will involve all employees and will bedesigned to reveal cultural concerns in the organization. Subsequent discussion of the surveyand action on the employees' concerns will initiate communication and lend credibility to theplan.The fifth stage will establish the broad strokes of the gainsharing plan by outlining theplan objectives and deciding on plan eligibility. The plan implementation schedule will bedeveloped at this stage, based on information gathered in previous stages. It is in this stage thatthe support of all people involved with the plan should be secured. Either union people oremployee representatives should be involved with the plan from the beginning to ensure that thePage 166The Applications of Gainsharing Incentives in the Mining IndustryChapter 6 - Conclusions and Recommendationsplan addresses their needs. Furthermore, involvement will give them a stake in the plansuccess.Stage six will finalize the details of the bonus calculation and the communicationnetwork. Both of these elements are flexible, so the most important considerations during theirdesign are the goals of the gainsharing plan. However, there are some general rules which willencourage plan success.The bonus should be tied to factors over which employees have control and must berelated to the mine's key success factors. Consistency in the bonus calculation is highlydesirable, as it will increase plan credibility. Simplicity is also important if employees are toappreciate the performance/payout link, and with this in mind factors like absenteeism, safety,turnover, reserve pools, and bonus caps need not be included in the formula. The bonus shouldbe mine-wide to increase the sense of teamwork and reinforce the fact that there is a commonobjective. However, the performance of each sub-unit must be tracked and compared withhistoric performance so that everyone is aware of their personal contribution to the mine'soperations. This will also help management to identify weak links in the value-added chain. Asstated, monthly payouts will enhance the link between work performance and rewards, but thismust be balanced with the increased administration costs.If conditions require, profitability may be used as a trigger for gainsharing payout.Rewards will still depend on work parameters controllable by employees, but will only be givenwhen profitability reaches a certain level. This condition would be warranted, for example, if acompany's shareholders would look unfavourably on bonus payouts when the company is losingmoney due to a slump in commodity prices. This is not a recommended procedure in mostother cases, as it clouds the link between work performance and rewards, and can only decreasethe motivational capacity of the gainsharing plan. If required, it is essential that when employeeperformance is good but profits are low, the rewards that were due to employees be carriedforward to a point where profits are acceptable, and paid out at that time.Page 167The Applications of Gainsharing Incentives in the Mining IndustryChapter 6 - Conclusions and RecommendationsThe communication network should be designed so that everyone is encouraged tovolunteer productivity improvement ideas. As stated, its effectiveness will be determinedprimarily by the management style associated with it. A positive management style thatdemonstrates that the company values employees' opinions is essential, and even simple thingslike scheduling productivity improvement meetings on company time and responding promptlyto employee suggestions will help to demonstrate that importance.The seventh stage will introduce all employees and management to the particulars of thegainsharing plan. It is essential that everyone understands the objectives of the plan and theobligations associated with it. Employees should be taught basic business and operationalconcepts so that they understand the bonus calculation, how their performance affects thecalculation, how their ideas can make them money, and how improved operations betweendepartments can increase mine efficiency.The eighth stage will be the announcement of the gainsharing plan. Productivity andcost measurements will begin at this stage. Ideally, the announcement will occur prior to acyclical up-swing in business so that the plan achieves immediate credibility.6.2.3 On-Going Plan ManagementPlan management will include plan evaluation and modification. The plan shouldinitially be monitored every three to six months to ensure it is achieving the objectives statedin the plan outline. A gainsharing board consisting of employee, management, and unionrepresentatives, if applicable, will be most effective in this task as it will have access to theconcerns and priorities of all the involved parties. This board will measure the accuracy of thework standards, the commitment to change exhibited by management, the employeeenthusiasm for the plan, and the operational changes attributable to the plan, among otherthings. The board will have the authority to modify the plan structure if it perceives problems.Page 168The Applications of Gainsharing Incentives in the Mining IndustryChapter 6 - Conclusions and RecommendationsThis board will exist throughout the life of the gainsharing plan to ensure that the plan'sstructure evolves with the objectives and environment of the mine. Furthermore, it willspearhead programs designed to alleviate problems, like idea stagnation, that occur as theplans age in the mining environment. Such programs may vary from monthly productiontargets to the rotation of employees between the productivity improvement meetings ofdifferent mine departments.Finally, if the plan is paying dividends, perseverance is essential if it is going tosurvive changing conditions. It is at this point that the commitment of senior mine personnelis very important.63 RECOMMENDATIONS FOR FURTHER STUDYFurther study of this subject should focus on finding which plan designs andsupporting structures are most conducive to long term plan success, where plan success ismeasured by its ability to enhance the mine's operating efficiency. This can best be achievedby having the participating mines complete a survey that measures plan performance,employee attitudes, and management styles on a yearly basis. 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Winter: pp.68-80.176APPENDIX 1SURVEY OF GAINSHARING IN THEMINING INDUSTRYPage 177The Applications of Gainsharing Incentives in the Mining Industry - Appendix 1SURVEY OF GAINSHARING IN THEMINING INDUSTRYAppropriate respondentWhoever has been involved in the development, implementation, and monitoring of the gainsharing planis probably the best person to respond to this questionnaire. If you do not think you are the best person tocomplete the questionnaire, we would appreciate it if you could refer it to the most appropriate person.Purpose of this surveyThis survey will examine the applications of gainsharing in the Canadian mining industry, measure theeffects that it has on mining operations, and study steps that can be taken to help it work in the long run.ConfidentialityMine names will not be revealed unless their data is combined with data from at least three other mines.This policy is flexible, and if more confidentiality is required by any participant it will be arranged. Inthis case, all participants will be notified of the change, and given the option of having their data treatedwith the same degree of confidentiality.InstructionsPlease read the questions carefully. Most questions can be answered by circling the number in theappropriate box, or by providing a short description. Where appropriate, more than one answer may becircled. Definition of TermsWork Standards: These are the standards that must be surpassed before a gainsharing bonus ispaid. They can be related to anything from production measures to safetymeasures. If actual production in a certain period is less than the standard, nobonus is paid.Time Studies:^These are studies that measure the amount of time that a task should take,based on engineering data.Upon completionOnce you have completed the questionnaire, please return it using the enclosed pre-addressed, stampedenvelope.QuestionsIf you have any questions, please leave a message for Douglas McDonald at (604) 822-2540. I will returnyour call promptly.Thank you for participating!Page 1781) INDIVIDUAL PRODUCTIONINCENTIVES3) NOTHING2) PROFIT SHARING4) OTHER (please specify)1^YES^I NO (skip to question 8) I1^DAYS IN /^DAYS OUT. IThe Applications of Gainsharing Incentives in the Mining Industry - Appendix 1I) BACKGROUND1) How long has this mine been operating?1) LESS THAN 1 YEAR 4) 5 TO 10 YEARS2) 1 TO 3 YEARS 5) MORE THAN 10 YEARS3) 3 TO 5 YEARS 6) UNKNOWN2) How long ago was gainsharing implemented?1) LESS THAN 1 YEAR 4) 5 TO 10 YEARS2) 1 TO 3 YEARS 5) MORE THAN 10 YEARS3) 3 TO 5 YEARS 6) UNKNOWN3) How would you describe the incentive scheme for operations personnel prior to gainsharing?4) Is another incentive system used in conjunction with gainsharing?1^YES^1^NO (skip to question 6)^15) What is this system?^6) Is this a fly in / fly out operation?7) What is the typical rotation?8) Number of employees (if fly in / fly out operation, number of employees per rotation)9) Is this operation unionized? 1 ^YES^NO^110) Has the extraction rate of ore at this mine been relatively consistent in the past?1^YES (skip to question 12)^1^NO^1Page 1791) CAPITALINVESTMENTS2) EQUIPMENTDOWNTIME3) EMPLOYEEDISRUPTIONS4) CHANGES IN ORE COMPOSITION^1 5) CHANGES IN MINING METHOD6) OTHER (please specify)1) MANAGEMENT 2) UNIONREPRESENTATIVES3) EMPLOYEES4) OTHER (please specify)The Applications of Gainsharing Incentives in the Mining Industry - Appendix 111)What factors have had a significant effect on the extraction rate? (more than one answer may becircled)II) PLAN DEVELOPMENT12) Who originally thought of introducing gainsharing to your mine? (more than one answer may becircled)13)Was information provided to upper mine management prior to plan development to explaingainsharing?1^ YES^1^NO^114)Who had input into the development of the gainsharing plan at your site? (more than one answer maybe circled) 1) COMPANY MANAGEMENT 2) EMPLOYEES3) UNION REPRESENTATIVES 4) OUTSIDE CONSULTING GROUP6) OTHER (please specify)Page 180The Applications of Gainsharing Incentives in the Mining Industry - Appendix 115) Which of the following considerations had to be taken into account when developing the planstructure? (more than one answer may be circled)1) ORE VARIABILITY OROTHERUNCONTROLLABLEPRODUCTIONVARIABLES3) SUITABILITY TOEMPLOYEES5) LABOUR RELATIONSHISTORY2) NUMBER OFEMPLOYEES IN MINE4) WORK FORCEINTERDEPENDENCE6) EXISTINGMANAGEMENT STYLE7) OTHER (please specify)DI) PLAN STRUCTURE16) What are the objectives of the gainsharing plan?^17)How is the bonus calculated?^18) What is the company/employee share of gains, respectively?0/100 % 50/50 % 100/0 %25/75 % 75/25% OTHER (please specify)19) How often is the bonus calculated?1) WEEKLY 3) YEARLY2) QUARTERLY 4) MONTHLY5) OTHER (please specify)20) Is there a cap on the gainsharing bonus?1^YES^1^NO (skip to question 23)^1Page 181The Applications of Gainsharing Incentives in the Mining Industry - Appendix 121) At what point is the bonus capped?^22) Is the excess bonus retained by the company, or distributed at a later date?1) RETAINED^I 2) DISTRIBUTED3) OTHER (please specify)23) Are all mine personnel covered by the plan?1^YES (skip to question 25)^1^NO^124) Who is not covered by the plan?^25) Are meetings held between management and the employees covered by gainsharing?1^ YES^ NO (skip to question 36)^126) Are the meetings mine-wide, or set up so that people in the same production centers meet withmanagement? (more than one answer may be circled)1) MINE-WIDE^I 2) PRODUCTION CENTRES3) OTHER (please specify)27) How often are the meetings held?^28) How long are these meetings, usually?29) Are the meetings held on company time?1^YES^I^NO^130) How many management personnel usually attend these meetings?^31) What is their position in the mine?^32) How many employees usually attend these meetings?^Page 1821) BONUS CALCULATION 2) GRIEVANCES 3) EMPLOYEESUGGESTIONS4) MANAGEMENT DECISIONS^I 5) FUTURE CHALLENGES6) OTHER (please specify)1) ALL-EMPLOYEE SURVEY 3) ALL-EMPLOYEE VOTE2) MEETINGS WITH ALL EMPLOYEES 4) MEETINGS WITH CREW CHIEFS5) OTHER (please specify)The Applications of Gainsharing Incentives in the Mining Industry - Appendix 133) How would you rate employee interest in the meetings?1) VERY HIGH 3) MODERATELY HIGH 5) LOW2) HIGH 4) MODERATELY LOW 6) VERY LOW34) Are employees elected to attend, or can any employee attend? (more than one answer may be circled)1) ELECTED EMPLOYEES^2) ANY EMPLOYEES3) OTHER (please specify)35) What issues are discussed in these meetings? (more than one answer may be circled)IV) COMPANY PRIOR TO GAINSHARING36) Were employee opinions of gainsharing solicited prior to implementation?1^ YES^1^NO (skip to question 40)^137) How were these opinions collected?38) How many employees supported gainsharing prior to implementation?^39) How many employees opposed it?^Page 183The Applications of Gainsharing Incentives in the Mining Industry - Appendix 11 = Strongly Agree^5 = Strongly Disagree1 2 3 4 51 2 3 4 51 2 3 4 51 2 3 4 540) Prior to the gainsharing implementation,labour relations were very good.41) Employee participation and interest inmanagement decisions prior to gainsharingimplementation was very high.42) Prior to gainsharing, mine development wasproceeding as projected.43) There was considerable trust betweenemployees and management prior togainsharing.V) PLAN IMPLEMENTATION AND SUPPORT44) What type of training, if any, was provided for management when implementing gainsharing?45) What type of training, if any, was provided for employees when implementing gainsharing?46) Has a change in management style been required by gainsharing?YES^I^NO (skip to question 50)47) What is the nature of this change?48) Is there any on-going training in the management styles associated with gainsharing?YES^1^NO (skip to question 50)^149) If so, how often does it occur?1) MONTHLY 4) ANNUALLY2) QUARTERLY 5) EVERY TWO YEARS3) SEMI-ANNUALLY 6) LESS THAN EVERY TWO YEARSPage 184The Applications of Gainsharing Incentives in the Mining Industry - Appendix 150) Are new personnel trained in the requirements or expectations of gainsharing?YES^1^NO51) Is there a formalized, periodic evaluation of gainsharing?1^YES^1^NO (skip to question 54)^152) What form does this evaluation take? (more than one answer may be circled)1) MEETINGS WITH EMPLOYEES^1 2) INTERNAL AUDIT BY MANAGEMENT3) OTHER (please specify)53) How often is it used?1) ONCE PER WEEK 3) SEMI-ANNUALLY 5) WHENEVER ISSUESARISE2) ONCE PER MONTH 4) ANNUALLY 6) OTHER (please specify)1 = Strongly Agree 5 = Strongly Disagree54) This plan has received a lot of support from 1 2 3 4 5top mine management and head office.55) This plan has received a lot of support from 1 2 3 4 5crew chiefs and department heads.VI) GAINSHARING MANAGEMENTFor the next two questions, more than one answer may be circled.56) Who sets the work standards? (Work standards are defined on the cover page)1) MANAGEMENT^ 1 2) EMPLOYEES3) UNION REPRESENTATIVES5) OTHER (please specify)57) Are these standards mine-wide, or do they vary from stope to stope? 1) MINE-WIDE^1 2) VARIABLE3) OTHER (please specify)Page 185The Applications of Gainsharing Incentives in the Mining Industry - Appendix 158) How are they determined? ("Time studies" is defined on the cover page)1) TIME STUDIES^ I 2) HISTORIC DATA3) OTHER (please specify)59) How often have these standards changed?1) MORE THAN ONCE PER YEAR 5) ONCE EVERY FOUR YEARS2) ONCE A YEAR 6) ONCE EVERY FIVE YEARS3) ONCE EVERY TWO YEARS 7) LESS THAN ONCE EVERY FIVE YEARS4) ONCE EVERY THREE YEARS 8) NEVER (skip to question 61)60) Why do they change? (more than one answer may be circled)1) CAPITAL INVESTMENTS^I 2) MAKE BONUS SIZE REASONABLE3) CHANGES IN ORE COMPOSITION, MINING METHOD, OR OTHER FACTORSBEYOND MINER'S CONTROL4) OTHER (please specify)61) What information is shared with employees regarding the bonus calculations?^62) Is employee participation sought in some management decisions?I NEVER (skip to question 68) I^ALWAYS^I^SOMETIMES^163) What types of decisions?^64) What information is provided to employees to augment this participation?^Page 186The Applications of Gainsharing Incentives in the Mining Industry - Appendix 165) How is this information provided to the employees? (more than one answer may be circled)1) WORD OF MOUTH^2) BULLETIN BOARDS3) DEPARTMENT MEETINGS^4) CREW MEETINGS5) OTHER (please specify)66) Are operating decisions contrary to employee opinions ever made?NEVER^ SOMETIMES67) Is it standard policy to provide feedback to employee participation?YES NOVII) GAINSHARING RESULTS68) What is the most common measure of productivity at your mine?^69) Please indicate quantitatively positive or negative changes you have measured in any of the followingparameters, since gainsharing was implemented:%INCREASE%DECREASENOCHANGENOTAPPLICABLEProductivityMaintenance costsMachinery downtimeSafety violationsLost days due to injuryNumber of suggestionsAbsenteeismGrievancesEmployee turnoverMaterials costsDilutionRecoveryOther (please specify)Page 1872 3 4 5 6 7 8 9 1012 13 14 15 16 17 18 19 2022 23 24 25 26 27 28 29 30PERIOD^I 21BONUSPERIOD^I 1BONUSPERIOD^I 11BONUSThe Applications of Gainsharing Incentives in the Mining Industry - Appendix 170) Have other developments, besides gainsharing, possibly had an effect on this data?1^ YES^1^NO (skip to question 72)^171) Please indicate what they are, which factors they may have affected, and to what extent they mayhave affected them.^72) Please indicate the gainsharing bonus paid per period since implementation. Please state the bonus inpercentage terms, in absolute terms, or in comparative terms, giving the first payment a base of 1.00.On the scale below, please indicate the effect you believe gainsharing has had on the following factors:1= VERY POSITIVE 5 = VERY NEGATIVE73) Safety procedures.74) Communication between work crews.75) Communication between work crews andmanagement.76) Information sharing between employees andmanagement77) Employee participation in decision making.78) Labour relations.79) Concern for cost control.1 2 3 4 51 2 3 4 51 2 3 4 51 2 3 4 51 2 3 4 51 2 3 4 51 2 3 4 5Page 188The Applications of Gainsharing Incentives in the Mining Industry - Appendix 180) Have total labour costs changed with gainsharing implementation?1) NO CHANGE 3) DECREASED2) INCREASED 4) NOT APPLICABLE81) If they have increased, has this increase been matched or exceeded by a corresponding increase inmine revenues?1^YES^1^NO^182) Have manpower requirements changed since gainsharing implementation?1^YES^1^NO (skip to question 85)^183) If so, how?^84) In your opinion, have these changes been brought on by gainsharing?I^YES^I^NO ^PARTLY^1VIII) GLOBAL QUESTIONS85) Overall, to what degree are you satisfied with the results of gainsharing, given the resources requiredto implement it?1= VERY SATISFIED^ 5 = VERY UNSATISFIED1^ 2^3^4^586) Would you advise other mining companies to seriously consider installing a plan like yours?i^YES^i^NO^187) We welcome any final comments you would like to make regarding gainsharing plans in the miningindustry.^ (PTO)Page 189The Applications of Gainsharing Incentives in the Mining Industry - Appendix 1Page 190APPENDIX 2CASE STUDY OF THEGLENROCK COAL COMPANYPage 191Appendix 2Case Study of the Glenrock Coal CompanyBACKGROUND INFORMATIONThe Glenrock Coal Mine, also known as the Dave Johnston mine, has been in existencesince 1958. It is located approximately eleven miles from Glenrock, Wyoming and is now theoldest continuing coal mining operation in Wyoming, having produced more than 70 milliontons of coal to date. It has supplied coal to the Dave Johnston Power Plant, which shares thesame owners with the mine and is located sixteen miles to the south, ever since the power plantwas opened in 1958. This power plant consumes all of the production of the Glenrock mine,and purchases it at the cost of production. The coal is transported from the mine site to thegenerating station via a private railroad operated by Glenrock Coal.This is an open pit single dragline operation which recovers 2.8 million tons of coalannually from two coal seams at depths averaging 16 and 30 feet. The coal is loaded into 120ton haul trucks using hydraulic shovels and backhoes, and is then taken to a crushing plantlocated at the rail loading site and stored in a 4,000 ton silo, where it is loaded into railcars andtransported to the power plant.MINE CONDITIONS UP TO 1988Although the Glenrock mine had been operating successfully for 28 years prior to 1986,it became apparent that the operations would have to change for the mine to operate into thefuture. Increased competition from the low-cost massive reserves in the Powder River Basincombined with increasing costs at Glenrock were threatening the mine's market share. Inresponse to these pressures, Glenrock had to lay off approximately 40% of it's work force andreduce production from 4 million tons per year to 2.8 million tons per year in 1986.Worker/management relationships declined as a result of the mass layoff and it appeared for atime that Glenrock was merely briefly delaying its closure. Gary Yoakam, the mine manager ofGlenrock had heard of gainsharing incentive plans and had attended a seminar given by thePage 192Appendix 2Case Study of the Glenrock Coal CompanyBovino Consulting Group. The idea was fairly new to him, but he saw the possible benefits aplan of this type could have on a mine facing hard times, and was of the opinion that inactionwould result in mine closure. After more research, it was concluded that implementation of thisplan would be beneficial to a mine such as Glenrock, if undertaken properly.THE GAINSHARING PLAN -- 1988The gainsharing plan at Glenrock Coal includes everyone employed at the mine exceptthe mine manager and his five direct reports. The plan is designed to improve productivity,provide a method of measuring productivity which is easy for everyone to understand, andfinancially reward eligible employees for attaining these new productivity levels. Throughactive participation between employees, first line supervisors and management, ideas areexpressed freely and suggestions which may create improvements in productivity are generated.If productivity improvements are made, the employees then benefit in the form of PerformancePlus pay.The Performance Plus pay is calculated on a two month rolling weighted average,meaning that the bonus for a specific month is dependent upon the average cost per ton of coaldelivered for the two months directly preceding it. A bonus is available whenever there aresavings in the historic production cost of the coal. The bonus is dependent upon the tons ofcoal delivered as well as the measured mining cost per ton of coal. Management constructed a"bonus line" which reflects the average cost of producing coal at different production levels.The total gained is the total actual production multiplied by the historic per unit cost at thatproduction rate minus the actual per unit cost. The employee's share of these gains is 25%.Table 1 illustrates this procedure.Page 193If actual production = 200,000 tons at $5.90 per ton, thenGain = 200K($6.00 - 5.90) = $20,000Employee share = .25(20,000) = $5,000.$5.805.906.006.106.206.30CostPerTon220 210 200 190 180 170 160Total Production (000's)Appendix 2Case Study of the Glenrock Coal CompanyTable 1Calculation of Performance GainsThe employee's share of the gains is divided by the total payroll to give the"performance percent". This performance percent is then multiplied by each individual's eligiblepay and the resultant amount, minus all the necessary tax deductions, is the performance paythat an individual is allowed to take home. Eligible pay is the average pay for all time actuallyworked in the current and previous month, excluding all non-working pay, such as sick pay,holiday pay, vacation pay, bonus pay, performance plus pay and any related type of income.Once the bonus line was set by management, they constructed a performance chart thatillustrates at a glance what the employee's bonus would be at different production and costparameters. This chart (Table 2) helps to make the bonus understandable for everyone at themine. On this chart, the cost per ton of coal delivered and tons of coal delivered are calculatedon a two month rolling average. The factors considered when determining the measured miningcost per ton of coal include the cost of labour, materials and supplies, outside services deemednecessary, lease expenses, insurance costs, depreciation and amortization as well as variousother costs.Page 1946.00 4.8 5.9Performance Percent6.9^7.8^8.7 9.6 10.3Measured 6.10 4.6 5.6 6.6 7.5 8.3 9.1Mining 6.20 4.4 5.4 6.3 7.1 7.9Cost per 6.30 4.2 5.1 6.0 6.8Ton of 6.40 4.0 4.9 5.7Coal 6.50 3.8 4.7Delivered 6.60 3.7($) 235 225 215 205 195 185 175Tons of Coal Delivered (000's)Appendix 2Case Study of the Glenrock Coal CompanyTable 2Performance ChartSuccess of the gainsharing plan can also be attributed to a communication system and anidea evaluation network used to create a positive relationship between management andemployees at Glenrock. The communication network at Glenrock consists of monthly'Productivity Improvement' (PI) meetings at which employees can contribute ideas openly andfreely. The PI meetings at Glenrock consist of everyone in a certain production centre, be it adrag-line crew or a maintenance crew, and either a supervisor or an hourly employee who actsas a facilitator by keeping people headed in the right direction. The facilitator is in charge ofencouraging employees to volunteer problems and potential solutions as well as any possiblesafety hazards they are encountering in their work environment. These meetings begin byreviewing what has been accomplished since the last PI meetings and then go on to identify newpriorities and generate new ideas. The meeting atmosphere and processes are guided bygroundrules and an agenda which is adhered to by the facilitator. Tables 3 and 4 illustrate themeeting groundrules and agenda respectively.Page 195Appendix 2Case Study of the Glenrock Coal CompanyTable 3Productivity Improvement Meeting Groundrules1. Don't ignore others contributions.2. Clarification precedes evaluation.3. Speak for yourself.4. Separate idea from person.5. All members participate.6. Be conscious of group processes.7. Avoid decision by default.8. Strive for win-win situations.9. View conflict as necessary and helpful.10. Listen to and respect views of other members.11. No such thing as a bad ideaTable 4Productivity Improvement Meeting Agenda1. Identify project/problems/ideas.2. Select project/problems/ideas.3. Cause and effect analysis.4. Generate solutions.5. Determine best solution.6. Obtain approval or request.7. Implement solutions and track results.8. Follow up - assess goal attainment.The link between these PI meetings is the Gainsharing Advisory Board (GAB). Thisboard consists of 5 supervisors representing different production centres and 3 hourlyPage 196Appendix 2Case Study of the Glenrock Coal Companyemployees. The purpose of the GAB is to evaluate ideas from the PI meetings, providefeedback to the employees as to what is being done with their ideas and why, and to motivatethe employees to increase productivity through advertising and promoting the gainsharing plan.The GAB is also responsible for watching over and making sure the bonus calculations arebeing calculated properly, in order to assure the rest of the employees that the company isworking with the employee's best interests in mind.In addition to the communication network, Glenrock also instituted a suggestion box sothat people who had ideas at any time could contribute them and have these ideas evaluated bya Gainsharing Advisory Board.GAINSHARING IMPLEMENTATIONThis gainsharing plan was implemented in March of 1988. However, preparations forthe plan had begun prior to the implementation and these preparations were instrumental in theeventual success of the plan.1) Employee Vote:First, the company was prevented from implementing the gainsharing plan without anemployee vote. Although the union was skeptical of a plan that seemed to offer its members"something for nothing", the employees voted 60/40 for implementation of the plan. The mainconcern of the employees at the time was that productivity improvements would result in a lossof jobs. However, a guarantee from the mine manager that no one would be let go because ofthe gainsharing plan helped to alleviate these fears. This vote was very important, as it madethe employees aware of the gainsharing plan and was the first step towards giving theemployees a stake in its success.Page 197Appendix 2Case Study of the Glenrock Coal Company2) Employee Survey:An employee survey conducted be the Bovino Consulting Group was another importantstep in the plan implementation. This survey was designed to reveal the employee's opinionsand criticisms of their work environment and initiate discussion on ways in which thatenvironment could be improved. Given the recent layoffs, the employees had a lot to talkabout. The survey was a cathartic experience for all mine personnel and helped to start theemployee/management communication that is so vital to a gainsharing plan.3) Training:Training of management personnel began 15 months prior to the plan implementation.Managers spent one weekend out of every quarter with the Bovino Consulting Group learningfacilitation and coaching methods and becoming familiar with ways in which they could improvecommunication and be more receptive to employee suggestions. The training sessions weregeared towards the people who work "hands-on" with the employees, but were open toanybody who wanted to attend. However, employee participation was quite limited, perhapsbecause the training was held on the weekends and because of the poor labour/managementrelationship at the time. Management's initial use of their facilitation skills came when theydiscussed the results of the employee survey with the employees. Because everyone wasinterested in the survey and had something to say about it, communication was easy to initiate.Management focused on the "warm and fuzzy" issues at the beginning to remove barriersbetween employees and management and eliminate the "we/they" attitudes. By doing this, theygave the plan some immediate credibility in the eyes of the employees. Finally, despite the 15months of training, the mine manager stated that if he could change one thing about the plan, itwould be to spend more time training the supervisors.Page 198Appendix 2Case Study of the Glenrock Coal CompanyTHE MINE AFTER 5 YEARS -- 1993Five years after the initial startup of the gainsharing plan at Glenrock, the cost toproduce one ton of coal has decreased by about $4.00 per ton despite the decreased productionand the effects of inflation. The number of employees at the mine has decreased throughattrition from 185 after the layoff to 169 today, and one of the reasons for the decrease in thework force is that people realize that if they can pick up the slack left by a vacated position, thewages and benefits saved will have a positive impact on the cost per ton of coal. The monthlybonus payment has averaged 6.6% from the beginning of the plan to March 1993, and the costof implementing the plan was recovered in the first year of its operation. Some of the successof the plan can be attributed to its accessibility to employees. A survey of 75 employeesrevealed that 56% of them feel their work performance can impact on the bonus paid. Theresults of this survey appear in Appendix 2a.However, much of the success of the plan is driven by the communication network.Gary Yoakam stated that prior to the gainsharing plan the employees always had the desire toapply their productive ideas in the company, but were met with closed doors when they madetheir suggestions. Once the participative management style was adopted and the productivitymeetings were initiated, the ideas started to flow. This formal communication structure, whencombined with employee empowerment by the sharing of company information, resulted in twolevels of communication and action. The first level is in the field at the time that it is needed, asthe employees show initiative to respond to problems while on the job. The employees have thefreedom to correct any flaws or improve any situations without having to go through a numberof channels. With this increase in freedom, things are more likely to get done and more savingsare likely to be realized. The second level is in the monthly meetings, where the formalstructure allows the problem identification and idea evaluation necessary for the longer termchallenges.Page 199Appendix 2Case Study of the Glenrock Coal CompanyThis two-leveled communication was made possible by management that evolved fromsupervising to coaching, and employees that believed that they could contribute to the mine'sefficiency. In 1987, after the layoff, worker morale was low and cooperation with managementwas very limited. Employees constantly faced the possibility of not having a job the followingday, due to the high costs and the increased competition within the coal industry. However,one of the unwritten conditions specified by the mine manager was that there would not be anylayoffs because of this program. Fortunately, he has been able to stand by his promise and noemployees have been relieved of their duties. This has improved worker morale, and in theprocess increased the feeling of trust between management and employees. Today,management and supervisors strongly feel that the employees attitudes have changed towardsthem since the implementation of gainsharing. They feel that the employees are less intimidatedand can more easily approach them when they encounter a problem or have anyrecommendations about improvements in their work place. They feel that the we/they attitudehas decreased drastically and that many employees now view them as a "coach" rather than a"boss". Furthermore, a survey of 75 employees at the mine revealed that 66% of them feel thatthey have something to contribute at the productivity improvement meetings, 63% discuss waysto improve operations more with their co-workers, 72% feel the productivity meetings are agood opportunity to suggest ways to improve mine performance, and 52% enjoy theopportunity to participate. Grievances between employees and supervisors fell from 35 peryear to 15 per year, indicating a more co-operative relationship. Moreover, many employeeshave taken a very active part in the gainsharing program, such as making sure that anypurchases that Glenrock makes are justifiable. This is in their best interest because the purchasecosts are included in the bonus calculation which directly affects their financial reward. Thewillingness by management to release pertinent information to employees has strengthened thecredibility of the program and has caused many managers to be more careful with their actionsand decisions because they are now held accountable for them by the employees.Page 200Appendix 2Case Study of the Glenrock Coal CompanyTeamwork between different departments and between employees in the samedepartment has also been affected. Employees now see themselves working as part of a teamrather than individually. Each department or shift views the next department or shift as a'customer'. With this in mind, the objective is to supply the customer with what he wants orneeds in order to satisfy him and improve operations. In this way, there is a greaterappreciation of the value-added process in the mine, as the employee's knowledge of otherdepartment's requirements is increasing.Finally, 36% of the surveyed employees felt that the gainsharing plan had improved thesafety practices at the mine, and 5 of 14 management personnel agreed. The other 9management personnel interviewed felt that the gainsharing plan had no effect on the safetypractices.The Glenrock Coal Company has not reached this point without encountering problems,however, and there will be more problems in the future. The next section will discuss thechallenges they have faced and have yet to overcome for the gainsharing plan to continue tooperate effectively.FUTURE CHALLENGESTraining at the onset of the program was very extensive with intense weekend sessionsfor management and first-line supervisors every quarter for the first year. However, at theonset of the plan some of the supervisors were uncomfortable with the roll of facilitator. As aresult, they were not obliged to lead the productivity improvement meetings, and employeeswho wanted to facilitate the meetings were given the appropriate training and put to work. Inthe last two years, only one refresher course in the management practices associated withgainsharing has taken place. The training sessions which have occurred have concentrated onmethods used to maintain direction during productivity meetings. Furthermore, throughfeedback received from employees during the site visit and interviews, it was concluded thatPage 201Appendix 2Case Study of the Glenrock Coal Companythere is no training for new employees and little or no re-training for long-term employees. Thelack of training results in some confusion regarding positive management practices, planobjectives, and the bonus calculation, has led some employees to believe that the bonus iscalculated inconsistently, and has some calling the bonus "bogus bucks". The insufficienttraining of management and employees can be demonstrated by the employee survey where52% say that the productivity meetings are a waste of time because management never listensto their ideas anyway, 18% agree that the gainsharing reward accurately reflects their workperformance, 27% feel that they are kept informed of important mine operating information,and 36% feel that when productivity is low they understand what they can do to improve it.The communication process at Glenrock has not been without problems either. Thegainsharing advisory board was established after plan implementation to encourageintradepartmental communication, renew interest in the plan, respond to all suggestions, and ingeneral provide vitality to the plan. However, it is questionable whether or not this hasoccurred. The PI meeting at Glenrock which I was able to sit in on consisted of eightemployees with one employee acting as a team leader and giving the meeting direction. Themeeting was very positive, and the employees readily identified problems and generatedpossible solutions. However, when discussing the actions which had taken place since the lastmeeting, it was found that there had been little follow up on previous suggestions. It seemsreasonable to assume that if suggestions are made as to what should be done to improveconditions and productivity at the mine, then someone should be in charge of following up onthose suggestions. However, one member of the GAB stated that while the GAB is important,it is secondary to other work duties, and as a result it is hard to provide feedback to all of thesuggestions. This lack of feedback may eventually destroy employee interest in the PImeetings.The problem of "stale thinking" has also been encountered by those on the gainsharingadvisory board and in the productivity improvement meetings. This stale thinking problem willeventually occur in most gainsharing plans which have been in existence for as long as thePage 202Appendix 2Case Study of the Glenrock Coal Companyprogram at Glenrock, especially when the company is producing the same product all of thetime. This occurs because once all the major changes are implemented, it becomes moredifficult for the same people to think of new ideas to promote gainsharing, and new ways to tryand increase productivity. An apathetic attitude towards these meetings can possibly beeliminated by having these meetings quarterly, instead of monthly, thus allowing more time forthe employees to fully recognize a problem and to attempt to determine and implement asolution. Furthermore, stale thinking can be decreased to some extent by the promotions of theGAB that are designed to renew interest. However, it remains a problem to be overcome.Another problem encountered at Glenrock is the bonus calculations. The bonus line hadnot changed since plan implementation despite the effects of inflation over the five years. Thisis a major issue being addressed currently with this gainsharing program and a revised bonusline which includes the effects of inflation is being considered. As the employees see theirbonus disappearing due to inflation, they will understandably begin to prefer a wage increase tobonus payouts, as wage increases are part of the collective bargaining agreement and thereforecan be influenced, to some extent, by the union. Ignoring the effects of inflation will endangerthe plan by slowly eroding the relationship between the employees and management.At several points in the plan life, there were doubts as to the gainsharing plan'sapplicability and effectiveness in the mine. It was at these times that the perseverance of themine manager kept the plan operating and helped it to become "institutionalized" throughoutthe mine. Four of the 14 managers interviewed stated that the key success factor for thegainsharing plan was the perseverance by the mine manager. This reinforces work by Goodman(1979), Schuster (1983), White (1979), Richardson (1985) and others that states that thecommitment of a highly placed catalyst is very important to gainsharing success.One of the variables during the plan implementation was the way in which the unionwould respond. The plan is separate from the bargaining contract and can be canceled at anytime by the mine manager. Despite initial union skepticism towards the plan, most of theemployees were in favour of it and it has succeeded largely because of the employeesPage 203Appendix 2Case Study of the Glenrock Coal Companyacceptance, despite lacking the union's encouragement. This seems to indicate that it isemployee acceptance, and not necessarily union approval, that is important in unionized minesfor gainsharing to be effective. However, it is worth noting that the union was informed of thegainsharing plan at it's initial stages and the objectives of the program were made clear. Inorder to show it's dedication to the employees at Glenrock, management has not attempted tohide anything from the union and has maintained an open friendly attitude towards it.Furthermore, although it does not seem that consultation with the union is absolutely necessaryin a gainsharing plan, union support can give the plan credibility and thereby increase thechances of it's success.Although union attitudes towards this gainsharing program have been fairly positivesince it's implementation, there have been disagreements between the union and the actions ofthe mine manager. One problem which can occur with the implementation of a gainsharingprogram at a union operated mine is that when undergoing contract negotiations, thegainsharing program may be used as a bargaining tool in order to justify not giving employees araise. It is essential that this does not become the case at Glenrock, for this defeats the purposeof giving the employees a bonus for increased efforts to improve productivity. The gainsharingpayment is designed to offer a financial bonus to employees over and above reasonable wagesfor above average performance. It is important that the gainsharing system not be viewed as athreat to the union, but rather it must continue to be an additional incentive system with theoriginal objectives in mind.SUGGESTIONSIn order to overcome the challenges facing the gainsharing plan at the Glenrock CoalCompany, the following suggestions are made.Page 204Appendix 2Case Study of the Glenrock Coal Company• More frequent training.1)Management: Increased training of management personnel will ensurethat the management practices essential to a healthy gainsharing plan continueinto the future. The training will specifically target the feeling on behalf of theemployees that the supervisors are not honesty interested in hearing theirsuggestions about work, and that management never listens to their ideas(questions 13 and 9, respectively, from the employee survey).2) Employees. Training for employees will clarify the difference betweenproduction and productivity and ensure that they understand the mechanics ofthe bonus calculation. This will allow them to focus on important mineparameters and help them understand what they can do in times of low bonuspayouts to improve the mine performance.3) New Personnel. New personnel must be trained in the requirements andopportunities associated with the gainsharing plan so that it does not slowlyerode as people retire.• Suggestion follow up.It is imperative that all suggestions provided by employees are reviewed and returnedto the employees with explanations as to their feasibility. This demonstrates toemployees that their suggestions are valued, and ensures that no valuable suggestionsare overlooked. In order to achieve this, a full time gainsharing officer may need tobe appointed, as there is a perception among current employees that the duties of theGAB are of secondary importance. The investment in the gainsharing officer maywell turn out to be a very prudent one indeed.Page 205Appendix 2Case Study of the Glenrock Coal Company• GAB and PI rotation.Rotating people among the gainsharing advisory board and the Productivityimprovement meetings may renew people's interest in the meetings and prevent stalethinking from occurring. New people on the GAB will bring new ideas for planpromotions and will be able to address the challenges that they see confronting themine from their perspective. Rotating employees between productivity improvementmeetings may prove even more valuable. Because this plan has been in place for fiveyears, the employees have become familiar with it and with their own productioncentres. As their knowledge of the company has grown, so has their sphere ofinfluence. It may now be time to allow them to increase this sphere by joining otherproductivity meetings to discuss the interaction of the production centres and gaingreater appreciation of all of the internal customers. This will present them with newproblems and perspectives, and may revitalize the flow of ideas.• Adjust Bonus Line.The longer that the company waits before adjusting the bonus line to reflect inflationthe more they are jeopardizing the fragile relationship which has grown betweenemployees and management over the past five years. As this relationship and thecommunication that springs from it is the backbone of the gainsharing plan, inactionon this point may be a fatal blow to the gainsharing plan.CONCLUSIONThe Glenrock Coal Mine in Casper, Wyoming, is a good example of a successfulgainsharing program in a mining environment. This gainsharing plan has undoubtedly improvedthe operations of the company. In deed, the mine manager feels that the mine would now bePage 206Appendix 2Case Study of the Glenrock Coal Companyclosed were it not for the plan. While other factors, most notably the use of a "dozer push"technology, have improved operations in the last 5 years, there is little doubt as to theimportance of this plan in the mine's success. However, despite the effort and commitmentgiven to this plan in the past, the challenges still faced by the mine are testament to theevolutionary process that must accompany every gainsharing plan if it is to be successful in thelong term.Page 207Appendix 2Case Study of the Glenrock Coal CompanyAPPENDIX 2aSUMMARY OF EMPLOYEE SURVEYS AT GLENROCKPage 208Appendix 2Case Study of the Glenrock Coal CompanyEMPLOYEE SURVEY SUMMARYThe following is a summary of a survey intended to analyze the effectiveness ofgainsharing at the Glenrock Coal Company. The responses of 75 employees at the mine arepresented in percentage form.POSITION IN COMPANY:1 = Strongly Agree2 = Agree3 = Disagree4 = Strongly Disagree1 2 3 41) I am aware of the gainsharing plan at this mine. 61.8 31.6 6.6 02) The productivity improvement meetings provide a goodopportunity for me to suggest ways to improve mine performance.10.5 61.8 14.5 13.23) The productivity meetings have improved my understanding ofhow my job fits into overall mine production.3.9 40.8 42.1 13.24) I am kept informed of important mine operating information. 3.9 23.7 48.7 23.75) Most of the time, when mine productivity is low I understandwhat I can do to improve it.2.6 34.2 47.3 15.86) I feel I have something to contribute at the productivityimprovement meetings.5.3 60.5 21.0 13.27) I believe that my work performance can impact on the bonuspaid.7.9 48.7 26.3 17.18) My job security has increased since gainsharing was implemented. 3.9 13.2 47.4 35.59) The productivity meetings are a waste of time becausemanagement never listens to my ideas anyway.24.0 28.0 37.3 10.710) Since gainsharing was implemented, I discuss ways to improvework performance more with co-workers.6.7 56.0 32.0 5.311) The gainsharing reward accurately reflects my workperformance.0.0 18.7 52.0 29.312) I enjoy the opportunity to participate at the productivitymeetings.2.6 50.0 34.2 13.213) I believe supervisors are honestly interested in hearing mysuggestions about work.5.3 32.9 34.2 27.614) I would prefer an individual bonus. 21.1 23.9 33.8 21.115) I would prefer a profit sharing bonus 35.6 30.1 23.3 11.016) The gainsharing plan has improved the safety practices at thismine.6.6 30.3 42.1 21.1Note: All values are percentagesPage 209

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