W k

Workers’
’ Participation
P ti i ti iin Management
M t (WPM)
 What is WPM?
• WPM is an essential ingredient of Industrial democracy.
democracy
• The concept of WPM is based on Human Relations
approach
pp to Management
g which brought
g about a new set of
values to labour and management.
• WPM refers to participation of employees in the decision-
making process of the organization.
organization
• Workers’ participation is also known as ‘labour participation’
or ‘employee
p y p participation’
p in management.
g In Germanyy it is
known as co-determination while in Yugoslavia it is known
as self-management. The International Labour Organization
has been encouraging member nations to promote the
scheme of WPM
• WPM implies involvement of workers in the management of
an enterprise.
 What is WPM?
• According to Keith Davis,
Davis Participation refers to the mental
and emotional involvement of a person in a group situation
which encourages him to contribute to group goals and
share the responsibility of achievement.
• According to Walpole, Participation in Management gives
the worker a sense of importance, importance pride and
accomplishment; it gives him the freedom of opportunity for
self-expression; a feeling of belongingness.
The concept of WPM encompasses the following:
• It provides scope for employees in decision-making of the
organization.
organization
• Participation may be at the shop level, departmental level
or at the top level.
• Participation includes the willingness to share the
responsibility of the organization by the workers
 Features of WPM
1 Participation means mental and emotional involvement
1.
rather than mere physical presence.
2. Workers p participate
p in management
g not as individuals but
collectively as a group..
3. Workers’ participation in management may be formal or
informal In both the cases it is a system of communication
informal.
and consultation whereby employees express their opinions
and contribute to managerial decisions.
4. Workers’ participation may be voluntary or statutory
5. Workers’ participation may be financial or non financial
6. Participation will involve both responsibility and authority
7. Participation should involve accountability
 Objectives of WPM
1.
1 To establish Industrial Democracy
Democracy.
2. To build a dynamic Human Resource culture.
3. To satisfy the workers’
workers social and esteem needs.
4. To strengthen labour-management co-operation and
thus maintain Industrial peace and harmony.
5. To promote increased productivity for the advantage of
the organization, workers and the society at large.
6
6. To improve the quality of working life (QWL) by allowing
the workers greater influence and involvement in work and
satisfaction obtained from work;
7. To secure the mutual co-operation of employees and
employers in achieving industrial peace
8 Its psychological objective is to secure full recognition of
8.
the workers.
 Objectives of WPM
According to Gosep,
Gosep workers
workers’ participation may be viewed as:
¾ An instrument for increasing the efficiency of enterprises and
establishing harmonious relations;
¾ A device
de ice for developing
de eloping social education
ed cation for promoting solidarity
solidarit among
workers and for tapping human talents;
¾ A means for achieving industrial peace and harmony which leads to
higher productivity and increased production;
¾ A humanitarian act, elevating the status of a worker in the society;
¾ An ideological way of developing self-management and promoting
industrial democracy.
The main implications of workers’ participation in management as
summarized by ILO:
¾ Workers have ideas which can be useful
¾ Workers may work more intelligently if they are informed about the
reasons for and the intention of decisions that are taken in a
participative atmosphere.
 Levels of WPM
• Information participation: It ensures that employees are able to
receive information and express their views pertaining to the matter of
general economic importance.
• Consultative participation: Here workers are consulted on the matters
of employee welfare such as work, safety and health. However, final
decision always rests with the top-level management, as employees’
views are only advisory in nature.
• Associative participation: It is an extension of consultative
participation as management here is under the moral obligation to
accept and implement the unanimous decisions of the employees.
Under this method the managers and workers jointly take decisions.
• Administrative participation: It ensures greater share of workers’
participation
pa t c pat o in ddischarge
sc a ge oof managerial
a age a functions.
u ct o s Here,
e e, dec
decisions
so s
already taken by the management come to employees, preferably with
alternatives for administration and employees have to select the best
from those for implementation.
• Decisive participation: Highest level of participation where decisions
are jointly taken on the matters relating to production, welfare etc.
 Degree of Level of Participation Authority-Responsibility-
Accountability
Involvement Quotient

Minimal
Low
Information

Dissemination

Consultative participation

Associative participation
p p

Administrative participation

D i i participative
Decisive ti i ti
Heightened
High
 Forms of WPM
Indirect/Informal Participation
‰ Collective Bargaining
‰ Job enlargement and enrichment
‰ Suggestion schemes
‰ Quality circles
‰ TQM and Kaizen
‰ Autonomous/Empowered teams
‰ Decentralization and delegation

Direct/Formal Participation
‰ Complete Administrative control
‰ Board level participation
‰ Staff or work councils
‰ Joint councils and committees
‰ Financial participation
 Forms of WPM
Indirect/Informal Participation
Collective Bargaining
¾ Through the process of CB, management and workers may reach
collecti e agreement regarding rules
collective r les for the formulation
form lation and termination
of the contract of employment, as well as conditions of service in an
establishment.
¾ Even though these agreements are not legally binding,
binding they do have
some force.
¾ For CB to work, the workers’ and the employers’ representatives need to
bargain in the right spirit.
spirit But in practice,
practice while bargaining,
bargaining each party
tries to take advantage of the other.
¾ The process of CB cannot be called as WPM in its strongest sense in
reality; CB is many a times based on the crude concept of exercising
power for the benefit of one party.
¾ WPM, on the other hand, brings both the parties together and develops
appropriate mutual understanding and brings about a mature
responsible relationship.
 Forms of WPM
Job Enlargement and Job Enrichment
¾ Excessive job specialization that is seen as a by-product of mass
production in industries, leads to boredom and associated problems in
employees.
employees
¾ Two methods of job designing – job enlargement and job enrichment–
are seen as methods of addressing the problems.
¾ Job enlargement means expanding the job content – adding task
elements horizontally.
¾ Job enrichment means adding `motivators’ to the job (e.g. status,
autonomy etc.)
etc ) to make it more rewarding.
rewarding
¾ This is WPM in that it offers freedom and scope to the workers to use
their judgment.
¾ But this form
f off participation is very basic as it provides only limited
freedom to a worker concerning the method of performing his/her job.
¾ The worker has no say in other vital issues of concern to him – issues
suchh as job
j b and d income
i security,
i welfare
lf schemes
h andd other
h policy
li
decisions.
 Forms of WPM
Suggestion Schemes
¾ Employees’ views are invited and reward is given for the best
suggestion.
¾ With this scheme,
scheme the employees’
emplo ees’ interest in the problems of the
organization is entertained
¾ Progressive managements increasingly use suggestion schemes.
¾ Suggestions can come from various levels.
¾ The ideas could range from changes in processes, methods, facilities,
benefits and the like.
¾ Out of various suggestions, those accepted may provide marginal to
substantial benefits to the company.
¾ Often rewards are given to the employees in line with the benefits
derived from the suggestions.
¾ It gives the employee a sense of self-fulfillment
¾ It p
provides the employee
p y with an outlet to vent his concerns
 Forms of WPM
Quality Circles
¾ Concept originated in Japan in the early 1960s and has now spread all
over.
¾ A QC consists of seven to ten p people
p from the same work area who
meet regularly to define, analyze, and solve quality and related problems
in their area.
¾ Trainingg in p
problem-solving
g techniques
q is p
provided to the members.
¾ QCs are said to provide quick, concrete, and impressive results when
correctly implemented. Employees become involved in decision-making,
acquire
q communication and analytical
y skills and improve
p efficiency
y of the
work place.
¾ Organization gets to enjoy higher savings-to-cost ratios.
¾ There is direct participation of workers in improving organizational
processes and systems. Technical problems got solved easily.
¾ Workers got to get out of their daily routine and do something
challenging.
challenging
¾ Chances of most effective QC members getting promotions are
enhanced.
 Forms of WPM
Quality Circles
¾ QCs can be an excellent bridge between participative and non-
participative approaches. However, many trade unions look at it as a
way of overburdening workers and an attempt to undermine their role.
¾ These circles require a lot of time and commitment on the part of
members for regular meetings, analysis, brainstorming, etc.
¾ Most QCs have a definite life cycle
y – one to three y
years. Few circles
survive beyond this limit either because they loose steam or they face
simple problems.
¾ For QCs to succeed in the long g run,, the management
g needs to show its
commitment by implementing some of the suggestions of the groups
and providing feedback on the disposition of all suggestions.
 Forms of WPM
Total Quality Management and Kaizen
¾ TQM refers to the deep commitment, almost obsession, of an
organization to quality. Kaizen is small but continuous improvements on
a daily basis.
¾ Every step in company’s processes is subjected to intense and regular
scrutiny for ways to improve it.
¾ It is based on the belief that q
quality
y can be improved
p by
y anybody
y y through
g
careful inspection.
¾ New principles of TQM are:
9 Meet the customer’s requirement
q on time,, the first time,, and 100% of the time.
9 Strive to do error-free work.
9 Manage by prevention, not correction.
9 Measure the cost of quality.
¾ TQM and Kaizen are called participative because they are deliberate
and semi-formal programmes involving every employee in the
organization; making each one responsible for improving quality
everyday.
d O
Organizations
i ti can link
li k rewards
d or promotions
ti t these.
to th
 Forms of WPM
Autonomous/Empowered Teams
¾ An autonomous team, sometimes called an autonomous work group, is
a group of individuals working toward specific goals without the direct
influence of an outside party. The members of the autonomous team are
given latitude to establish their own internal goals and work practices.
¾ Autonomous teams are often established to manage production areas or
departments. Ultimate team goals and support are provided by
management in concert with the team.
¾ Empowerment occurs when authority and responsibility are passed on
to the employees who then experience a sense of ownership and control
over their jobs.
¾ Teams may be empowered to share various management and
leadership functions. Teams plan, control and improve their work. They
often create their schedules and review their performance as a group.
¾ May prepare their own budgets and co-ordinate their work with other
departments. Frequently responsible for acquiring any new training they
might need.
¾ Employees may feel more responsible, may take initiative in their work,
may get more work done, and may enjoy the work more.
 Forms of WPM
Decentralization and Delegation
¾ Decentralized decision making is any process where the decision
making authority is distributed throughout a larger group. It also
connotes a higher authority given to lower level functionaries,
executives, and workers.
¾ Characterized by empowered employees
¾ Organizational
g structure is layered
y but flat,, team-based
¾ Job design involves multiple tasks
¾ Management’s role is that of coach, facilitator
¾ Leadership style is liberal and progressive
¾ Information flow is open, shared
¾ Rewards are team-based, skill-based
¾ Decentralization empowers people by giving them freedom of decision-
making and promoting WPM. Thus there will be more bottom up
directional information flow, allowing for more innovation and efficiency.
¾ Delegation is a lesser degree of decentralization which involves passing
on specific tasks and responsibilities to someone else, usually at a lower
level. Delegation is the means to gradually achieve decentralization.
 Forms of WPM
Direct/Formal Participation
Complete Administrative control
¾ Workers acquire complete control of the management through elected
boards and committees.
committees
¾ The system of self-management in Yugoslavia is based on this concept.
¾ Self-management gives complete control to workers to manage directly
all aspects of industries through their representatives.
¾ It ensures identification of the workers with their organization.
¾ Minimal industrial disputes because workers develop loyalty to the
organization.
¾ Trade unions welcome this type of participation.
¾ However,
o e e , co
complete
p ete co
control
t o by workers
o e s iss not
ot a
an a
answer
s e to tthe
epproblem
ob e
of participation because the workers do not evince interest in
management decisions. This system is not working very effectively
wherever it exists.
 Forms of WPM
Board level participation
¾ This refers to representation of workers at the board of directors’ level
¾ This would be the highest form of industrial democracy.
¾ The workers’ representative on the Board can play a useful role in
safeguarding the interests of workers.
¾ He or she can serve as a guide and a control element.
¾ He or she can prevail upon top management not to take measures that
would be unpopular with the employees.
¾ He or she can guide the Board members on matters of investment in
employee benefit schemes like housing, and so forth.
¾ Worker representation at BOD can serve as a very powerful tool for
empowerment and WPM.
 Forms of WPM
Staff and Works Councils
¾ Staff councils or works councils are bodies on which the representation
is entirely of the employees.
¾ There mayma be one council
co ncil for the entire organization
organi ation or a hierarchy
hierarch of
councils.
¾ The employees of different sections/departments/units elect the
members of their councils.
councils
¾ Such councils play varied roles. Their role ranges from seeking
information on the management’s intentions to a full share in decision-
making.
making
¾ They may be given administrative responsibilities of certain facilities like
managing worker canteens etc.
¾ Such
S councils have not enjoyed too much off success because trade
union leaders fear the erosion of their power and prestige if such
workers’ bodies were to prevail.
 Forms of WPM
Joint Councils and Committees
¾ Joint councils are bodies comprising representatives of employers and
employees.
¾ This method sees a very er loose form of participation,
participation as these councils
co ncils
are mostly consultative bodies.
¾ In most cases, these bodies merely serve as suggestion forums for
workers.
workers
¾ Such committees discuss a wide range of topics connected to labour
welfare and working conditions.
¾ Examples of such committees are welfare committee, safety committee,
health committees etc.
¾ Such committees have not proven to be too effective in promoting
industrial democracy, increasing productivity and reducing labour unrest.
 Forms of WPM
Financial Participation
¾ It involves a stake of the workers in the finances of the organization
¾ Performance of the organization is linked to the financial performance of
the employee.
emplo ee
¾ The logic behind this is that if an employee has a financial stake in the
organization, he/she is likely to be more positively motivated and
involved.
involved
¾ Makes the workers committed to the job and to the organization.
Some schemes of financial participation:
‰ Performance-linked pay
‰ Financial ownership: Employees’ Stock Option schemes.
‰ Profit
o ts
sharing
a ga andd ga
gain s
sharing
a g
‰ Bonus
‰ Pension-fund participation
 Forms of WPM
Performance-linked pay or Variable Pay Plan (VPP): To create a sense of
shared destiny.
¾ Add-on pay: Increment to base pay. Bonus or incentive would
constitute a form of add-on or addition over actual salary.
salary
¾ At-risk pay: Some amount of pay is at-risk and is paid when targets are
achieved.
¾ Potential base pay at risk: In cases where raises/increments are given,
given
some percent of increment is withheld and is released only if
performance targets are attained.
¾ Deferred Pay: Some amount of the pay that is to be paid as reward is
deferred an saved into an account. It’s a reward for loyalty. Employee
gets the deferred amount and interest thereon after some time.
 Forms of WPM
‰ Financial ownership: Employees
Employees’ Stock Option schemes.
schemes
¾ An Employee Stock Option Plan is when the company offers its shares
to the employees. The ESOP concept has been around for almost 80-
odd years,
years when George Eastman,
Eastman founder of Kodak,
Kodak transferred one-
third of his holding to his employees in 1919.
¾ An ESOP is nothing but an option to buy the company's share at a
certain price.
price This could either be at the market price (price of the share
currently listed on the stock exchange-in this case certain units of stocks
are reserved for employees), or at a preferential price (exercise price-
price lower than the current market price).
¾ If the firm has not yet gone public (shares are not listed on any stock
exchange), it could be at whatever price the management fixes it at.
¾ Thus ESOPs involves making the workers
workers’ shareholders of the company
by inducing them to buy equity shares, usually at lower price.
¾ In many cases, advances and financial assistance in the form of easy
repayment options are extended to enable employees to buy equity
shares. Companies may also provide easy funding through banks.
¾ Many a times organizations also give shares as rewards or bonuses.
 Forms of WPM
¾ Three types of stock options: incentive stock options (ISO), (ISO)
nonqualified options (NQO) & employee stock purchase plan
options (ESPPO).
¾ The most popular plans are ISOs and NQO plans. plans With both of these
plans, the employee is offered/alloted a specific number of shares that
they can purchase (exercise) on a specified date. The shares can be
purchased at the value of the stock at the time the option was granted.
So, if the stock's value has increased when the employees exercise their
option, then they get a good deal; if not, then the stock options may not
be worth exercising.
¾ These two plans differ in the way the money is taxed. With ISOs, the
employees pay no taxes until they later sell the shares. At that time, any
money they made off the transaction is subject to capital gains tax instead
of income tax. They must, however, make sure they don't sell the shares
for at least two years after the time the option was granted or within one
year after they exercised their option. There is no corporate deduction
when
h the h employee
l exercises
i the
h option.
i
 Forms of WPM
¾ With NQOs,
NQOs employees will have to pay income tax on any gains they
made when they exercised their options. There can also be a corporate
deduction on the same amount. Later, if the employee keeps the stock
and it increases more in value, then they will only owe capital gains tax
on the additional increase in value when they sell.
¾ ESPPO is another option for employers who want to lure new recruits.
Unlike the ISOs and NQOs offered after a ‘vesting
vesting period
period’,, ESPPOs are
usually offered to all eligible employees. Employees can purchase the
stock at usually about 85% of its market value. Most companies allow
employees to purchase stock amounts up to 10% of total pay.
¾ Another lesser-known option particularly appealing for small and private
companies is the phantom-stock plan. Phantom-stock plans operate in
a similar manner as the other stock options, but the risk of sharing equity
in the company isn't there. Companies can issue shares to employees at
a set price based on the company's current value, then on a specified
future date the company's value is reevaluated. If the stock has risen
andd the
h employee
l wants to sell,
ll then
h the
h employer
l i
issues a check
h k to the
h
employee for the increased amount. The employee will pay tax on the
additional "wages," and the company can take a tax deduction.
 Forms of WPM
¾ Shadow ESOPs are ESOPs in cash. cash More and more Indian companies
are switching to this new mode of compensation. They mirror the stock
prices of a company in the open market. The appreciation in the stock
value is paid out as cash to the employees in a staggered manner. Say
an employee has been allotted 100 shares at a price of Rs 100 as
shadow ESOPs, which are to be exercised after three years. At the end
of three years, the stock price goes up to Rs 300. Instead of getting
shares, the employee would get Rs 20,000 - the appreciated value of
stock - as cash incentive. However, the incentive in this case will be
staggered over a given period.
¾ Now Shadow ESOPs are becoming the new mantra or the new
compensation tool for rewarding employees in Indian companies.
¾ This is something where there is a direct linkage of how a company
performs, stock performs and the rewards that employees get. It is a
win-win situation for both employer and employees.
 Forms of WPM
¾ In India,
India the ESOP is not taxed on acquiring the shares.
shares You are taxed
on the profit you make when you sell the shares or transfer them.
Transfer here refers to when you gift it to someone or transfer it to
someone else under an irrevocable deed. Capital gains tax is computed
on the difference between the sale price and the issue price (the price at
which shares are offered to you). The taxability depends on the nature of
gain at the time of sale. If you have a short-term capital gain, you have
to pay tax at the rate of 10% (plus surcharge if applicable). Long-term
gains are exempt from tax.
¾ Recently, Securities and Exchange Board of India has amended its
guidelines on ESOPs to provide for mandatory disclosures, pricing etc.
Under the amended norms, the market price will mean the latest
available closing price, prior to the date of the meeting of the company
board in which options are granted or shares are issued, on stock
exchanges.
¾ If the shares are listed on more than one stock exchange, then the
stockk exchange
h where
h there
h i highest
is hi h trading
di volume
l on the
h said
id date
d
should be considered.
 Forms of WPM
¾ Often used as a tool to retain employees,
employees ESOPs can improve your
bottom line through employees' heightened involvement and interest.
¾ Owning an equity share means owning a share in the company
business Companies offer their employees shares because it is
business.
considered that having a stake in the company would increase loyalty
and motivation substantially.
¾ Giving ESOPs depends on company policy. policy There are time limits for
availing this scheme. For instance, you can acquire the shares after you
complete a particular period of employment. This is known as the
vesting period, and generally ranges from one to five years. Sometimes,
the ESOPs are given in a phased out fashion -- 20% in the second year,
another 20% in the third year, etc.
¾ IT co
companies
pa es in India
d a have
a e bee
been typ
typically
ca y tthe
e main
a issuers
ssue s o
of opt
options
o s
and stories abound about how engineering graduates who joined these
companies in the initial years turned millionaires. Infosys, in fact,
pioneered the concept of ESOPs in India.
¾ The effectiveness of ESOPs as a retention tool has inspired several
large Indian business houses to offer them to employees.
 Forms of WPM
Profit Sharing
¾ An incentive based compensation program to award employees a
percentage of the company's profits.
¾ Profit sharing,
sharing when
hen used
sed as a special term,
term refers to various
ario s incentive
incenti e
plans introduced by businesses that provide direct or indirect payments
to employees that depend on company's profitability in addition to
employees' regular salary and bonuses.
employees bonuses
¾ At the end of the 19th century, Jamsetji Tata, was inspired by the idea of
helping restore India's wealth. Long before many western industrial
nations followed suit,
suit his company introduced profit sharing for
employees as a motivational tool(1934).
¾ About 40% of companies in India today offer profit sharing plans.
¾ Profit sharing programs require setting up a formula for distribution of
company profits. The formula is usually based on 5% to 6% of the
employee's salary. They usually include a vesting period of 5 to 7 years.
 Forms of WPM
Profit Sharing
¾ The profit sharing plans are based on predetermined economic sharing
rules that define the split of gains between the company as a principal
and the employee as an agent.
agent
¾ The company contributes a portion of its pre-tax profits to a pool that will
be distributed among eligible employees. The amount distributed to
each employee may be weighted by the employee
employee'ss base salary so that
employees with higher base salaries receive a slightly higher amount of
the shared pool of profits. Generally this is done on an annual basis.
¾ In publicly traded companies these plans may sometimes amount to
allocation of shares to employees i.e. it takes the form of free ESOPs.
¾ The good thing about profit sharing plans is that they allow you to decide
if and how much your company contributes to the plan. plan During less
profitable years, you may opt to not contribute.
¾ It also lets companies control how the money is invested and is not as
expensive to administer as other plans.
plans
¾ Profit sharing work best when company earnings are relatively stable (or
steadily increasing).
 Forms of WPM
Profit Sharing
¾ Advantage of profit sharing is that it brings groups of employees to work
together toward a common goal , helps employees focus on profitability.
¾ The costs of implementing the plan rise and fall with ith the company's
compan 's
revenues.
¾ It enhances commitment to organizational goals.
¾ Disadvantages are that the pay for each employee moves up or down
together (no individual differences for merit).
¾ It focuses only on the goal of profitability (which may be at the expense
of quality).
¾ For smaller companies, these plans may result in drastic swings in
earnings for employees which the employees may find difficult to
manage their personal finances.
f
¾ However, it is mostly welcomed by employees who see it as their
participation in sharing the profits of the company.
 Forms of WPM
Gainsharing
¾ Gainsharing involves sharing the gains from cost-savings, usually as a
lump-sum bonus.
¾ In gainsharing,
gainsharing a Company
Compan shares productivity
prod cti it gains with
ith the workforce.
orkforce
¾ Gainsharing is best described as a system of management in which an
organization seeks higher levels of performance through the
involvement and participation of its people.
people
¾ As performance improves, employees share financially in the gain. It is a
team approach; generally all the employees at a site or operation are
included.
included
¾ It’s a technique that compensates workers based on improvements in
the company's productivity. It is a productivity measure, as opposed to
profit sharing which is a profitability measure.
profit-sharing measure
¾ While profit sharing may apply to all employees organization-wide, gain
sharing may be specific to single plants, sites, units or projects.
¾ Gainsharing
G i h i i a system that
is h includes
i l d a financial
fi i l measurement and d
feedback system to monitor company performance and distribute gains.
Requires employee commitment, training & frequent communications.
 Forms of WPM
How Gainsharing Works
¾ There are two important parts of Gainsharing system. One is gain
calculation. The second is a structured system for employee
involvement.
involvement
¾ The typical Gainsharing organization measures performance and then
through a pre-determined formula shares the savings with all
employees The organization
employees. organization'ss actual performance is compared to
baseline performance (often a historical standard) to determine the gain.
¾ Employees have an opportunity to earn a Gainsharing bonus generally
on a monthly or quarterly basis.
basis
¾ Gainsharing measures are typically based on operational measures
(productivity, spending, scrap rates, error rates) which are more
controllable by employees rather than organization-wide profits.
profits
¾ Gainsharing applies to all types of business that require employee
collaboration and is found in manufacturing, health care, distribution,
and service,
service as well as the public sector and non-profit organizations.
organizations
¾ Gains and resulting payouts are self-funded based on savings
generated by improved performance.
 Forms of WPM
Gainsharing
¾ Workers voluntarily participate in management to accept responsibility
for cost-cutting reforms. This type of reward is based on factors directly
under a worker
worker’ss control (i.e.,
(i e productivity or costs).
costs)
¾ Because this pay is only implemented when gains are achieved,
gainsharing plans do not adversely affect company costs.
¾ Works best when company performance levels can be easily quantified.
quantified
¾ Employee involvement is significantly enhanced
¾ Gainsharing systems vary widely in terms of their design and the degree
to which they are integrated into the regular operating systems of the
company. Of course, the more they are integrated into the day-to-day
operational systems, the more commitment there is to the Gainsharing
system And,
system. And the more commitment there is to achieving overall
business goals the better the resulting performance is.
¾ It requires designing a focused involvement system to eliminate barriers
to improved company performance.
performance Employees often are involved with
the design process. A supporting employee involvement system is part
of the plan in order to drive improvement initiatives.
 Forms of WPM
Gainsharing Plans
¾ The Scanlon Plan is the oldest and most widely used. This program
dates back to the 1930s and relies on committees to create cost-sharing
ideas It
ideas. It'ss based on the historical ratio of labor cost to sales value of
production. Because it rewards labor savings, it is most appropriate for
companies that have a "high touch labor" content.

¾ The Rucker Plan is based on the premise that the ratio of labor costs to
production value is historically stable in the manufacturing industry. This
principle became the underlying precept of the Rucker Plan, Plan which
tracks the value added to a product as a measure of productivity. Here
cost-saving calculations are more complex based on several
parameters.
pa a ete s Because
ecause tthiss p
plan
a ututilizes
es a multi-cost
u t cost formula,
o u a, it's
t s most
ost
appropriate for organizations that want to improve other variables, such
as scrap reduction or energy consumption, in addition to labor cost.
 Forms of WPM
¾ Improshare plan stands for "Improved
Improved productivity through sharing
sharing" and
is a more recent and popular plan. With this plan, a standard is
developed that identifies the expected number of hours to produce
something, and any savings between this standard and actual
production are shared between the company and the workers.
Improshare measures changes in the relationship between outputs and
the time (input) required to produce them. This plan is minimally affected
by changes in sales volume, technology and capital equipment, product
mix, or price and wage increases. It's the easiest of the gainsharing
plans to understand and install.
¾ Custom plans are used to customize components of a gainsharing plan
to support a unique aspect of an organization's environment. Typically,
these plans modify either the "textbook descriptions" of the bonus
formula or the employee- involvement system. The employee-
involvement vehicles associated with the textbook implementations of
other plans are extremely dated. Instead, many organizations utilize self-
directed work teams or cross-functional
cross functional teams in lieu of the structured,
structured
multitiered employee-involvement approaches. It may be used in service
sectors to share gains from increased customer loyalty etc.
 Forms of WPM
Advantages of gainsharing:
• Helps companies achieve sustained increases in productivity.
• Employees become more involved the productivity gains made by the
emplo er
employer.
• Employees can share in the benefits of employee sponsored
improvements.
• Enhances commitment to organizational goals.
• Leads to improvements in other measures of company performance,
including: teamwork, product quality, lower rates of absenteeism and
defects.
Gainsharing works best in a work environment that is based on
openness and trust. Executives and managers must be educated in
order to develop a clear understanding off the Gainsharing
G philosophy
and the management style required for success. Supervisors and
managers are trained in the relationship of their role toward the plan.
Teams are formed and trained in order to work on performance
enhancement initiatives. It's best to have an expert on Gainsharing to
guide and facilitate the process.
 Gainsharing Profit Sharing
Purpose To drive operational performance of an To share the financial success of the
organization organization and share company’s
success.
Application Applies to a single facility, site, or stand- Applies organization-wide
alone organization.
Measurement Payout is based on operational measures Payout is based on a broad financial
(productivity, quality, spending, service) measure of profitability.
F nding
Funding Payouts
P t aree self-funded
elf f ded based
b ed on savings
i P
Payoutst aree funded
f ded through
th h company
by improved performance. profits.
Payment Target Payouts are made only when performance Payouts are typically made when there
p
has improved over a standard or target.
g are pprofits
Employee Typically all employees at a site are Some employees may be excluded, such
Eligibility eligible for plan payments. as hourly or casual employees.
Payout Frequency Payout is often monthly or quarterly. Payout is typically annual.
Method of Typically employees receive the same % Profit sharing may be larger % of
Distribution payout or cents per hour bonus. compensation for higher-level employees.
Impact on Gainsharing reinforces behaviors that Influences the sense of employee identity
Beha iors
Behaviors promote
t improved
i d performance.
f t the
to th organization,
i ti
 Forms of WPM
The Profit Sharing Pie

• Based on year end profit

• Paid annually
• No direct employee involvement

Th Gainsharing
The G i h i PiePi

• Based on operational performance

• Paid more frequently than annually
• Employee involvement critical
 Forms of WPM
Bonus
¾ Bonus is an incentive for employee to share the company’s good times.
An employee bonus--whether it's cash, or a gift, or time off, or something
else of value--can be a powerful tool to motivate a workforce.
workforce
¾ There are two types of employee bonuses: performance bonus that
encourage employees to become more productive or maintain high
standards of performance,
performance and free- floating bonuses that are simply
given out as gifts e.g. festival bonus (Diwali bonus in India). However, in
both types, the company is trying to encourage certain types of behavior
by rewarding it.
For example, a bonus could be offered to:
• salespeople who exceed their quotas for the year;
• service department personnel who complete a higher than average
number of procedures;
• accounts receivable staffers who achieve high levels of collections;
• production
d i line li workers
k who
h suggest product
d d i improvements;
design i
• or any employees who consistently report to work on time, or use less
than their allotment of sick leave, or suggest ways to reduce expenses.
 Forms of WPM
¾ In each of these examples,
examples extending bonuses creates two winners: the
employee who receives the compensation and the employer who
benefits from the worker's positive performance.
¾ On the other hand,
hand free- floating bonuses that aren
aren'tt attached to positive
performance also motivate employees and ensure their involvement and
participation but can create serious problems for struggling businesses.
¾ What happens,
happens for example,
example when business takes a nose-dive and
management can no longer afford to offer holiday bonuses? Employees
who received those goodies in the past, continue to expect them. Such
expectation s when not fulfilled, become highly demotivating. And the
bigger these bonuses are, the more potentially dangerous they become.
¾ Bonus is slightly different from profit sharing and gain sharing because
in tthe
e latter
atte ttwo,
o, e
employees
p oyees ga
gain from
o tthee co
contributions
t but o s tthey
ey make
a e to
profits and gains from cost-cutting; while in bonus there may not be such
contributions directly.
¾ The whole p purpose
p of bonus pprogram
g is to make the company
p y stronger,
g ,
more competitive, able to survive and prosper. Earning a profit is just
part of it. Thus bonus has larger goals to serve than profit sharing.
 Essential Conditions for WPM
• The attitude and outlook of the parties should be impartial so that a free and
frank exchange of thoughts and opinions can be possible. Where a right kind of
attitude exists and proper atmosphere prevails the process of participation is
greatly stimulated.
• Both parties should have a genuine faith in the system and in each other and be
willing to work together.
• Management must genuinely implement the suggestions and decisions of the
workers.
k Th labor,
The l b on the
th other
th hand,
h d mustt alsol whole
h l heartedly
h t dl co-operate t
with the management.
• Participation should be real. The issues related to increase in production and
productivity, evaluation of costs, development of personnel, and expansion of
markets should also be brought under the jurisdiction of the participating bodies.
• A peaceful atmosphere should be there wherein there are no strikes and lock-
outs, for their presence ruins the employees, harms the interest of the society,
and puts the employers to financial losses.
• Programs for training and education should be developed comprehensively.
Employees need to be educated to enable them to think clearly, rationally and
logically and to enable them to act in a responsible way.
way
 Essential Conditions for WPM
Researchers note that degree of effectiveness of WPM depends on certain things:
1. The degree of effectiveness varies directly with the degree with which the
participation meets the motives of the participants.
2. The greater of the clarity of goals the higher the effectiveness, provided
conformity to goals is a strong motive among the participants.
3. Settlement of relatively difficult issues leads to greater effectiveness.
4. The higher
g the viabilityy of the activityy of p
participative
p decision-making
g the g
greater
the effectiveness.
5. Effectiveness varies directly with the number of administrative levels subsumed
by the programme.
6. Finally, the amount of information influences the effectiveness of participative
decision-making; the more useful the information, the greater the effectiveness.
Without necessary preconditions for participation there may exist the danger of false
participation
participation. People may engage in matters that are either completely
unimportant or above their level of competence. Both these dangers are
extremely critical. The first may lead people to think that the fact that they are
participating is sufficient to bring about satisfactory results. The second may
lead to the feeling that they really are not contributing anything; it may, therefore,
become demotivating and possibly lead to “destructive” activities. Both these
have been witnessed in the Indian context.
 Working of Indirect/informal schemes in India
Job enlargement and enrichment
‰ Several companies using job enrichment and enlargement in some form,
e.g. Coca-Cola India, Nike, Intel, and Microsoft India to name a few.
The public sector was a late starter.
starter
‰ The Income Tax Dept. website mentions introducing job enrichment and
job enlargement for its employees
‰ At LG,
LG it has worked as an effective retention tool for talent.
talent While
attrition level at LG is around 8 per cent, management claims there have
been negligible drop-outs among the employees whose jobs have been
enlarged or enriched.
enriched McDonald
McDonald'ss, too,
too claims longer tenures (five to six
years) among employees whose jobs are enriched periodically.
‰ Haier India has currently obtained more than 7,000 patented technology
certificates its USP lies in the innovative culture through focus on job
certificates,
redesign including job enlargement and enrichment, which in turn
provides a good experience to its customers
‰ Of late,
late it has become a popular strategy in Indian companies-both
public and private. The growth, albeit, has been slow in general. Indian
culture till now has not been supportive of the practice.
 Working of Indirect/informal schemes in India
Suggestion Schemes
‰ Traditionally considered a very effective tool for participation.
‰ But very few organizations can point with pride to making the suggestion
scheme program more than just j st a box
bo on the wall.all It requires
req ires rapid
response from management, immediate implementation of good ideas,
and generous recognition for contributions. Some companies like Maruti
Suzuki Tata Group,
Suzuki, Group NTPC etc.etc have instituted novel schemes like giving
gift coupons / incentives every month for the best new suggestion.
‰ HR policies at ONGC revolve around the basic tenet of creating a highly
motivated vibrant & self-driven team.
motivated, team In order to keep its employees
motivated and involved, the company has incorporated a comprehensive
Suggestion Scheme which has become a benchmark for others.
‰ Indian National Suggestion SchemesSchemes' Association (INSSAN) is a
non-profit making registered association of industrial and business
organizations dedicated to the promotion of Suggestion Schemes.
BHEL,, Appollo
pp Tyres,
y , Air India,, BEL,, L&T,, SBI,, Sony y India are some
recent recipients of its excellence awards.
 Working of Indirect/informal schemes in India
QCs and TQM
‰ 1980: BHEL, Hyderabad first in India to start Quality Circles. By 1985,
BHEL had 1411 Circles covering around 13362 members.
‰ 1982:
1982 Quality
Q alit Circle Forum
For m of India (QCFI) wasas founded
fo nded
‰ 1983: Tata Motors (formerly Telco) started Quality Circles, by 1985 they
had more than 400 Circles
‰ BHEL was the first Public Sector engineering and manufacturing
organization in India to get the ISO 9001 certification for its Quality
Management systems in 1993. At present, the QCs cover 14 areas like
manufacturing and production,
production quality improvement productivity,
productivity cycle
time and cost reduction, and safety. QCs would also be set up in non-
manufacturing areas such as outsourcing, human resources activities,
vendor development,
development engineering and design and also for canteens and
medical services. The company is looking forward to involving all the
employees, including those in non-manufacturing areas into
p
improvement activities over the next five y
years.
 Working of Indirect/informal schemes in India
QCs and TQM
‰ There are 265 quality circles in Maruti. Vendors are also part of it. They are
trained to make things smaller, shorter, lighter, fewer and neater. What Suzuki
brought to the table was a whole new manufacturing culture that included
participative management, team work, communication and information sharing,
open office system, Kaizen (continuous improvement), multi-skilling of operators,
common canteen and uniform, flat hierarchy, immaculate housekeeping, bottom-
up innovation,
innovation in-line quality assurance processes and widespread quality circle
movement. Maruti was the first Indian company where the TQM practices were
actually implemented from top to bottom. The Maruti factory at Gurgaon near
Delhi can be a culture shock for a visitor. Not a wet or oily patch to be seen, no
shavings or cuttings strewn on the floor, all tools and parts and stock - in-
progress neatly in place, gauges free of dust, piping sans leaks, cover plates all
in place, no peeling paint on the machines, walkways clearly marked, adequate
lighting and a clean atmosphere — that is the scene.
scene
‰ Quality circles have been implemented even in educational sectors in India, and
QCFI (Quality Circle Forum of India) is promoting such activities.
‰ The world's first student QC was made byy Cityy Montessori School ((CMS))
Lucknow in India to improve the quality of their school. Their path-breaking case
study won a number of awards at national and international QC conventions
 Working of Indirect/informal schemes in India
Autonomous Teams/Decentralization
‰ Most companies in India have now taken on to the decentralization
bandwagon
‰ Companies in FMCG,
FMCG IT and service
ser ice sectors are some of the benchmark
reference companies for being decentralized. In most of these
companies, decentralization is seen as both a challenge and an
opportunity It gives a tremendous opportunity to develop people.
opportunity. people They
can relate better to the needs of the customer.
‰ Major multinationals including IBM, P&G, Dell, Microsoft, Cisco and
Oracle too name just a few,
Oracle, few are decentralizing their businesses in India.
India
‰ Infosys is a classic example of a highly decentralized structure with
autonomous work groups
‰ Even the monolithic centralized structures of the PSUs are gradually
becoming more nimble with decentralized decision-making.
‰ However, in lot of organizations in traditional sectors in India,
management is still centralized with numerous roadblocks in the way of
decentralization.
 WPM In India
Formal schemes in India: Board level participation
‰ Worker Director scheme was adopted in 1977 after recommendations of the
Sachar committee.
‰ It is a statutory provision In India for PSUs
‰ The Government of India took the initiative and appointed workers’
representatives on the Board of Hindustan Antibiotics (Pune), HMT (Bangalore),
and even nationalized banks. The Tatas, DCM, and several others have adopted
this practice.
‰ However, in many cases the scheme has not worked well because the focus of
workers’ representatives is different from the focus of the remaining members of
the Board.
Board
‰ Because of the differences in the cultural and educational backgrounds, and
differences in behaviour and manners, such an employees’ representative may
feel inferior to the other members,, and he or she mayy feel suffocated. Hence,, his
or her role as a director may not be satisfying for either the workers or the
management.
‰ Such representatives of workers’ on the Board, places them in a minority. And
th decisions
the d i i off the
th Board
B d are arrived
i d att on the
th basis
b i off the
th majority
j it vote.
t
‰ In many cases the worker Director has just remained a puppet.
 WPM In India
Staff or work councils: Works Committees
‰ The Industrial Disputes Act, 1947 (section 3) empowers the appropriate
government to require employers, employing 100 or more workmen in Industrial
Establishments to constitute Works Committees.
‰ The main objective of works committee is to promote measures for securing and
preserving amity and good relations between employers and workmen.
‰ Members of the committee will be elected by the workers or they can be union
leaders
‰ SAIL, TISCO, BHEL nationalized banks are the classic cases of organizations
with works committees.
‰ However
H th works
the k committee
itt mechanism
h i h nott been
has b a success, exceptt in
i
isolated cases.
‰ Most of these committees have only existed on paper or remained consultative
bodies
 WPM In India
Joint councils and committees: Joint Management Council
‰ In 1958, Joint Management Councils were introduced. These have to be
compulsarily provided in all organizations with more than 500 employees
‰ The JMCJMC’ss were entrusted with the administrative responsibilities in various
matters relating to welfare, safety, vocational training, preparation of schedule of
working hours and holidays. They were to be consulted in matters of change in
work operation, general administration and alteration in standing orders,
rationalization,
ti li ti closure
l etc.
t ini order
d to t encourage smooth th workk operations
ti and
d
enhanced productivity.
‰ The JMC’s were to consist of equal number of representatives of management
and workers. Representation of workmen to the JMC JMC’ss was based on
nominations by the recognized trade unions.
‰ JMCs have worked quite well in the power, textiles and steel sector in India.
Other companies with successful JMCs are L&T NTPC, TISCO to name a few
‰ JMC’s did not receive much support from the unions or the managements.
‰ It was perceived that JMC’s and Works Committees appeared similar in scope
and function and that multiplicity of bipartite consultative bodies served no useful
purpose.
 WPM In India
Formal schemes in India (A case of TISCO)
Closer association of employees with management at TISCO, began in 1919 and was
formalized in August 1956. The purpose was to promote increased productivity, provide a
better understanding to the employees of their role and importance, and to satisfy the urge
for self expression.
expression The scheme as set up at TISCO consisted of a three-tiered
three tiered system
with joint department councils (JDCs) constituted at the departmental level. Next, joint
works councils (JWC) for the entire work, and at the top the joint consultative council of
management (JCCM). The specific functions of these three bodies were as follows: JDCs
were “to
to study operational results and production problems,
problems advise on the steps deemed
necessary to promote and rationalize production, improve productivity and discipline and
economize cost. Promotion of welfare and safety, encouragement of suggestions and
improvement of working conditions also fell within their purview.” JWCs were “to discharge
special function of reviewing every month the working of JDCs and other committees such
as Suggestion Box Committee, Safety Committee, Canteen Managing Committee, etc.”
JCCM was given the task of advising management on productivity and welfare and also
looking at matters referred to by JDCs and JWCs. In order to ensure that these
committees did not overlap the functions of other committees,
committees separate task groups were
formed. Special courses were offered to prepare both management and union
representatives to effectively utilize the facility. TISCO's experience with workers'
participation has been satisfactory. From 1957 to the middle of 1972 JDSs have discussed
a total of 14,104
14 104 suggestion of which 70.3
70 3 per cent have been implemented.
implemented These
suggestions have covered a wide range of topics and issues, but the most important point
to remember, perhaps, is that the councils have been successful in involving workers
equally in the process of production.
 WPM In India
Financial Participation in India: ESOP
¾ IT companies in India have been typically the main issuers of ESOPs. Infosys, in fact,
pioneered the concept of ESOPs in India. The effectiveness of ESOPs as a retention tool
has inspired large Indian business houses to offer them to employees.
¾ Others
Oth who
h followed
f ll d suitit are Aditya
Adit Bi l Group,
Birla G which
hi h announced d Esops
E f its
for it major
j
listed companies: Hindalco, Grasim Industries, Ultratech and Aditya Birla Nuvo. ICICI Bank
and HDFC Bank have been using the ESOP route to retain their best talents. Dabur, Bharti
Airtel, ITC, Marico, NIIT, Divi’s Lab, Matrix Lab, Suzlon Energy and Lupin Lab and HLL
are others
th f ll i the
following th league.
l
¾ Many companies are switching to Shadow ESOPs as a new mode of compensation.
¾ State-run NALCO has become the first PSU in India to offer ESOPs.
¾ However, unlike the fables, which have a happy ending, the ESOP fable has been a
source of disillusionment among many. In many cases, employees holding ESOPs were
shown the pink slip even before the company went public. In that case the employees
were left with useless stock and had no option of selling them.
¾ ESOP Direct,
Direct revealed that over 73% of the options that were granted are `underwater'
underwater —
which means that the current market price of the scrips is lower than the exercise price.
¾ Even in Infosys, the number of paper millionaires has come down significantly. In fact, infy
had at one point even withdrawn ESOP scheme.
¾ As long as ESOP is treated as an incentive tool or the employer is genuinely interested in
creating wealth for the employee and it doesn't form a part of the compensation package,
the situation is not all that bad. But where it is a component of the compensation package,
it's an unfair practice because it links compensation to the fluctuations of the stock market.
 WPM In India
Profit sharing,
sharing Gainsharing and Bonus
‰ While profit-sharing and gain-sharing are not as common, Indian companies
have a fetish for bonus.
‰ LG Electronics gives out six bonuses in a year, which work out to between 200%
and 700% of basic salary, to all its 4,500-plus employees in India. The bonuses
include two half-yearly performance incentives, a Diwali bonus, a post-Diwali
bonus, a LG birthday bonus and a retention bonus. It strongly believes that this
i the
is th best
b t way tot reward d its
it employees
l and
d drive
d i performance
f i a cut-throat
in t th t
industry.
‰ In 2010, companies in India across sectors like FMCG, consumer durables,
auto, retail, IT and financial services doled out bumper festive bonuses to
employees as compared with the last few festive seasons. Such bonus were in
the form of cash payouts as a percentage of the total salary, special festive
incentives, gifts or a larger portion of the employee's total variable pay. HR
circles
i l estimate
ti t the
th total
t t l payoutt to
t be
b 15-20%
15 20% more than
th last
l t year‘s
‘
‰ Maruti Suzuki gave out 50% of an employee's variable salary as Diwali-bonus
last year.
‰ Technology giant IBM recently announced it will give $1,000
$1 000 worth of shares to
its over one lakh employees in India as part of its centennial celebration
celebrations.
‰ PSUs are covered by Payment of Bonus Act
 WPM in India
The Payment of Bonus Act,Act 1965
¾ The practice of paying bonus in India appears to have originated during
First World War when certain textile mills granted 10% of wages as war
bonus to their workers in 1917.
1917
¾ In 1950, the Full Bench of the Labour Appellate evolved a formula for
determination of bonus. A plea was made to raise that formula in 1959.
¾ In 1961,
1961 a Tripartite Commission was set up by the Government of India
to consider in a comprehensive manner, the question of payment of
bonus based on profits to employees employed in establishments and to
make recommendations to the Government.
Government The Government of India
accepted the recommendations of the Commission subject to certain
modifications.
¾ The Payment of Bonus Bill having been passed by both the Houses of
Parliament received the assent of the President on 25th September,
1965. It came on the Statute Book as THE PAYMENT OF BONUS
ACT,, 1965. The Act is to pprovide for the p
payment
y of bonus to p
persons
employed in certain establishments on the basis of profits or on the
basis of production or productivity.
 Reasons of Slow Growth of WPM in India
• Workers participation has suffered largely at the hands of employers who felt,
Workers' felt
and probably still feel, that such a move will take away from them their right to
manage. To some extent this is supported by large-scale Government
interference, issuing decrees, enticing acts, and formulating legislative bodies.
Voluntary implementation of the concept of participation by employers has been
rare, except may be in Sweden where the concept of workers' participation has
been relatively successful.
• Because of this attitude of employers,
employers information sharing has not been liberal.liberal
Workers' representatives have often not been informed about manpower and
production schedules, creating an attitude of indifference and even hostility
among the representatives.
• Many studies have pointed out the role conflict the most of the representatives
have faced in mixed boards and committees. The conflicts arose because very
often representatives were forced to adopt the company view on some matter
that contrasted with the wider interest of workers.
workers This not only created a conflict
of interest among these representatives but very often generated a crisis of
confidence among electors.
• Unlike the stated aims of pparticipation,
p , in most cases,, jjoint boards,, councils,, etc.,,
find themselves dealing with personnel and welfare matter rather than with
production and efficiency. This, to a large extent has been responsible for the
dissatisfaction of employers whose concerns rests relatively more with
production and efficiency
 Reasons of Slow Growth of WPM in India
• In some cases,
cases studies have found very little evidence of active communication
and feedback between the electors and their representatives. Part of the blame
can be assigned to the representatives themselves ill-equipped to judge what
should be communicated and partly to the multiplicity of unions, especially in the
Indian context.
• Finally, it has been found the level at which workers' participation is
operationalized influences its successes or failure. For example, the democratic
sharing of power at lower grades of industrial workers has been found to be
effective because it furthers the ends of both employers and employees. While
applying the aforementioned factors to judge the success or failure of he
experiment in industrial democracy, it should be remembered that each country
and each organization has a unique culture of its own. Self-determination, so
much valued by Americans, is not shared by workers in South America. In some
ways, Germans cohere in groups only if they are led by a leader, while the
informal group is the norm in USA
USA. Thus there seems to be no reason to expect
that the consequences of participation will be universal, although cross-cultural
work is scarce, evidence form theoretical studies supports the point.
•