MANAGEMENT: The Scanlon Plan

The most sought-after labor-relations adviser in the U.S. today is Joe Scanlon, 56, onetime prizefighter, open-hearth tender, steel company cost accountant, union local president and now a lecturer in industrial relations at Massachusetts Institute of Technology. Wearing an open-neck sport shirt and studding his shop lingo with four-letter words, Joe Scanlon looks and sounds like anything but what he is: a fervent evangelist for the mutual interests of labor and management, who knows how to sell the idea to both sides. His selling device: the Scanlon Plan, designed to 1) cut the worker in on the adventure, the decisions and the profits of increased production, and 2) help management tap the ingenuity of employees as a means of improving production.

Scanlon’s way is actually less a formal plan than an approach, with three constant ingredients. First, the union and management in the plant fix a productivity “norm,” and the working force is promised a bonus out of the savings the workers can effect by producing at a lower cost per unit. Unlike many other incentive plans, the Scanlon Plan is noncompetitive, does not throw the plant wage structure out of balance, and unites the men on a common goal instead of pitting them against each other. The second ingredient is a system of production councils in which union and management attack production costs. But the most important ingredient of all is Joe Scanlon himself, who learned about production from the bottom up.

Company to Union. The son of Irish immigrants, Joe Scanlon finished a hitch in the Navy in the early ’20s and went to work as a cost accountant in a small Ohio steel company, since absorbed by giant Republic Steel. Later he quit to tend an open hearth, became a volunteer union organizer when the C.I.O. Steelworkers’ Organizing Committee was formed in 1936. Scanlon believed that workers could help improve production if they had an incentive to do so.

In 1938 there was an incentive. Scanlon was president of his Steelworkers’ local when management told him that if the plant could not do better, it would be shut down. Scanlon took the company executives to the C.I.O. steel headquarters in Pittsburgh and there worked out a union-management productivity plan. It not only rescued the plant but put it on a profitable basis. For example, one suggestion by the union production committee cost $8,000 in new equipment but saved the plant $150,000 in one year. Impressed, Phil Murray’s Steelworkers put Scanlon to work in the head office to doctor other sick companies.

The Prototype. In 1945 Scanlon for the first time took the bits and pieces of what he had tried out in dozens of companies and put them together at the Adamson Co. of East Palestine, Ohio, a small maker of welded steel tanks. Complained Owner Cecil Adamson: “I give the union everything it asks for. But still the shop isn’t working well. Let’s get together and work out something so that you’ll get something and I’ll get something.” Joe went into the plant, checked the books, and determined a “normal” labor cost per unit. He then set up a system for a 50-50 split of the savings the workers made by producing at less than normal cost.

Soon the new joint union-management was flooded with workers’ suggestions. Welders who had stood around waiting for materials began helping to unload. Workers formerly indifferent to substandard work turned out by slackers began raising Cain: it cut down their bonus. Employees and executives became a team working toward a mutual goal. After a year, the Adamson Co. was five times as profitable as in the old days; even after sharing the productivity savings 50-50, management still reaped twice as much income. As for the workers, a union veteran of many picket lines told Scanlon: “Joe, I can’t fight here. I’d be fighting myself.”

The next year, Scanlon moved into the Lapointe Machine Tool Co. of Hudson, Mass., then on the verge of a strike. Within 20 months its production was up 61%. Said a National Planning Association report on Lapointe meetings on joint production problems: “An outsider has difficulty distinguishing management from union.”

The Success. While the plan had worked with troubled companies, how would it work in a successful one? The test came at the Parker Pen Co. of Janesville, Wis. A progressive firm, Parker had an intelligent management and union, a standard incentive system, a new retirement plan, a sleekly modern, air-conditioned plant with such production aids as piped-in music for its workers. Nevertheless, the company found that even a good incentive plan made trouble. Some men in low-paying jobs were taking home more pay than the men in highly skilled divisions.

Invited to come in and help, Scanlon pitched out the old-style incentive system, which promoted individual effort at the expense of the group. He spent days with the finance and accounting people—whose role he considers vital—and devised a productivity norm. In Parker’s case, it was the fiscal year March 1953 through February 1954. He then arranged that the savings on output made at less than the costs of the base year figure (as measured by sales value) should go into a bonus pool. A fourth of the pool money was automatically set aside as a reserve fund to be paid out in the break-even or deficit months when no bonus was earned. The rest of the melon—made up of increased value through productivity savings—was split; labor got a whopping 75%, management 25%. The first month’s bonus, paid in September 1954, amounted to $43,199, a 13.8% wage increase. In January, the pen and pencil industry’s seasonal low point, the workers failed to earn a bonus, but it was the only month they missed (payments from the reserve pool are made only at year’s end). They earned a peak 27.1% over their wages in September.

During the year, the eight joint production committees (one in each major department) and the lyman overall “screening committee” (nine workers, eight executives) considered 400 employee suggestions, an average of one for every two workers, and adopted some 240.

Last week, as the plan began its second year, Parker Operations Vice President Philip Hull announced: “I’m a convinced Scanlon Plan adherent.”

The Agreement. The plan is now working in some 60 plants from furniture to steel, where profits were excellent and where they were nonexistent, where labor relations were good and where they were bad, where labor productivity was easy to measure and where it was virtually impossible. But the plan cannot operate without the wholehearted agreement of both management and unions. It requires a strong union, able to guarantee the support of its members. It also requires a management willing to open its books and innermost production secrets to union members. And the plan demands a sense of management-union cooperation that is often most lacking in the plants that most need Scanlon’s help.

Scanlon refuses even to try unless he is convinced that the two sides will work together. Once, in desperation, the union and management of a deeply troubled plant arrived in Scanlon’s office and announced they were all ready to try out his plan. Scanlon looked at the glowering men arrayed on both sides, each with a watchful lawyer, and said: “Yeah, you’re all set, both of you—to get the hell out of here.”

Rough on Clients. Scanlon bullies his clients and lays down the law, once told an executive: “You’ll probably have to fire every foreman you’ve got working for you.” Another time, when a company head came in with his troubles, Scanlon roared: “Why in hell did you put your brother-in-law in that job? That’ll have to be changed.”

Despite Scanlon’s brusque ways, the companies who have tried his plan are sold on it. Said President Leo Beckwith of the Market Forge Co. of Everett, Mass., a Scanlon plant since 1947: “Maybe it isn’t the Utopia that some people try to make it, but it has been a fine thing. If for any reason we ever had to drop it, the boys in the plant would be very unhappy and so would I.” The vice president of an Illinois company was even more enthusiastic: “As far as I’m concerned, Joe has the answer to the future for American free-enterprise capitalism.”