Productivity Sharing Programs: Can They Contribute to Productivity Improvement?

GAO studied productivity sharing plans as part of a broader, congressionally requested review of the Council on Wage and Price Stability's efforts to focus on productivity as a means of reducing inflation. The decline of the Nation's productivity is a matter of increasing concern. Many factors are blamed for the slowdown including: the high cost of Government regulation and reporting requirements; a reduction in capital investments to improve productive capacity; a decline in research and development activities which lead to innovations in technology; a change in worker attitudes; a change in the composition of the workforce; and a shift away from manufacturing to service occupations. Managers of firms have increasingly recognized that employee incentives can result in greater productivity. One form of group incentive is productivity sharing. Productivity sharing plans can increase a firm's productivity and provide many benefits to both the firm and its employees, including higher wages in the form of bonuses to employees, increased profitability for the company, a spirit of cooperation among employees and between employees and management, and greater involvement and commitment of employees to their work. Although productivity sharing plans have been in existence for many years, they have not as yet gained widespread acceptance. The earliest plans were adopted primarily by privately owned companies, but many publicly owned corporations have begun to adopt them for various reasons. Depending on a company's reasons for adopting a productivity sharing plan, the type and number of employees covered by the plan will vary. Other factors that will vary include: (1) the role consultants will play in designing and implementing a plan; (2) the basis and conditions for bonus payments; and (3) the amount of assurance employees receive that the payments are equitable. Because of the serious problems caused by the decline in national productivity and a high rate of inflation, GAO believes that firms should examine productivity sharing and other incentive plans more closely to determine whether they can contribute to their own productivity improvement.