Scanlon Plan - Definition & Meaning

Published in Human Resources Terms by MBA Skool Team

What is Scanlon Plan?

Scanlon Plan is cost-saving, gain-sharing, productivity-incentive plan in which any saving (agreed upon standard labour cost per unit of output subtracted from actual labour cost per unit of output) is shared equally between the workers and the organization.

This plan requires a formal employee participation along with frequent performance reviews and employee reporting.


This type of a gain-sharing program seeks to involve employees more directly in an organization’s decision-making process. Since the employees and the employers are set to benefit from the plan, both should acknowledge the importance of each other’s suggestions and contributions. For such plans to work, the relations between employers and employees need to be relatively stable and the employees should feel a sense of belonging to the organization.


a) Employees provide suggestions to the department level committee

b) The suggestions seek to identify ways to improve productivity

c) The department level committees then transfer the suggestions to a screening committee

d) The screening committee includes members of the workforce and the management

e) The screening committee reviews the suggestions and designs measures to improve performance

f) The screening committee periodically reviews performance and computes the amount of bonus to be paid to workmen as their share of performance improvements.


Joseph Scanlon designed this plan in the early years of the Great Depression to save enterprises threatened by the economic collapse. Scanlon believed that if the workmen are allowed to contribute to an organization’s decision-making process, the goals of the workmen and the employer would be common and both would work in co-ordination to achieve such goals. Such plans were instrumental in ensuring stability in the labour-management relations in a highly volatile era.


Hence, this concludes the definition of Scanlon Plan along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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