Scanlon Plan Law and Legal Definition

A Scanlon plan is a profit sharing program in which employees share in pre-established cost savings, based upon employee effort. Formal employee participation is necessary with the Scanlon Plan, as well as periodic progress reporting and an incentive formula.

The Basic Elements of the Scanlon Plan are:

The Ratio
Total labor cost / sales value of production.

The Bonus
Depends on the reduction in costs below the preset ratio.

The Production Committee
Formed in each major department and is used to tap into the imagination and ingenuity of the workers.

The Screening Committee
Consists of top members of the plant management and workers representatives, usually eight to twelve members. It reviews the monthly bonus, discusses current production problems, and considers all suggestions for organizational improvement.