Final answer:
A Scanlon plan is a type of gain-sharing plan that rewards employees for improving productivity and efficiency, fostering a collaborative work environment.
Step-by-step explanation:
The Scanlon plan is a type of gain-sharing plan, which is a performance-based compensation program that rewards employees for contributing to the company's productivity. This form of incentive pay plan emphasizes teamwork and the collective performance of a group, sharing the financial gains resultant from productivity improvements. Specifically, the Scanlon plan involves economic rewards based on a formula that considers the ratio of labor costs to the sales value of production (SVOP). When this ratio improves, which indicates higher efficiency, employees receive a share of the gains.
Key features of a Scanlon plan include the establishment of committees or involvement groups that include employees who work together to propose and implement cost-saving ideas. This collaborative approach aligns the interests of employees with those of the company, ultimately aiming to boost productivity and profitability. As such, it differs from an executive pay plan, which is tailored to the company's executives, or a profit-sharing plan, which is based directly on a company's profitability rather than the employees' contributions to productivity improvements.