by: Frey, Robert
Source: Harvard Business School
Nine years ago, the author bought a small manufacturing company with marginal profits, poor union relations, nit-picking work rules, and high labor costs. Today he has flexible work rules, lower relative labor costs, fewer benefits, excellent union relations, and superior profitability. How did he do it? The simple answer is profit sharing and empowerment. The process began when Frey cut wages, vacations, and holidays. The ensuing strike failed, leaving him with lower costs but an angry, embittered work force. After a year of bickering, Frey decided he wanted to implement profit sharing. To get his employees to grasp the cause-and-effect relationship between the way they worked and the profits they shared, he used every means he could muster. He refused contract wage hikes but shared 30% of pretax profits. He opened his books to the union. He offered training in new skills. He hired new managers. He learned to listen. For workers, profit sharing is now a 36% increment to income, while productivity has risen by almost a third. Best of all, the workers themselves now push for ongoing change and increasing responsibility.
Link: Empowerment or Else
Publication Date: 1993-09-01