Joseph N. Scanlon, father of Employee Involvement, Gainsharing and Labor/Management Cooperation
The Man and the Plan by Daniel Wren with additional comments and pictures by Paul Davis
A reporter described Joseph Scanlon as a “cocky, gay, tough-hombre Irishman … [and] an ex-featherweight boxer and Navy oiler whose hands betray the faulty mending of bad bone breaks” (Chamberlain, 1944: 215). The son of Irish immigrants, Scanlon was born in Cleveland, Ohio March 21, 1899. He enlisted and served in the U.S. Navy from July 5, 1918 to September 30, 1921 and was honorably discharged (National Archives and Records Administration). Afterward, “Joe Scanlon chose a professional boxing career over a college education and had few years experience in the ring before to came to work for [Empire Steel] in Mansfield [Ohio] in 1924” (Cross, 1939). At Empire Steel, his first job was as a cost accountant, possibly a result of attending night school.
His first marriage came in 1924 and he and his wife had one daughter, Mary Lou, who was born in 1926 (Meehan, 2005). While at Empire Steel, he continued boxing, a carryover from his Navy service, “sometimes getting $1,000 a fight [but management] told him he could not hope to rise as an accountant if he came to work with black eyes” (Chamberlain, 1946: 97). Scanlon chose to give up accounting and selected the workers’ world as an open hearth tender for Empire Steel.
Empire Steel was incorporated in 1927 as a consolidation of six smaller steel companies, had 5,000 employees, and the capacity to produce 400,000 tons of rolled steel products. The Depression hit the firm hard and it went into receivership in 1931 and was reorganized in 1933 as the Empire Sheet and Tin Plate Company with 1,900 employees and the capacity to produce 300,000 tons of rolled steel. Technological changes put Empire in an increasingly competitive disadvantage as other firms adopted more advanced methods of the continuous rolling of steel.
The steelworkers at the reorganized Empire Sheet and Tin Plate Company were represented by the American Federation of Labor’s Amalgamated Association of Iron, Steel, and Tin Workers (hereafter Amalgamated Association), Delano Lodge of Mansfield, Ohio
Leadership Changes at Empire
The first president of the steelworkers’ union at Empire was Joseph Snyder, described as a “militant president under whose leadership the union was mainly interested in solving petty grievances” (Cross, 1939). Snyder served one year and in 1937 Scanlon was elected President of Lodge 169, SWOC. His daughter wrote “It was a rough and tough time. He received threatening phone calls and was called a Communist (someone painted RED on our home)” (Meehan, 2005). Scanlon and his fellow lodge members formed a relief committee, developed a cooperative to buy food directly from wholesalers, enlisted gratuitous medical services from community physicians, and cut and delivered wood to needy families. The union lodge was the linchpin for members to survive economic deprivation and to demonstrate to non-union members the value of belonging. His daughter recalled “during the Depression my father and grandfather cut grass and helped maintain a cemetery. My parents really struggled but we survived and sometimes I feel we were more closely knit at that time than any other” (Meehan, 2005).
Another leadership change was the arrival in 1937 of James M. Hill, previously a Republic Steel executive, as the new President of Empire Sheet and Tin Plate Company (Cross, 1939). The steel industry had a brief recovery in early 1937 but by December, 1937 production had dropped drastically and it was estimated that fifty percent of the steel industry workers were unemployed (Harbison, 1942: 527). Empire reduced its workforce to 900 and many of those were working a reduced work week Empire showed a slim net profit of $1,486 on sales of $8,264,195 in 1937; in 1938, however, it incurred a net loss of $423,979 on sales of $2,698,898 (Moody’s Manual of Investments, 1938: 2092; 1939: 827).
Faced with this continuing decline, Hill asked all Empire executives to take a 25 per cent salary cut, which they did, and Hill also asked the workers to also take a pay cut. The workers suspected this was another management game to get more for less and appealed to the SWOC headquarters to substantiate the firm’s financial condition. When it was learned that the firm was indeed headed for bankruptcy, the union members voted a 25 per cent cut in pay. 1 Union leaders and management agreed this was a tourniquet and not a long-term solution (Cross, 1939).
The Trip to Pittsburgh
In June 1938, Hill, A.L. Allen, Director of Personnel, Scanlon, and William Bell, Vice President of Lodge 169, visited Clinton Golden in SWOC Headquarters in Pittsburgh. The question the group posed to Golden was “What are we going to do? We don’t want to lose our jobs … we like our community, we get along remarkably well with the management … How are we to survive?” (Golden, quoted in Schultz, 1951: 53). Golden recalled his advice was “… go back to your company … talk it over … develop some method for reaching down into the mind of each employee and see what he has got to propose that may possibly result in a reduction of cost or improvement of the quality of the product … See if you can [work] together to save your company” (Golden, quoted in Schultz, 1951: 54).
The outcome was the creation of a Joint Research Committee to meet monthly to hear worker suggestions on cutting waste and improving productivity and profitability. President Hill was “surprised” that the union was interested in controllable production costs but agreed to try this idea (Cross, 1939). One of the earliest problems identified was of “alligator hide” on finished steel sheets, resulting in a scrap rate of 60%. A consulting metallurgist was called in, but was unable to solve the problem. The workers, however, stated that this rough finish was caused by the steel sheets being too long in the “pickling furnace.” In turn, the extra time in the pickling furnace occurred because “the pickler was working short-handed and was unable to get them back fast enough to keep the furnace going” (Cross, 1939).2 Management added three workers for the pickling operation and the alligator hide problem was solved.
There is no evidence the workers shared in these cost savings, a feature that would be developed later by Joseph Scanlon, but worker participation and cooperation by management enabled the firm to survive, restore the previous wage cuts, and eventually increase the number of workers’ jobs. In 1939, Empire Steel earned a profit of $39,141 on sales of $4,990,256; and 1940 profits were $41,951 on sales of $6,025,699 (Moody’s, 1941: 452). Orders for Empire’s steel products doubled in 1941, enabling profits of $486,702 and an increase in the workforce to 1,200 (Moody’s, 1942: 935).
The results of union-management cooperation at Empire Steel during this period indicate success in saving jobs and staving off bankruptcy. As America came to the aid of its allies in 1940 and 1941 and entered World War II in late 1941, Empire Sheet and Tin Plate continued to prosper.3
The Steel Workers and World War II
Clinton Golden called Scanlon the “sparkplug” of the successes at Empire Sheet and Tin Plate, was familiar with his cost accounting background, and realized his capabilities as a union leader. When John L. Lewis resigned the CIO presidency in 1940 and was succeeded by Philip Murray, Golden convinced Murray that Scanlon was needed at Pittsburgh headquarters. Scanlon joined the staff in 1940 as head of a newly established “Industrial Engineering Department.”
The Adamson Company
The Adamson Company, founded and owned by Cecil Adamson, was unionized as part of the U.S. Steel-SWOC agreement of 1937 and had a history of sound labor-management relations with its 100 member workforce. The Adamson Company grossed approximately one million dollars per year annually by manufacturing and selling 100,000 welded steel storage tanks for oil companies and gasoline stations (Chamberlain, 1946). Adamson had tried profit sharing plans but “had not reckoned with wage stabilization,” that is, the NWLB limits on wage increases unless the increase was somehow connected to increased productivity (Scanlon, 1947: 11). Adamson sought the advice of USW headquarters and he and Scanlon began to work on a formula that would pass the test. Scanlon’s cost accounting experience helped and the proposal to the NWLB was a 50-50 split between management and labor of profits before taxes based on the “ratio of labor costs to sales value of production” (Scanlon, 1947: 11). An increase in sales value of production or a reduction of labor cost would lead to savings and a joint labor-management production committee began to seek means of accomplishing improvements in this ratio. By the end of 1945, production efficiency increased 54 per cent and the workers averaged bonuses of 41 per cent of monthly earnings. For 1946, profits doubled the 1945 level and worker bonuses were 50 per cent more than in 1945.
The Adamson Company became the poster-company for Joseph Scanlon to build upon in his future work. Regardless of Adamson’s success, Scanlon provided a caveat: “Unless both union and management are prepared to change their accepted way of thinking about each other and are willing to spend all of the time, effort, and care necessary … they would be well advised to steer clear of the idea of profit sharing” (Scanlon, 1947: 12). War-time circumstances encouraged labor-management cooperation in unionized as well as non-unionized firms; national wage stabilization policy and the decisions of the NWLB to conform to that policy, however, restrained Scanlon’s goal of tying rewards to productivity gains until the opportunity was presented at the
Adamson Company for a gain sharing plan. After the war and in a new position, Scanlon was able to advance and refine what became known as the Scanlon Plan.
Thomas Brooks, Clinton Golden’s biographer, found in a May 5, 1946 entry in Golden’s diary that read “It seems most of the effort Joe Scanlon and I particularly have put forth to both advocate and build cooperative relationships has been undone by our associates” (Golden, in Brooks, 1978: 226). Philip Murray’s comment at a union wage policy committee that he “was not among those who believed that any substantial part of management want to get along peacefully with the Union” was interpreted by Golden as an end to union-management cooperation (Brooks, 1978: 239).
When interviewed by John Hoerr, a long-time reporter on the USW for Business Week, Harold Ruttenberg said he did not like the direction Murray was taking the union. Ruttenberg recalled the progress of union-management collaboration during the steel worker organizing days: “It became very apparent to me, and to Golden, that you have to have union-management cooperation … we’ve got to continue this program, and if we don’t, we are going to bankrupt our companies … unless you followed a policy of trying to feed the cow, you’re going to milk it to death. You can’t just milk it. You’ve got to feed it” (Hoerr, 1988: 282
Scanlon’s family life would change in Pittsburgh. His daughter recalled: “He came home on weekends for awhile and then my mother and I spent a year with him in Pittsburgh” (Meehan, 2005). The marriage failed, a divorce ensued, and Scanlon’s wife and daughter returned to Mansfield, Ohio. While working with a steel local in Washington, Pennsylvania, Scanlon met Virginia White, daughter of the president of a local bank. Later, they would marry in Boston and “sailed on the Queen Mary the next day for six weeks in England as the guest of Sir Arthur Deacon of the Labor Party. Joe had been asked to evaluate and respond to England’s entrenched productivity doldrums and loss of morale. Joe came back tremendously discouraged” (Frost, 2005).
Meyer Bernstein, a close friend of Joe Scanlon, told Hoerr that Scanlon felt he could make no headway after Golden left: “He [Scanlon] had ideas, but he couldn’t get any support for them” (Hoerr, 1988: 284). Scanlon had been involved with and had seen union-management cooperation succeed at Empire Sheet and Tin Plate and at other companies while with the SWOC and the USW. World War II did not present the opportunities to develop fully what was to become known as the Scanlon Plan but it did promote Scanlon’s idea that mutual collaboration could work and the gain sharing plan at Adamson Company reinforced this belief. His resignation from the USW came in October, 1946 and he accepted an invitation to join the Industrial Relations Section in the Department of Economics and Social Science at the Massachusetts Institute of Technology (MIT).
Scanlon at MIT
Joseph Scanlon was no stranger to the Industrial Relations faculty at MIT. In January 1945, the faculty organized a three week series of seminars on topics relating to union-management relations, labor-management cooperation, personnel administration, women in industry, and related subjects (Technology Review, 1945). Ten outside speakers participated and Scanlon was the only one from a labor union. MIT Professor Douglas McGregor knew of Scanlon’s work at the Adamson Company and invited him to the seminars and, subsequently, was instrumental in bringing Scanlon to MIT as a Lecturer.
In announcing Scanlon’s appointment, James R. Killian, Jr., then a MIT Vice President, noted: “educational institutions must help to educate labor leaders … In appointing Mr. Scanlon to its staff, the Institute seeks to broaden it educational facilities in the important field of industrial relations with the object of bringing about a better understanding of union-management relations” (Technology Review, 1946: 46). Killian commented on Scanlon’s prior experiences in the union movement and his participation in industrial relations seminars and conferences at Harvard, Princeton, the University of Pennsylvania, the University of Chicago, and Holy Cross College.
At MIT, Scanlon would join a galaxy of scholars. Rupert Maclaurin, son of MIT’s sixth president, formed an Industrial Relations Section in the Department of Economics and Social Science in 1937, creating one of the earliest institutions for the study of industrial relations (Killian, 1985). Under Maclaurin’s leadership, the Industrial Relations Section employed seminal scholars such as Paul Pigors, Charles A. Myers, and Douglas McGregor; for economists, there were Paul Samuelson, Walter W. Rostow, George P. Schultz, Robert M. Solow, Charles P. Kindleberger, and other prominent scholars.
The Lapointe Machine Tool Company was the first application of Scanlon’s ideas after joining the MIT faculty. Lapointe made broaching machines, that is, machine tools that shaped non-round holes in metal, and had a checkered history of relations with its United Steelworkers Union. Frederick Lesieur was President of the local union and convinced Vice President Edward Dowd to contact Scanlon as a consultant to determine if Lapointe could achieve the successes of the Adamson Company (Davenport, 1950). Scanlon was agreeable and began with his standard approach: first, determine “normal “ labor costs based on past experiences; second, establish joint labor-management production committees to invite and review employee suggestions for cost savings which would be sent to a joint screening committee for final approval; finally, establish a cost-sharing program to be divided among all employees.
In the first three months (December, 1947 and January-February, 1948), efficiency increased 33, 28, and 21 per cent and corresponding bonuses were paid to all employees, except upper management executives whose bonuses were tied to sales. Bonuses were paid in only one of the following six months and the employees became discouraged. Scanlon traced the problem to a backlog of orders which the added efficiency had cleared out, but the sales personnel had not brought in new orders, thus losing their bonuses. Scanlon recognized that sales and production had to work better together and allowances had to be made for up and down months for inventory changes. In joint meetings, a new plan emerged: management had to be more diligent in getting orders; inventory changes, positive and negative, had to be include in the formula; and a reserve needed to be established to level out the high and low months for bonuses, with any surplus becoming an end of year bonus (Lesieur, 1958). With these changes, bonuses resumed and averaged 15 per cent per month from January, 1949 to September, 1952 (Schultz & Crisara, 1952).
The lesson learned at Lapointe was each firm had different circumstances and no one plan was appropriate for all; the only essential, for Scanlon, was labor-management cooperation in seeking cost savings and sharing these gains with the employees. The Market Forge Company was a job-lot shop for fabricating various steel products; each order was custom made so inventory figures were less important. Market Forge was one of Scanlon’s less successful cases (Time, 1955). Stromberg-Carlson manufactured radio, television, telephone, and sound recording equipment and had 6,000 employees, the largest number encountered thus far for Scanlon’s ideas. Stromberg-Carlson had three product divisions, each a profit center, which made plant-wide bonuses more difficult to determine because the employees in one group could have a positive or negative influence on employees in other divisions. The employees voted to keep the plan in preference to the previous piecework arrangement and, by 1953, Stromberg-Carlson’s screening committee had considered 2,100 suggestions, adopted 1,270 of them, and distributed $1,227,034 in bonuses and the plan was deemed successful (Gehman, 1953).
Murray Manufacturing, making safety switches and employing 360, was another success along with Welch Grape Juice, Towle Silver Company and others which reflected the diversity of firms that adopted Scanlon’s ideas (Gehman, 1953). His ideas were also successful in union and nonunion firms, large or small, whether the joint committees were elected or appointed, whether profitable or on the brink of disaster, and in diverse manufacturing industries such as “shoes, silverware, pens and pencils … door handles … railroad ties, tanks for processing chemicals … [and] packaging equipment” (Schultz, 1958: 102-103). Exceptions could be found in continuous processing firms, such petroleum refining, where productivity was more likely to be connected to technology.
Time magazine called Scanlon the “most sought-after labor-relations consultant in the U.S. today” with successful installations of his ideas in 60 plants in a variety of firms (1955: 88-89). Parker Pen of Janesville, Wisconsin was cited as an example of a profitable firm with all modern facilities that disproved allegations that Scanlon’s ideas worked only in small or failing firms. Parker Pen had eight joint production committees, one for each department, and a 17 member joint screening committee. The employees received 75 per cent, management 25 per cent of the efficiency bonus which averaged 27 per cent for 1953 and 1954. The ingredients of Parker’s success were “a strong union, able to guarantee the support of its members … [and] a management willing to open its books and innermost production secrets to union members” (Time, 1955: 90).
The Scanlon Conferences
MIT decided to host a conference on Scanlon’s ideas in 1947, but those who came had difficulty finding the site. Better directions were needed and “Labor-Management Production Committee’s Saving-Sharing Plan Conference” proved unwieldy as signage. The signs were changed to read “Scanlon Conference” and this provided the necessary guidance. Scanlon objected and told a colleague “his work was like dropping a pebble in a pond and like the ripples it would just disappear” (Frost, 2005). Instead, the Scanlon Conference became an annual event and Scanlon served as chair until his health began to fail and the 1955 and 1956 conferences were cancelled.
Human Relations and the Scanlon Plan
Douglas McGregor and Joseph Scanlon were quite unlike in many ways until they found a common ground through their work at MIT. McGregor attended Oberlin College intending to be a minister, but changed his interest to psychology and received his Ph.D. from Harvard University. Scanlon’s formal education was less formal and he spent his younger years in the Navy, as a prizefighter, cost accountant, and open-hearth steelworker before becoming involved in the union movement. Their common ground from divergent backgrounds involved employee participation in workplace decisions. As members of the Committee on the Causes of Industrial Peace under Collective Bargaining, they co-authored the case study of the Dewey and Almy Chemical Company and the International Chemical Workers Union. Dewey and Almy had progressed from the policies of its paternalistic founders and made significant progress in its relationship with the chemical workers union. To progress further, however, “it [the company] must soon move into the third---cooperative---stage if it is to remain healthy … [and] recognize the possibilities in union participation on problems of production efficiency and cost reduction” (McGregor & Scanlon, 1948: 65-66).
McGregor devoted a full chapter to the Scanlon Plan as an example of “management by integration and self-control … a way of industrial life---a philosophy of management---which rests on assumptions entirely consistent with Theory Y” (McGregor, 1960: 110). The Scanlon Plan’s bases of cost reduction sharing and participation could work well in unionized and nonunionized firms, according to McGregor, because it “helped managers discover the true nature of the organization’s human resources” (1960: 118). A MIT doctoral student who studied under Scanlon from 1947-1950 also stressed participation as a way “of utilizing the experience of all members of the organization in developing better solutions to production problems faced by the organization” (Krulee, 1955: 104). Whyte and his colleagues praised the shared rewards in contrast to individual pay-outs and the suggestion system that was planned “discovery, development, and implementation of suggestions” as being more conducive to improved labor-management relations than the typical suggestion box on the wall (Whyte, et al., 1955: 173, 176). Others agreed: “The Scanlon Plan is one of the most promising approaches yet suggested to securing widespread employee participation and obtaining industrial peace and higher productivity as well” (Strauss & Sayles, 1960: 670). Despite its promise, the Scanlon Plan required changed attitudes for both labor and management which were not easily attainable (Strauss & Sayles, 1957).
These representatives of human relations thinking emphasized the group, not individuals, and participative decision making. Human relations assumptions and conclusions would be challenged, but for this time in history Joe Scanlon’s ideas fit well into and likely had a positive influence on human relations in the workplace.
The Death of the Man but not the Plan
A close friend and colleague described Joe Scanlon as an “inveterate smoker” whose later years became “increasingly difficult because of [his] deteriorating emphysema condition which now required oxygen availability” (Frost, 2005). In these latter days Joe asked Fred Lesieur to leave Lapointe Machine Tool and join him at MIT in 1950.
Scanlon also encountered difficult times in his personal life. He and Virginia White Scanlon had a son, James Joseph Scanlon, but “unfortunately and tragically Jimmie Joe suffered severe injuries during the birth process” and was mentally retarded (Frost, 2005; Meehan, 2005). “This fact cast a prioritized agenda over every facet of Joe’s personal and professional life. Joe tried desperately to cope” (Frost, 2005). It was a losing battle and Joseph N. Scanlon died of emphysema February 10, 1956, age 56, at the New England Medical Center (Technology Review, 1956). Memorial services were held at the Unitarian Church in Lexington, Massachusetts. His long-time friend and colleague of 20 years, Clinton Golden, was unable to attend these services but gave a eulogy at ceremonies honoring Scanlon at the Lapointe Machine Tool Company in Hudson, Massachusetts:
Joe Scanlon was an American worker with a deeply rooted faith in
Democracy and democratic processes. He believed that Democracy, while
not perfect, is perfectible …
He believed every worker, no matter how humble and seemingly unimportant
his task, is capable of making a contribution not only to the success of the
enterprise that employs him but to the happiness and well-being of his fellows …
[He] was an unassuming, lovable, and unselfish human being, richly endowed by his
Creator with the ability to serve rather than to command …
He loved his country, he was proud of the heroic past, dissatisfied with the present,
confident of the future …
I have never grasped the hand of a better, truer, more unselfish friend than Joe
Scanlon (Golden, in Brooks, 1978: 348).
After Scanlon’s death, Fred Lesieur resumed the annual Scanlon Conferences at MIT in 1957 and these continued until the 1980s (Davis, 2005)
Fred Lesieur and his sons developed a consultancy that helped many organizations develop Scanlon Plans. The Dana Corporation was a client who became among the top 100 Best Places to Work.
Carl Frost, who worked with Scanlon and McGregor at MIT and later moved to the Department of Psychology at Michigan State University, would take a different path regarding Scanlon’s work. He published widely, formulated the “Frost/Scanlon Principles” (Frost, 1996), and developed the “Scanlon Roadmap” for organizational change and development.
Frost centered his work at Michigan State University and formed the Scanlon Plan Associates which continues today as the Scanlon Leadership Network with a web site and frequent conferences on leadership and organizational and personal development.
Joe Scanlon’s experiences provided a unique perspective that created the most widely studied labor-management relations plan that bears his name. Through archival sources we have seen how his cost accounting background led to the original formula for sharing efficiency gains; how his life as a steelworker, union member and local union leader took him from the ranks to a national leadership position; and how his colleagues at MIT provided the means to nourish and expand his ideas. The Scanlon Plan has outlived many fads and evolved through human relations thinking to organizational change and development to an ever increasing body of gain sharing literature. It remains a viable means to promote and reward labor-management cooperation and improve efficiency and competitiveness. The Scanlon Plan is a future means of improving labor-management relations and work practices as well as part of its past.
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Thank you to Joe's daughter-- Marylou Meehan for sharing stories of her Dad.
(a evening with MaryLou and Paul Davis)
They lived across the street from an orphanage and her Dad would teach the boys how to box. Their home was a gathering place for Union leaders, and local businessmen. She remembers discussions and sometimes arguments going on late into the night.
Joe Scanlon never learned to drive a car. His wife would drive him to work everyday.
Unknown to me until meeting Mrs. Meehan was Joe Scanlon's connection to the sustainability movement. Malabar Farms the home of Pulitzer Prize winning author Louis Bromfileld is located near Mansfield, OH. Joe took Marylou on many visits to the farm. Louis was a friend of the Scanlon family.