How do you cut costs, increase efficiency, raise compensation, and improve the company's financial results at the same time -- all without putting anyone on the streets?

The answer at Republic Engineered Steels' 7th Avenue plant in Gary is a new work system, built around self-directed work teams, pay for knowledge and gainsharing, employee input, free flows of information, and lots of training.

"I've tried both systems," says Jim Balczo, unit leader in the turning unit when we interrupted him while he was doing machine maintenance. "I put in three years at Republic's Chicago plant before I came here. I wouldn't be here today if I didn't think this is a better system."

Three years ago Republic bought and reopened Western Steel's cold finish plant, located a mile from Republic's conventionally run Dunes plant. The Steelworkers local and Republic's management sat down with consultant Mike Shay from PSI to design a new work system that met the needs of both union and management. The result is a plant where conventional supervision has been abolished, where everyone except two top managers is in the bargaining unit, and where productivity per employee is sharply higher than in Western's day, despite operating with the same equipment.

The secret of 7th Avenue's productivity is the combination of a new compensation system with work teams that have absorbed the tasks of front line supervision. The compensation system combines a base pay scale with pay for knowledge and gainsharing. The pay-for-knowledge system enables individuals to raise their pay by learning new jobs and skills, regardless of what job you do today. "I was at class 5 [on the pay scale] in Chicago. Here I've gone from class 5 to class 12. That's worth a buck an hour," says Balczo. "I would have been at class 5 for another 10 years in Chicago."

Gainsharing currently adds another 21% to wages. The plant gainsharing formula is principally driven by man-hours per ton but also includes reliability, customer claims, and housekeeping.

Despite the fact that the new compensation package adds about $3 per hour to the pay of the average worker, the 7th Avenue plant is said to have a lower production cost per ton than other Republic cold finish plants. This is primarily a result of the fact that most management tasks have been designed into the hourly production units. Unit leaders and team leaders, who are part of the bargaining unit, do most of the plant's paperwork, planning, and coordination. Of previous management functions, only discipline remains a management prerogative. Decisions on production are pushed down to the work unit wherever possible.

When work units fail to make decisions, plant manager Curt Anderson and USWA local president Mike Millsap are jointly responsible to taking action. "Self direction doesn't mean just doing what you want to do," Anderson told a Worker Ownership Institute seminar in October. "It means doing what's best."

It also has slashed grievances. There have been a total of four grievances filed at 7th Avenue over the last three years. By contrast, the somewhat larger Dunes plant has 50 to 75 grievances a year.

"It's a much better system than I was brought up with," says Anderson. "My role is significantly different than it used to be. I'm a teacher, teaching people to manage."

"The whole idea," says Warren Bolton, Anderson's second in command, "is to have ownership, to be flexible, and to have a say in what happens."