Engstrom Auto

Mirror Plant:
Motivating in Good
Times and Bad

Submitted by
Group B2
ProblemStatement:

How to revise the Scanlon bonus plan in a way that could work in the downturn
experienced by the industry?

Environmental Trends

PESTC

Political

The labour unions in the US were a powerful group and were responsible for the
negotiations regarding wages, job-cuts, etc. Sometimes their stand became very rigid
and the management had to eventually give in to avoid any kind of labour strikes.

Economic Trends

There was a period of reduced economic activity triggered by the recession in the late
2000s. In the US there were a lot of job cuts and lay-offs happening owing to the
economic crisis and personal bankruptcies were a common phenomenon. People were
becoming circumspect when the wages were reduced and were expecting the job cuts to
happen any moment. The rising food and gas prices and inflation did not do any good to
the confidence of the workers of the various markets in general.

(If you use pt form, you can save time and also be more clear.

Social

Technological Not relevant

Cultural
SWOT Analysis on Scanlon Plan

Strengths Weaknesses

A monthly bonus drives the employees Absence of a systematic Performance

to work better and the efforts are Appraisal system where each
evident from the turnaround employee would be rewarded based
Teamwork and knowledge-sharing on his contribution
typically improved Complex calculations involved
The culture also typically became Though the employees produced a
change-friendly and employees are record number of units the bonuses
now receptive to new methods (status dropped which made them doubt the
quo change for the better) whole system
People saw themselves as more The team work and individual
cooperative workforce working received less priority
Collaboration fostered innovation and
creativity
Focused on cost savings which helped
the organization give away those
earnings through bonuses
Information sharing among employees
is high

Opportunities Threats

The plan can be tailored to support an Due to the economic slowdown

organizations specific strategy and looming around providing bonuses
hence it can be customized to face the might be a problem for the
current downturn in the economy organization.
SWOT Analysis on Engstrom Auto Mirror Plant
Strengths
Received the certified supplier status
a recognition of both extraordinary
reliability and quality (Is it O or S?
Encouraged participative management
Implemented the Scanlon plan which
proved helpful in reviving a sinking
ship
Quadrupled sales over the last seven
years
Opportunities
If the current economic crisis is
overcome then it can become the
pioneer in the industry
Factors
1. Employee Morale and Motivation
2. Productivity and product quality issues
3. Rigid and Tough Calculations
4. Union Relations
5. Trust between the management and the workers
Weaknesses
Laid off 46 people during the
downturn developing a sense of
insecurity in the minds of the workers
Unavailability of any alternatives to
counter the ineffectiveness of the
Scanlon plan.
Productivity and Product quality
issues
Low employee morale (bonus not
given for the last seven months)
Threats
Long production lines can alienate
potential customers
If the current labour issues and longer
lead times are not properly addressed,
then it would be a threat to certified
supplier status that it achieved from
Sam Martinez
Critical Factors
Discussion of the Factors

Employee Morale and Motivation

The morale of the employees was down due to the looming economic crisis and the fear
of job cuts around them. First of all they should be assured that no more job cuts would
happen if the company starts to do well and to that should be given in writing to ensure
they take it seriously.The lack of bonus being paid for the last seven months is also one
of the reasons for the low employee morale.The over dependence on bonus being the
only motivating factor should be done away with. Non-financial incentives can be given
to employees with the best suggestions and to those who performed exceedingly well in
the training programs. These methods can intrinsically motivate the employees to
perform better thereby increasing the productivity of the entire unit.

According to an article entitled Need-based Perspectives on Motivation

by Moorhead and Griffin, job performance depends on three main factors: Motivation,
Ability and Environment. For this reason, the following relationship can be established:

Performance = Motivation + Ability + Environment

Deficiency in any one of these factors will result in a lower level of job performance. The
low performance of the employees at Engstrom can be attributed to the low levels of
motivation provided to them.Also since the whole profits as a part are divided amongst
the employees even people who do not contribute much get the rewards offered.

Productivity and Product Quality Issues

The productivity and product quality issues have to be sorted out quickly for Engstrom
to sustain in the market and to maintain its good will amongst its customer. It would
also be jeopardizing its certified supplier status by shipping sub-standard or defective
mirrors to its customers. The lack of bonus paid to the employees was one of the
reasons for the low quality work that has been surfacing for a while. One of the reasons
for the morale to be down is that the employees feel that the supervisors should receive
a low bonus because they do not work hard as the other employees. This can be
attributed to Adams Equity Theory as follows:

Equity theory states that when people believe that they have been treated unfairly in
comparison to others, they try to eliminate the discomfort and restore a perceived
sense of equity to the situation.
 In this situation, some employees felt that supervisors should have received a
reduced bonus because they were not working as hard as they are.

Personal
Are compared to Others rewards
rewards Vis--
vis personal Vis--vis
inputs personal inputs

Inputs
With a result of

Perceived Perceived
Equity Inequity
(Supervisors)

Rigid and Tough Calculations

The Scanlon Bonus was influenced by many other factors like length of the month, sales
mix, overtime and product returns. So when an employee is expecting a high bonus after
producing a high number of units he might be disappointed when he gets a low bonus
due to one of the above factors. And the absence of bonus for the last seven months has
not made any contribution in improving the employee morale. From the McClellands
theory of needs we can associate this to the Need for Affiliation. Researchers recognize
that people with high need for affiliation are most attached to jobs and would contribute
to the progress of the organization. If an employee is not affiliated to the organization
then he starts distrusting the whole process and insecurity creeps in.

Union Relations

The union is responsible for negotiations and would take a very strong stand when an
employee is laid off. Since the company has a history of people being laid off, there is
already an insecure feeling among the employees regarding the whole system. So the
management should look forward to improving the relationship with the labour unions
as a means to getting to the employees.

Trust between Management and Workers

Building a trustworthy environment to work in is the primary objective for any

organization. When the trust does not exist the workers do not feel comfortable in the
environment and the production levels drop significantly. Also the quality of the work
that they do would also come down drastically as the work is not done whole-heartedly.

Constraints

The major constraint in the whole process would be to not compromise on the timely
delivery of quality products to its existing customers. Whatever decision they take
should not affect the above scenario.

Options

1. Scrap the Scanlon plan and bring in a group based or individual appraisal system.
Since the employees are all accustomed to the bonuses and feel it is a regular part of
their salary structure, this is one way in which they can be brought to reality. People
who perform individually and in a group would be rewarded based on their
contribution and the performance of the individual and the group as a whole.

Advantages

Get rid of the mind-set where the employee feels the bonus is part of his pay
package
Boost employee morale by offering incentives for individual and group
performances

Disadvantages

Might cause uproar from the free riders in the organization as the bonus is cut
from their salary package.
Might take some time in implementation and the employees responses might not
be very good initially.

2. Modify the existing Scanlon plan and stick to the same plan.Suggestions from the
employees must be invited so that even they feel they are part of the process. The
rigid and tough calculations of the Scanlon ratio must be done away with and simple
 calculations that all the workers are able to understand should be adopted. Building
of trust and loyalty is the most important factor in the upturn of the organization at
the moment.

Advantages

Improves the morale of the employees by instilling confidence in the system and
no new system is required.
When the employees get bonus even during the time of a downturn in the
market, they become more secure about their job at the organization and
concentrate on the work at hand thereby improving the production and quality
of the units produced.

Disadvantages

Strategic process involved in bringing a change in the whole Scanlon process

which might be tedious.
No guarantee that the employees might believe the management after such a
poor show in the beginning.

Recommended Option

We recommend the first option of doing away with the Scanlon plan and bringing about
the group and individual incentive plan into the picture. This way we are still
motivating them with the incentive programme but are removing their mind set that the
bonus is not part of their regular pay structure.

Action Plan

1. Have a meeting with the labour unions and inform them about the current
economic scenario and explain that in order to avoid any more job cuts the
organization has to implement the new plan proposed

2. Gather the vote of the employees in going ahead with the plan. And people who
vote no should be asked to provide a suggestion as to what can be done in the
current scenario.

3. The plan should be implemented in stages so that the effective of a sudden

change is minimized. The after effects of the plan should be monitored
continuously so that there is no negative impact on the organization.
4. Other motivational methodologies should be adopted in terms of non-monetary
aspects so that the morale of the employees stay high and they associate
themselves more with the company

5. Regular meetings with the union members, employee representatives and the
top management should be held to highlight any possible issues or grievances.

6. Review the system at regular intervals and modify the system as and when
required.

A good effort though I would like you to re-evaluate whether we should scrap
Scalon or tweak it. But that is only a point for consideration.