ENGSTORM AUTO MIRROR PLANT

Motivating in Good Times and Bad

By Muhammad Hanif IPMI EMBA 15221023

Leading Organization Dynamic

IPMI International Business School Indonesia

Leading Organization Dynamics - Andre Vincent Wenas,MM,MBA.
ENGSTORM STORY

1948 Engstorm Auto Mirror created and enjoyed successful

profit

Engstrom Auto Mirror plant A privately owned business

manufacturing mirrors for trucks and automobiles employed
over 200 people in Indiana location.
by late 1990s Engstorm redesigning new production line with
new technology, these transition was not smooth and
increasing long production delay, create unprofitability.
1998 Ront Bent from camshaft production plant Hired

Dec 1999 Scanlon Plan is introduced and were voted by 81%

Employees and signed Scanlon Bonus Agreement.

IPMI International Business School Indonesia

Leading Organization Dynamics - Andre Vincent Wenas,MM,MBA.
Workers were motivated by the bonuses (Scanlon Plan ) to
increase their productivity, thus saving the plant from its
problem

Since 1999, workers at the plant have received bonuses

based on the Scanlon Bonus Plan, which paid a percentage of
all labor savings each month

On 2006, 46 employees were lay off. During this year

employees had not received a bonus in seven months.
Employees had become dissatisfied with the Scanlon Plan

However, in 2007, the plant once again faced issues of

unproductivity and low profits. By this year Joe Haley hired.

IPMI International Business School Indonesia

Leading Organization Dynamics - Andre Vincent Wenas,MM,MBA.
he Scanlon Plan Adoption
Developed in 1930s by Joseph Scanlon , the heart of the plan is the
concept of participative management.
The three plan components:
Submission of suggestions for improvement by
employees at all levels.
Structure of the company committees that evaluate the
suggestions
Then sharing of the fruits of increased productivity
through monthly bonuses.
Employees signed a Scanlon Bonus Plan Agreement at
Engstrom
The strategy was to start with the total sales revenues
generated during a specified period and then establish a
percentage of that total as a standard or normative cost of
labor, including managerial support.

e.g. A ratio of 0.50 to 1 would mean that the normative payroll

cost was 50% ofBasic totalRatio sales= revenu
eand that
/ employees would

be IPMI
paid a bonus for any month in which the payroll cost was less
International Business School Indonesia
than 50%
Leading of total
Organization Dynamicssales revenue
- Andre Vincent (with the size of the bonus based
Wenas,MM,MBA.
he Scanlon Plan Adoption

Suggestion Plan Process

Employees suggest ways to improve productivity at the

plant.

Eight production committees, each composed of a

supervisor and two elected employee representatives,
review the suggestions, passing along disputed
suggestions or suggestions costing more than a
specified amount to the screening committee.

The screening committee determines how to handle all

these suggestions passed from the production committees
and also reviews the monthly bonus calculations from
plant management. This committee is composed of:
Five employees elected from the production
committees
Four management representatives appointed by the
IPMI International Business School Indonesia
Leadingplant manager
Organization Dynamics - Andre Vincent Wenas,MM,MBA.
 Sample bonus calculation:

a Sales Value USD 4,000,000

b Allow payroll at 38% USD 1,520,000 a x 38%
c Actual Payroll USD 1,280,000
d Scanlon Bunus Poll USD 240,000 b-c
e Set Aside as reserve 25% USD 60,000 d x 25%
f Bonus Balance USD 180,000 d-e
g Company Shares 25% USD 45,000 f x 25%
h Employee Share 75% USD 135,000 f x 75%
i Participating Payroll USD 1,260,000
j Bonus % (empl share / participating payroll) USD 10.7% h/i

a. Management adjusted this value for returns, increases, or decreases

in inventorynumber is not equivalent to shipments.
b. The normal total labor cost is 38% of the sales value of production,
or 38 for each $1 of product produced at sales value
c. 25% set aside before bonus distribution to form a reserve to cover
deficit months.
d. Actual payroll minus payroll for employees on paid nonworking days
(vacation, holidays, jury duty, etc.) or on job less than 60 days
IPMI International Business School Indonesia
Leading Organization Dynamics - Andre Vincent Wenas,MM,MBA.
Scanlon Plan Process

Pros
Scanlon Win-win contract
Plan Eliciting active employee inputs
for improvement
Increasing communication at all
level
Participation of workers
Increase
Increase
ENGSTORM productivi Improving product quality
Bonus
ty
Cons
Protect low performers
Complexity & fluctuation of the
base ratio
Increase
Revenue Management-labor conflict- lack
of honesty
Inelasticity for market and
economy changes
Workers began to perceive the
bonus as part of their regular
IPMI International Business School Indonesia paycheck rather than a reward,
Leading Organization Dynamics - Andre Vincent Wenas,MM,MBA.
which reduces the durability of
Issues on Employees Side
What s the point of having bonus plan if no bonus paid for months ?

Distrust of bonus calculations:

company might be playing with the numbers ?
suspicious whenever the management team changed the ratio,
which occurred four times between 2000 and 2005 (the final
reduction was to 32.6%).

Question of fairness
supervisors should have received a reduced bonus- they are not
working as hard as we are.
Issues on Engstorm Side
No reason to replace Scanlon Plan

Had they though of it narrowly as a bonus plan instead of

broader opportunity to build diff cultures ?

Had he and his top managers done everything they could to

make scanlon sustainable process ?
Was there something else he was missing ?
IPMI International Business School Indonesia
Leading Organization Dynamics - Andre Vincent Wenas,MM,MBA.
 Although there are many different issues at the
Engstrom plant, the main concern to be addressed is
that the management is not motivating the
employees.
Suspicious

Endanger Engstorm Family Plant

They might close the plant
Moral Down

And If Nothing change

PROBLEM

Distrust

Management
vs Employees
Productivity
Low
Revenues
Down
Culture
Change
IPMI International Business School Indonesia
Leading Organization Dynamics - Andre Vincent Wenas,MM,MBA.
Problem Chains

Ideally
Productivit

INCREASE
y
Revenue
Suggesti Committ
Action
Bonuses
on ee

Facts

DECREASE
Productivit
Suspected area y
of promblem Revenue
Bonuses

IPMI International Business School Indonesia

Leading Organization Dynamics - Andre Vincent Wenas,MM,MBA.
ction Should be Taken

Engstrom should create a modified Scanlon Plan that clearly

relates bonuses to increased productivity,

Long term plan for staff perform a consistently and progressively

growing contribution to the company to build up Loyalty

Professional Development Plan for employees' career path

Filter all suggestion, Improve screening committee and monitor

action plan

IPMI International Business School Indonesia

Leading Organization Dynamics - Andre Vincent Wenas,MM,MBA.
 THANK YOU

IPMI International Business School Indonesia

Leading Organization Dynamics - Andre Vincent Wenas,MM,MBA.