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 Cultural
Not relevant

SWOT Analysis on Scanlon Plan

Strengths A monthly bonus drives the employees to work better and the efforts are evident from the turnaround Teamwork and knowledge-sharing typically improved The culture also typically became change-friendly and employees are now receptive to new methods (status quo change for the better) People saw themselves as more cooperative workforce 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

Weaknesses Absence of a systematic Performance Appraisal system where each employee would be rewarded based on his contribution Complex calculations involved Though the employees produced a record number of units the bonuses dropped which made them doubt the whole system The team work and individual working received less priority

Opportunities The plan can be tailored to support an organizations specific strategy and hence it can be customized to face the current downturn in the economy

Threats Due to the economic slowdown looming around providing bonuses might be a problem for the 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

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)

Opportunities If the current economic crisis is overcome then it can become the pioneer in the industry

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

Factors 1. 2. 3. 4. 5. Employee Morale and Motivation Productivity and product quality issues Rigid and Tough Calculations Union Relations Trust between the management and the workers
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 rewards Vis-vis personal inputs Inputs

Are compared to

Others rewards Vis--vis personal inputs

With a result of

Perceived Equity

Perceived 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.