John Deere’s Continuous

Improvement Pay Plan

 Situation Analysis
▪ Declining agricultural industry leading to falling revenues and rising inventory.
▪ Organisation changes its focus on monetizing employees knowledge to its
manufacturing process to increase production quality and efficiency to counter on
falling revenues
▪ Need to align employee incentives with employees performance as a team
instead of individual performance.

We identified 9 parameters for differentiating between SHP and CIPP

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A comparative analysis between Standard Hour Plan and CIPP
Factors SHP CIPP Effects Future Plan

Flexibility a) Rigid a) Flexible Increase in process Maintain the

b) Standardized b) Independence in innovation. flexibility while
work procedure designing own setting threshold
production process standards

Paperwork a) Maintenance of a a) Elimination of Job The time saved by Maintaining a list

involved standardized job detail sheet. eliminating job detail of jobs to be done
detail sheet sheet is used for and not the details
improving process

Hourly wage a) Adjusted basis a) Equal to the base Reduction in individual Maintaining the
rate the production hourly wage rate for dependency and hourly wage rate
hourly wage rate each job classification focusing more on team to further motivate
to 88.5% of the performance employees and
market rate promote team
dependency
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 A comparative analysis between Standard Hour Plan and CIPP
Factors SHP CIPP Effects Future Plan

Cost Highly costly Cost effective Benchmarking performance Maintain CIPP - cost
does not include performance reduction and higher
audit costs. profitability
SHP included costs for
creating and auditing
performance

Maximum Under SHP, the Under CIPP, there is High performers were Putting a cap will
salary maximum salary no upper limit rewarded more without any demotivate high
earned achievable is 115% constraint. ceiling. performers. Hence no
upper cap

Reward “One best method” Continuous innovation Continuous innovation in Continue recognition
was the only was rewarded . production process fostered and reward the top
acceptable way of creative thinking and ultimately innovators.
job details selection benefited John Deere
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 A comparative analysis between Standard Hour Plan and CIPP
Factors SHP CIPP Effects Future Plan

Individual/ More focused on Transition from Fostered more teamwork Maintain a careful mix of individual
Group individual Individual to Group and group to foster teamwork as
contribution contribution well as individual contribution

Knowledge Knowledge Knowledge sharing The best procedures were Open sharing culture to foster
Sharing regarding better was incentivised. put forth and no stringent more teamwork.
procedure was policies were followed.
contained inside an
individual and was
never encouraged.

Measuring Basis the industry Basis team’s prior Performance directly linked Positive impact on team incentives
Performance standard performance as a to team’s performance as a as performance measured basis
performance benchmark whole. In SHP, team effort
performance of non-
incentive workers was not
5 easy to measure.
 Recommendations
a) Knowledge sharing and individual
contribution to be combined to design
incentive structure.
b) The CIPP proposed should be
communicated to the employees to
remove ambiguities.

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Engstrom Auto Mirror
Plant: Motivating in
Good Times and Bad
 Situation Analysis
▪ Currently Scanlon Plan is being used as an
incentive scheme for plant employees.
▪ Plan based on the concept of participative
management
▪ Sales are declining, productivity and product
quality issues occurring at Engstrom
▪ Employee dissatisfaction with the Scanlon Plan
owning to distrust on bonus calculations and
fairness

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 Problem Statement
Finding an incentive plan which can
improve the employee morale and
increase the productivity

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 Options

Option 1:
Revise the Scanlon Plan

Option 2:
Look for an alternative
incentive plan

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Plan Options
Plan Simple Multi cost Rucker Improshare
Scanlon Scanlon
Type

Criteria for Bonus Payroll/Sales Payroll,overhead payroll/value Work hours/std

s/sales add hours

Data points Payroll and Overheads, payroll , Production levels

production payroll, material cost and standards
numbers production and production
numbers

Employee Share 75%*Gain 75%*Gain 50%*Gain 50%*Gain

(typically)

Employee Involvement Screening and Screening and Screening and Productivity team
Productivity Productivity Productivity
Team Team Team
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 Observations
▪ Scanlon Plan is dependent on the sales which helps
determine the share to be paid to the employees
▪ Sales in turn are affected by the market and
economic factors
▪ In the current scenario, economic downturn is the
reason of declined sales which has affected the
incentives employees were receiving
▪ Employees had perceived the incentives as a part of
their regular pay which is the reason for their
decreased morale when incentives were not shared
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 Recommendations
Adopting the Improshare plan:
▪ Separates the market and economic changes from
incentive calculations
▪ Help boost the employee morale as factors affecting
the incentive are under employees’ control
▪ Easier to understand

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 THANK YOU

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