The Engstrom Auto Mirror plant employs over 200 people at its Indiana location. In May 2007, the Engstrom Auto Mirrors plant, a relatively small supplier based in Indiana, faces a crisis. The business was in the second year of a downturn. Sales had started declining since 2005; a year later, plant manager Ron Bent had been forced to lay off more than 20 percent of the work force. Plant productivity was dropping, employee morale was low, and product-quality issues had begun to surface.
Relationships with key customers were at risk. When the plant had reached a similar crisis point years earlier, the institution of a Scanlon Plan, a company-wide employee incentive program, had proven critical in building morale, increasing productivity and product quality, and leading Engstrom into a turnaround. Workers were motivated by the bonuses to increase their productivity, thus saving the plant from its unprofitable state. For several subsequent years, Engstrom workers had received regular Scanlon pay bonuses.
But the bonuses had stopped in 2006, and now Ron Bent must determine how to get the plant back on track. GENESIS: CURRENT SITUATION The old incentive scheme is not working properly. The employees had lost trust in participating in bonus scheme as bonus was not paid for months. The Company’s productivity completely depends on the working and goodwill of the employees. The employees stopped taking interest in the company. scanlon plan The plan had following specifications –
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•The labor saving would be split 75% to empolyees and 25% to the company •A reserve would be established of 75% of the employees and 25% of before the company’s monthly payments •Scanlon production and screening committees were set up to evaluate employees suggestion in detail •The base ratio was set up by the management and changes in the same would only done if there is changes in the factors that affect the base ratio directly COMPANY BENEFITED FROM SCANLON PLAN -Proven critical in building morale.
– Increased productivity and product quality. – Leading Engstrom into a turnaround. -Workers expressed satisfaction with the changed working condition. – The company’s profits increased gradually they started earning high profits -The company was achieving growth in their sector -The employees were satisfied with the financial rewards which they were receiving ANALYSIS: The scanlon plan would have continued to work in both good and hard times. Engstrom had made a major mistake in implementing their reward plan.
They assumed money would be the ultimate motivator for their employees. Which it appeared to work, however, when the company was not paying the scanlon bonuses on time, the employees began to lose trust in the company and the motivation stopped. Engstrom had a reserve set up to cover bonuses when the company fell short, and the employees knew this, so they began to feel taken advantage of it. Workers at Engstrom have complained that supervisors should not receive such a high bonus, because they were “not working as hard”.
When employees perceive that their input is not producing as much output (in the form of bonuses) as another person’s equal or lesser input, they often respond by reducing their own input. Employees complained that the Scanlon plan was too complicated, leading to distrust on the honesty of their bonus amounts. Employees expected that their effort would produce bonuses; however, increased performance actually resulted in decreased bonuses due to the complicated nature of the plan. Thus, employees feel as if their effort is not leading to the expected rewards, contributing to the lack of motivation.
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