Engstrom Auto Case

1403 Words6 Pages
The Engstrom Auto Mirror plant employs over 200 people at its Indiana location. 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. Workers were motivated by the bonuses to increase their productivity, thus saving the plant from its unprofitable state during the 1990s. However, in 2007, the plant once again faced issues of unproductivity and low profits. The plant manager, Ron Bent, had to lay off 46 employees in 2006, and employees had not received a bonus in seven months. Employees had become dissatisfied with the Scanlon Plan (“Engstrom”, 2008, p. 1-6).

This paper will examine the use of Scanlon Plan as an incentive program
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6). Thus, employees feel as if their effort is not leading to the expected rewards, contributing to the lack of motivation.
Finally, the current Scanlon plan, while initially successful, has many design flaws. The plan currently pays out bonuses so regularly that workers began to perceive the bonus as part of their regular paycheck, instead of associating the bonus with their own increased efforts (“Engstrom”, 2008, p. 2). Thus, the plan, which originally was designed based on positive reinforcement, used a method of continuous rewarding, which reduces the durability of its results (Bauer & Erdogan, 2013, p. 112).
Engstrom should create a modified Scanlon Plan that clearly relates bonuses to increased productivity, allows for feedback to improve performance, and sets goals for production would be the best way to motivate employees. First, the new Scanlon Plan should have a simplified payout calculation. The bonuses should not be paid on a continuous monthly basis, but rather on a fixed ratio schedule, which provides rewards “every nth time the right behavior is demonstrated” (Bauer & Erdogan, 2013, p. 112). In practice, this would mean that employees are paid a bonus every time a certain amount of money in allowed payroll is reached. The current allowed payroll is at 38% of sales value (“Engstrom”, 2008, p. 7, Exhibit 1). This does not have to be changed. Instead, as soon as Engstrom reaches an allowed payroll of one million dollars, then 10% of that
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