Case Analysis

ENSTROM AUTO MIRROR PLANT:

MOTIVATING IN GOOD TIMES AND BAD

By Group AO2
Hitesh 14S716
Meghana 14S721
Raunak 14S732
Avinash 14S752
Jagannath 14905

Table of Contents
1.

Problem Statement.......................................................................................... 2

2.

External Analysis............................................................................................. 2

3.

Internal Analysis.............................................................................................. 2
3.1

SWOT of Scanlon plan............................................................................... 2

4.

Factors............................................................................................................. 4

5.

Critical Factors................................................................................................. 4
5.1

Lack of Non monetary motivation:............................................................4

5.2 Distrust about the transparency in the Scanlon Plans bonus calculations:..5
5.3 Bonus Structure:........................................................................................... 5
5.4 Continuous bonus payments giving perception of regular pay:....................5
5.5 Supervisors bonus conflict:..........................................................................6
5.6 Industry downturn leading to lesser bonus:..................................................6
5.7 Variable nature of Base Scanlon ratio:..........................................................6
6.

Constraints...................................................................................................... 7

7.

Options............................................................................................................ 7
7.1

Continue with current system...................................................................7

7.2Improvise only the Scanlon ratio compensation system by...........................8

A) Modify the Scanlon Plan to suit the current situation,....................................8
B)Implement a new compensation plan altogether ,..........................................8
C)Provide other intrinsic motivating factors to the employees...........................8
8.

Recommendation............................................................................................ 9

1. Problem Statement
In what ways can Ron Bent

revise the Scanlon plan in order to motivate the

employees at Engstorm and achieve better quality

productivity during the

downturn of the company

2. External Analysis
Factors

Description

Political
Economic

NA

Lower rate of production which

leads to lesser profits which effects

the bonuses of the employees.

Effect of downturn in the industry

and Engstorm.
No bonus paid to employees given

at Engstorm.
Costs incurred/

paid

for

lower

productivity could be utilized to

Social

pay bonuses.
Union
not

supportive

of

management and taking hostile

Technological

stands.
Employees

extrinsic motivation.
Delay in production
redesigning

Legal

seeking

of

more

of

due

to

production

lines

with new technology

NA

3. Internal Analysis
3.1

SWOT of Scanlon plan

Weakness

Strengths

Scanlon plan is keyed to

individual employees
performance.
Inculcates the spirit of
teamwork, leads to better
cooperation and
coordination among the
employees.
Infuses art of creation and
innovation among the
employees.
Builds up a Knowledge
sharing environment.
Equity maintained through
ratio distribution of
bonuses.
Organization tend to
become more changefriendly, as employees
are ready to accept
changes and work

Threats

Opportunities

Scanlon plan can be

adaptable according to the
organization.
Study of past success of
the Scanlon plan breeds
trust and change friendly
as workers have the
opportunity to make more
money by changing the
status quo for the better.
New business process and
techniques could be
implemented efficiently.
New technologies and
newer equipment could be
used as per the production
plan.
Employees can be

Individual would work for

his own performance and
start competing against
others. Thus, the synergy
maybe lost and leading to
internal competition.
Arbitrary benchmark
ratios set, will hinder the
pay system and might
have an indirect effect.
No feedback in the
implementation and
improvement of the
Scanlon plan.

It leads to distrust among

employees
and
management,as
complex
nature
of
bonus
calculations.

Bonus sharing was affected

as a decline in production
rate.Bonus sharing being
perceived unfair.

Incomapatibility of multiple
scanlon
plans
due
to
Engstorms businees size.
Downturn in the industry and
demotivation of employees.
Production quality might be
effected.
3
New
technology
implementation might go in
vain.

4. Factors

Employee Motivation.
Absence of non monetary motivation.
Bonus Structure.
Continuous bonus payments creates a perception of regular pay.
Supervisor's bonus conflict
Downturn in industry
Variable nature of base Scanlon ratio
Excessive Employee Engagement in plan.

5. Critical Factors
Following factors are considered to be critical and must be considered while
revising the Scanlon plan

5.1

Lack of Non monetary motivation:

At Ergstorm the compensation system was based with respect to specific payroll
cost or the sales value of production i.e. they always judged or evaluated any
employee on the basis of his performance with regards to specific payroll cost or
sales value of the production generated. This method or mode of evaluation is
highly money oriented. Apart from this the only non monetary source of
motivation was that employees were encouraged to provide suggestions to
improve the process.
As per the Herzbergs Two Factor Theory

the factors that affect a person to

motivate him are different from those factors whose absence would make that
person dissatisfied and de-motivated the former being motivators and latter,
hygiene factors. The below figure gives a better picture of the motivators and
the hygiene factors.

In this case the factors which constitute up as

Hygiene Factors are pay and

security, Supervisors etc are under concern currently, for the employees. Their
Motivators such as achievement or personal growth, achievement, responsibility
are not being addressed or fulfilled by the Scanlon Plan at all. Hence motivating
employees in order to increase product efficiency is a major concern of
Engstorm.

5.2 Distrust about the transparency in the Scanlon Plans bonus

calculations:
Though all employees received a detailed explanations of the bonus calculations,
some of the employees perceived it as too complex and company might be
playing with the numbers. Hence it raised a doubt and later it caused distrust,
causing them to mistrust the system, in turn reducing the production efficiency.

5.3 Bonus Structure:

The bonus structure in Engstorm's Scanlon plan gives a lot of importance to
overtime put in by its employees. The practice of giving bonus based on
overtime makes employees work less, as this compromises with their work-life
balance. Hence the more bonus based on the overtime the more is the pressure
on employee to work more and eventually his personal life is getting effected .

5.4 Continuous bonus payments giving perception of regular pay:

There were a total of

thirteen bonus payments in all, which included twelve

monthly bonuses and one yearly bonus, which may or may not be given away to
employees depending upon whether there would be reserve pool available or
not. Hence continuous bonus payment created a perception in mind of
employees as if they are getting regular pay. The significance of bonus was lost
in this way of distribution of bonus.

5.5 Supervisors bonus conflict:

Some of the employees felt the unfairness as the Supervisors were also paid
bonus. The employees felt that even though they were working hard, the
Supervisors who were not working quite as hard were receiving better overall
benefits than them. Their equity is not equal to that of their Supervisors, which
de-motivates them. Hence Supervisor's bonus became a question of fairness.
As Equity theory states that,

5.6 Industry downturn leading to lesser bonus:

The slowdown in the industry has affected the production rate and quality
leading to slimmer profits, hence lesser overall Sales Value of Production, in
turn increasing the Scanlon ratio, thus taking it higher than the base Scanlon
ratio. There is no adjustment plan in Scanlon ratio to account for industry
variation. Thus the limitation of Scanlon ratio is it cannot negate the effect of
industry variation arising with the time.

5.7 Variable nature of Base Scanlon ratio:

One more reason which effected the employees moral was variability of Scanlon
ration, During the Scanlon bonus plan agreement the conditions under which
management could adjust the ratio were made explicit. Many factors such as
changes in wages, Sales volume, Pricing, Product mix etc were reasons for
change in ration and due to which employees were dissatisfied, the fact that the
base Scanlon ratio seemed to them

like an elusive carrot, which the

management kept reducing further and further as per its will and convenience.

6. Constraints
The Constraint
1. Satisfying

the

suppliers

demand

with

of

Its Impact
Will hamper the business of the
Engstorm

ongoing

as

while

the

organisation is working on its

priority.
2. High level of dissatisfaction among

compensation policy its suppliers

internal

the

HR

employees

issues

as

is

result

are not going to wait and neither

of

would they lower their desired

quality standards.

fluctuation in compensations

Engstorm might face a attrition

rate in near future along with
productivity issues as the level
of

dissatisfaction

beyond

control

organisation.

might

go

of

the

Motivating

employees might prove to be

quite a challenge

7. Options
7.1

Continue with current system

Although it is working well currently, continuing with the same system will
impose the following difficulties in the future:
It will fail to cater the ever increasing demands of the clients if it does not find
methods to negate the effect of factors effecting the Scanlon ratio.
Labour unions might not be supportive of the management and conduct strikes.
Recruitment will take a strike as there will be a lack of the required skills in the
company in future.
Not revising the reward system could lead to dissatisfaction amongst the loyal
employees and increase attrition.

7.2Improvise only the Scanlon ratio compensation system by

A) Modify the Scanlon Plan to suit the current situation,
B)Implement a new compensation plan altogether ,
C)Provide other intrinsic motivating factors to the employees
The fact that Scanlon Plan was welcomed once by the workers of Engstorm
indicates that, the plan just has lost its charm, and can be revived by a modified
Scanlon Plan, which can take into consideration the current state of the
companys financial status in while measuring the employees performance.
Implementing a new plan which has its compensations based on specific
employee performance parameters, which will be chosen by the representatives
of the employees as well as the management together is another option.
Employee goal/target setting can be made a part of this.
Assuage the situation by implementing any worker benefit program and further
educate the employees on the Scanlon plan.
Remove the frequent change system and put in place a planned review and
compensation system.

The pros:
Can help eliminate the shortcomings of the current as-and-when-needed
system as mentioned in the critical factor analysis.
The measures for merit assessment when defined will help the employees
streamline their focus. When the parameters are known they will be able
to judge themselves better and take the required steps to improve. The
factors of motivation apart from money should be hygiene factors.
The new system will also aid a better learning and development program
as it will help identify the areas of improvement that the employee
required.
The Cons:
The newer employees might be a little disappointed.
The system will take time to implement and employees may find it difficult
to re-orient themselves with this new system.
8

The system may not result in the expected outcomes if not implemented
efficiently and effectively.

8. Recommendation
We recommend the option 7.2.
The area that we found requires attention is the Compensation
system and the need for other motivation factors.
A blend of Option A, B and C can increase the productivity during the bad
economic phase of the company. As of now the employees are already
familiar with the Scanlon Plan, and it has been proven effective in the
past. Implementing a new, modified Scanlon Plan, which takes into
consideration the following factors, must be implemented:

Consideration of the financial status of the company

Making performance based bonuses an annual occurrence

Performance appraisal based on each individuals set goals.

This will streamline the system into a better structure.

Will improve a better understanding among employees about how

and why of the system.

Will channel the employees focus with more clarity.

These will in-turn result in higher job satisfaction and higher

retention.

This will increase the productivity and resurrect the financial

condition of the company.