Engstrom Case Report
AFM 280, Section 006, Group 3 Xiao Cao, Ganatheepan Ganeshalingam, Florence Ip,
Beatrix Li, Neha Pathak, Yiting Sun, Alda Wu
Engstrom Auto Mirror Plant Case Report
The Engstrom Auto Mirror Plant is an automotive part manufacturing company based in
Indiana, USA. In May 2007, Ron Bent, the plant manager, identified that there was a decrease in the quality and quantity of output, caused by decreasing employee productivity. While profitability was impacted by an industry downturn, there were also numerous internal issues.
Discord was prevalent among employees and organizational commitment was noticeably decreasing. These obvious complications were mere symptoms of an underlying, pervasive issue, which can only be resolved by improving work culture and existing compensation plan.
The current incentive plan, the Scanlon Plan, ties bonus compensation to cost savings and productivity, with additional components promoting initiative and recognition. The bonus is based on the ability of employees to reduce a base ratio of payroll costs to sales volume of production. Not only was this method unsustainable due to a lack of covenant for nonprofitable months, employees began to perceive this bonus as a part of their regular compensation, and any cessation of the bonus caused feelings of betrayal. To implement an effective solution, clear communication of the company's financial status is essential. This can be achieved through creating a caveat in the Plan to stop bonus payouts during months of net loss. Additionally, bonuses that are not tied to cost savings, such as milestone and year end bonuses, should be implemented to promote longterm organizational commitment.
The second issue identified was the lack of effective communication between management and employees. Negative opinions perpetuated among production workers about supervisors and upper management. Employees believed that management manipulated bonus
calculations.
Beatrix Li, Neha Pathak, Yiting Sun, Alda Wu
Engstrom Auto Mirror Plant Case Report
The Engstrom Auto Mirror Plant is an automotive part manufacturing company based in
Indiana, USA. In May 2007, Ron Bent, the plant manager, identified that there was a decrease in the quality and quantity of output, caused by decreasing employee productivity. While profitability was impacted by an industry downturn, there were also numerous internal issues.
Discord was prevalent among employees and organizational commitment was noticeably decreasing. These obvious complications were mere symptoms of an underlying, pervasive issue, which can only be resolved by improving work culture and existing compensation plan.
The current incentive plan, the Scanlon Plan, ties bonus compensation to cost savings and productivity, with additional components promoting initiative and recognition. The bonus is based on the ability of employees to reduce a base ratio of payroll costs to sales volume of production. Not only was this method unsustainable due to a lack of covenant for nonprofitable months, employees began to perceive this bonus as a part of their regular compensation, and any cessation of the bonus caused feelings of betrayal. To implement an effective solution, clear communication of the company's financial status is essential. This can be achieved through creating a caveat in the Plan to stop bonus payouts during months of net loss. Additionally, bonuses that are not tied to cost savings, such as milestone and year end bonuses, should be implemented to promote longterm organizational commitment.
The second issue identified was the lack of effective communication between management and employees. Negative opinions perpetuated among production workers about supervisors and upper management. Employees believed that management manipulated bonus
calculations.