The Scanlon Bonus Plan

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The case facts (brief summary; 2-4 sentences of what’s happening and who’s involved):

In 1998, Ron Bent was hired to manage Engstrom Auto Mirror after the plant experienced a significant downturn. Production was delayed and the plant was unprofitable. Bent introduced the Scanlon Bonus Plan in 1999, a performance based incentive, which was voted in by 81% of the workers. However, in 2005, the plant experienced another downturn – productivity, employee morale, and product-quality declined – and the plant was in dire need of a solution.

The issues/potential main problem (main issues in OB terms related to the module):

1. The Scanlon Plan gave employees financial rewards, which initially increased employee morale, plant productivity, product …show more content…
Most employees generally have an intrinsic motivation to do a good job. However, this intrinsic motivation can quickly disappear if the employees feel that their new compensation plan is unfair to them. In the case of the Scanlon Plan, the employees appear to distrust how the plan was implemented and also how it appeared to favor management versus regular employees.

2. Although management’s intentions were good, this performance based incentive plan may not have addressed the root causes of the company’s unprofitability. Production may have been delayed by other factors not related to employee productivity. For example, vendors could have been late on providing raw materials on time or perhaps the sales force promised unrealistic delivery schedules to the customers. Another possibility could be that the machinery was breaking down. All of these issues and others need to be explored.

3. Even if Bent was correct in identifying employee productivity as the key reason for production delays and the plant’s unprofitability, changing the bonus ratio four times over a five-year period was way too frequent and added to the confusion and distress of employees. Also, what did management do to get the other 19% of employees who voted against the Scanlon Plan on their …show more content…
Rewarding high performing employees can motivate them to perform at that level again. A monetary incentive is one of the most effective ways to positively reinforce good work/ behavior. The Scanlon Plan provided employees with cash bonuses to increase their productivity. If they did not work hard and do a good, productive job, then they were punished by not receiving extra pay.
2. Expectancy Theory
a. Some workers believe that effort leads to better performance, which then leads to higher pay. When Engstrom Auto Mirror adopted the Scanlon Plan, employees were motivated to put in more effort to increase productivity and, therefore, receive a reward/ bonus. (E → P → O).
3. Equity Theory
a. Initially, the employees at the Engstrom Auto Mirror Plant believed the rewards-to-effort ratio was fair. They received good bonuses for performing well, which motivated them to continue working hard. Although the employees could accept different bonuses paid from their individual performances, the same employees became angry and unmotivated as they deemed it unfair for their supervisors to receive higher bonuses for less work.
4. Extrinsic Incentives
a. The Scanlon Plan provided employees with extrinsic incentives, such as money, vacation, and holiday pay, to work hard and exhibit good behavior.
5. Intrinsic
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