There had been several rough quarters at the Engstrom AutoMirror plant in Richmond, Indiana, a privately owned business thatmanufactured mirrors for trucks and automobiles and employed 209people. For more than a year, plant manager Ron Bent and hisassistant, Joe Haley, had focused their Friday meetings on thetroubling numbers, but the tenor of their May 14, 2007, meeting wasdifferent. Both men sensed that they now faced a crisis at theplant. Bent was talking animatedly to Haley: “This is the thirdproductivity problem in, what, two weeks? We can’t climb out ofthis downturn with performance like that.” He scowled as he signedthe authorization to air-freight a large order to the Toyota plantwhere Sam Martinez managed the assembly line. The difference incost was astronomical, and it had been necessitated by the slowpace of productivity at Engstrom, which meant in this case that ajob due for completion on Monday wasn’t completed until Thursday.But Bent couldn’t afford to make a late delivery to Martinez; hewas a prized but demanding customer who had designated Engstrom asa certified supplier one year earlier. Only one other supplier forMartinez’s plant had achieved certified supplier status—arecognition of both extraordinary reliability and quality. Theworry lines on Bent’s face deepened. Certified status meant thatMartinez had personally authorized Engstrom products to be used onthe auto lines without a quality inspection. Along withproductivity problems, product-quality issues had also beencreeping into the work done at Engstrom. Bent hoped that he was notpaying to air-expedite defective mirrors to Martinez. Haley said,“Ron, we both know the employees have been complaining for months,but yesterday and today the talk has been pretty hostile. I’m notsaying there’s a definite connection between nearly late deliveryand the grumbling I heard, but you’ve got to wonder.” Bent knewthat Haley, in just four months at the plant, had developed goodrelationships with several workers and could pick up usefulinformation about the mood. Haley said, “They’ve had it with theScanlon Plan. You hear the griping everywhere: ‘What’s the point ofhaving a bonus plan if no bonus is paid for months?’ And it’s notjust the people who’ve always been active in UAW. [United AutoWorkers], although the union could start taking a more belligerentposition at their next meeting.” Bent held up the expediteauthorization. “It’s a vicious cycle. We’re paying a stiff pricefor slips in productivity—and that’s money I would far rather bepaying to workers as a reward for high performance.” After Haleyleft, Bent sat for a moment staring out the window in his office.Back in 1998 he had faced a similar crisis, marked by low employeemorale. At the time, he had rated the average worker productivityat a dismal 40% of expectation. After studying the turnaround oftwo other plants in Indiana, Bent had painstakingly built thesupport needed from both employees and the Engstrom family toinstitute a Scanlon Plan at the plant. The choice provedpropitious: the Scanlon Plan, which paid bonuses to workers forincreased productivity, had been the primary catalyst of Engstrom’sown turnaround. Business had been good; over a seven-year period:sales had quadrupled. In 2005, however, a downturn hit theindustry. In June 2006, Bent had been forced to lay off 46 of his255 employees. Those who remained had not received a Scanlon bonusin seven months. Bent wondered: Had the plan outlived itsusefulness? Was it a victim of its own success? The workers hadbecome accustomed to the plan’s substantial bonuses, perceiving theadditional hundreds of dollars as part of their regularcompensation. Therefore, when the bonuses stopped, the workersresponded with anger and suspicion, as if something that rightfullybelonged to them had been taken away. Now, Bent had to determinewhether to scrap Scanlon, change it, or look elsewhere forsolutions to sustaining productivity and ensuring quality until thedownturn ended. Understanding Scanlon Plans The Scanlon Plan is theoldest organization-wide incentive plan still in use in the UnitedStates. Many employee incentive plans (for example, the typicalbonus paid to sales representatives) are keyed to an individual’sperformance. Other plans base incentives on the performance of thefunctional work group to which an employee belongs.Organization-wide plans such as Scanlon reinforce teamwork andcooperation across work groups while they focus attention on costsavings and motivating employees to “work smarter, not harder.” Thefirst Scanlon Plan was developed in the 1930s by Joseph Scanlon, acost accountant by training and a steelworkers’ union official at asteel mill facing bankruptcy. Scanlon worked with the mill owner toenlist the plant workers in identifying ideas for increasingproductivity. Ultimately, the plant was saved. Although Scanlon wasoriented to helping small, distressed companies, variants of his“gainsharing” plan have been adopted by a diversity oforganizations. The heart of these plans is the concept ofparticipative management. Scanlon believed that individuals willwork hard to help achieve their organization’s goals so long asthey have an opportunity to take responsibility for their actionsand apply their skills. A key tactic is to communicate financialand other business data through all levels of the organization.While this is a symbolic motivator for many workers, the tacticalso has a practical basis: everyone is encouraged to suggest waysto improve the plant’s productivity. The three plan components—thesubmission of suggestions for improvement by employees at alllevels, the structure of the company committees that evaluate thesuggestions, and then the sharing of the fruits of increasedproductivity through monthly bonuses—ideally work together to drivebig changes in behavior and attitudes. When things are workingproperly, teamwork and knowledge- sharing typically improve inScanlon organizations: collaboration fosters innovation andcreativity, (Human Behavior in Organizations 537) which in turndrive improvements in productivity, thereby ensuring the payment ofbonuses. The culture in a Scanlon plant also typically becomes morechange-friendly, as workers have the opportunity to make more moneyby changing the status quo for the better. While all Scanlon plansshare these characteristics, the plans can be tailored to supportan organization’s specific strategy. Plants like Engstrom werefocused on cost savings, which means producing more per hour oflabor spent. The bonus for everyone at Engstrom was therefore basedon that ratio—production per labor hour. Organizations withdifferent strategies base their Scanlon bonuses on differentfactors, but at Engstrom, pursuing higher productivity that drovelabor savings was the linchpin. Exhibit 1 shows the basic financialand structural components of the plan at Engstrom. The Path to PlanAdoption at Engstrom Engstrom Auto Mirror, which had operated since1948 and enjoyed considerable success for much of its lifetime, hadbecome mired in unprofitability by the late 1990s. The plant atthat time was redesigning its production lines to incorporate newtechnology. The transition was not smooth, and increasingly longproduction delays irritated and eventually alienated customers. Theplant manager lacked the sophistication with technology necessaryto find solutions quickly and was inept at working with anincreasingly militant union (he claimed that the union was “layingin wait” for him to make mistakes and “wanted to hurt managementfinancially on grievances”). Embittered and tired of conflict, themanager resigned in 1998. Ron Bent, a successful manager in hismid-40s, was hired away from a camshaft production plant to attempta turnaround. Bent believed strongly in the power of workerincentive programs and wanted to establish one at Engstrom. Owingto his experience with different types of programs and furtherstudy he subsequently undertook, he held strong opinions aboutwhich type of plan might work best at Engstrom. At the camshaftplant, he had experienced an incentive plan that rewardedindividuals— not groups or the employees as a whole—forperformance. He didn’t care for the results: “Individual incentiveplans require a lot of manpower. You’re often arguing with theunion. In my experience, any time you set a rate on an operator, hewill figure out a way to beat that rate.” The cumulative effect ofnumerous small changes in tools and methods could result inincentive standards that had little relationship to workers’ tasks.In support of his position, Bent claimed that the plan at thecamshaft plant had “gotten so out of line” that the average workerearned 150% of the day rate. Bent has similarly strong feelingsabout group incentive plans: “If you are going to change youroperations or institute a new technology, product, or manufacturingline, the process to get that installed and operational is muchlonger under an individual or a group incentive plan.” A ScanlonPlan, Bent thought, was the best for Engstrom, given the challengesthat the plant faced: “With Scanlon, workers are receptive to newmethods and new machinery because they feel they are a part of thecompany-wide program. When you’ve established a Scanlon planproperly, you’ve also built a good communications networkthroughout your organization.” Though Bent had worked at andvisited plants with multiple incentive plans in place, he felt thatEngstrom was too small to accommodate the complexity of multipleplans. By early 1999, he and his management team began talkingabout the Scanlon concept around the plant, focusing on thepotential benefits for workers. They also posted information aboutScanlon on bulletin boards, and Bent spent many hours jawboningworkers whom he had heard were opinion leaders. In addition, Bentorganized a trip for a group of workers to visit another plant thathad implemented Scanlon. As Bent explained:Our bargaining committeemingled casually with the other plant’s bargaining committee, andsome of our people attended the Scanlon meeting there. Mymanagement team kept in the background and let the workers developtheir own sense of the situation. The workers came back enthused,and they set the stage for acceptance of Scanlon by their fellowsat Engstrom. Throughout these months of campaigning, Bent includeda single consistent message in every communication he had with anyemployee at Engstrom: the Scanlon Plan would be adopted at theplant only if a substantial majority of workers wanted it. InDecember 1999, a formal statement of the plan was prepared to bepresented to all plant employees for discussion and, ultimately, avote. The bar was high: management had insisted that, becausestrong employee buy-in was critical, a 75% “yea” vote wasnecessary. On December 10, 81% of the workers voted for the plan.Every employee then signed a Scanlon Bonus Plan Agreement.Following are its key provisions: • The labor savings would besplit 75% to employees and 25% to the company. • A reserve would beestablished to cover months when productivity fell below the baseratio. Before the monthly payment of 75% to employees and 25% tothe company, 25% of all bonus (both the employees’ and thecompany’s share) would be set aside as a reserve in case of adeficit month – that is, a month when total payroll costs exceededallowed payroll. • The structure of the Scanlon Production andScreening Committees—set up to stimulate and then evaluateemployees’ suggestions—was presented in detail, and methods forappointing or electing members were established. • Conditions underwhich management could adjust the base ratio were made explicit.Changes in wages, sales volume, pricing, product mix,subcontracting, or technology were identified as potentiallyleading to increases or decreases in selling prices or standardcosts and therefore as factors that might cause the base ratio tobe changed. The trickiest part of the plan adoption was thecalculation of the plant’s base Scanlon ratio. A benchmark wasneeded. Plant management selected a ratio of payroll cost to salesvolume of production. Their strategy was to start with the totalsales revenues generated during a specified period and thenestablish a percentage of that total as a standard or normativecost of labor, including managerial support. A ratio of 0.50 to 1,for example, would mean that the normative payroll cost was 50% oftotal sales revenue—and that employees would be paid a bonus forany month in which the payroll cost was less than 50% of totalsales revenue (with the size of the bonus based on the percentageof savings achieved). Bent remembered two of the reasons whyestablishing the ratio raised protracted arguments among themanagement team, a Scanlon consultant hired by Bent, and workerrepresentatives: The idea was to examine the historical ratio overa representative period of the plant’s business cycle, includingall ups and downs that are likely to occur. But we found it hard toidentify a recent period we felt was representative, given thetroubles at the plant. And we needed to consider that employees hadbeen performing at unacceptable levels. We wanted to motivate themto excel, not just to perform less poorly. The best reconstructionof actual performance showed that the ratio had varied between30.5% and 68.2% over the previous fiscal year. The average for the12 months was 43.7%. Though the Scanlon consultant suggested atarget of 44%, the ratio was eventually set at 38.0%. Theinstitution of the plan led quickly to an increase in productivity,as measured by the bonus ratio (payroll cost to sales value ofproduction). While few of the early suggestions that employees madeincreased productivity in any meaningful way; the committeesaccepted as many as possible (276 out of 305 in the first year).Bent said, “We really wanted to support the submission of thesesuggestions.” Bent also immediately instituted monthlycommunication meetings open to all employees. We covered theresults of the prior month in detail, praising the workers forimprovements they suggested. We also shared our perception ofbusiness conditions, identified new customers we were working with,described new equipment that was coming into the plant— anythingthat we felt would be of interest to workers. They had never beenexposed to this kind of communication before. Then we opened thefloor for questions, and it was no-holds- barred. I set only tworestrictions: no talking about anyone else’s personality and nodiscussion of any individual’s pay rate. If I couldn’t answer aquestion, I‘d ask one of my staff to answer it. I wanted theworkers to see we weren’t trying to conceal anything. Tension andconflict in the plant eased, as most plant employees seemed toaccept the serious intent of the plan. At the same time as theplant was achieving growth, higher profits, and consistent qualitystandards, the employees were also receiving good financialrewards. Scanlon bonuses were paid every month of every yearfollowing plan adoption, in addition to normal wage increases.(Exhibit 1 includes an example of a worker’s paycheck showing thebonus). “It’s not just the money—though don’t get me wrong, themoney is great,” said Jim Lutz, a worker on one of the plant’slines. “I’m getting rewarded for thinking, not just for performingthe same tasks every day. To me, that means the plant values theknowledge I have about how my line runs.” Some of the mostimportant cultural changes, according to Bent, were not apparent inthe quantitative measures: If, say, a polisher’s machine went down,he called the maintenance man, who came over to examine the machineand then went back to his area to get a tool – one tool. If thatwas the wrong tool, he’d go back for a different one. Sometimeshe’d go back and forth three or four times. Why? Because it didn’taffect his pay, or matter in any other aspect of his work, whetherthe machine was running or not. Now the maintenance man brings hiswhole tool cart over. And the machine operator helps out, almostlike a surgical nurse, instead of standing around with his hands inhis pockets. At Scanlon meetings, workers regularly expressedsatisfaction with these changes in their working conditions. DoriAndrews, a veteran of 10 years at the plant, said, “People seethemselves as a more cooperative workforce—Engstrom is now a betterplace to work than it was before we brought in Scanlon. And this isthe first place I’ve ever worked where management does notautomatically say ‘no’ to workers. They listen.” Over time,however, enthusiasm waned and dissatisfaction grew with certainaspects of Scanlon. Suggestion rates dropped precipitously, downfrom hundreds to 50 a year. And two consistent themes were heard inworker complaints: • Distrust of bonus calculations: Although allemployees received a detailed explanation of the process and couldeasily access the bonus calculations, some employees thought thatthe company might be “playing with” the numbers. The complex natureof the calculation itself, which some felt was “full ofbean-counter jargon,” also caused distrust. Before the plan wasadopted, production achievement was measured by total unitsproduced. However, the Scanlon bonus was influenced by many otherfactors, including the length of the month, sales mix, overtime,and product returns. Conceivably, a low Scanlon bonus could be paidfollowing a month in which a record number of units were produced.Another point of distrust shared by some employees was suspicionwhenever the management team changed the ratio, which occurred fourtimes between 2000 and 2005 (the final reduction was to 32.6%).Some workers accused management of creating a “moving carrot,”despite their explanations for the reductions. • Question offairness: Some employees felt that supervisors should have receiveda reduced bonus because they were ”not working as hard as we are.”These reactions did not surprise Bent: “A Scanlon program won’tperpetuate itself. You have to give it a shot in the arm every sooften—whenever the work force needs it.” Before Bent could decidehow to provide that “shot in the arm,” the industry downturn thatbegan in 2005 gradually dragged down the workforce’s morale alongwith the sales figures. The atmosphere in Bent’s monthly meetingswith employees grew increasingly charged, as he talked aboutpossible layoffs and the causes for declines in productivity. Itwas clear that every month without a bonus further chilledlabor-management relations (see Exhibit 2 for a description of howthe plan handled so-called deficit months). Bent’sexhortations—about preserving the culture of the plant and thedanger the Engstrom family might close that plant unlessprofitability trends were reversed— increasingly fell on deaf ears.The layoffs, when they finally occurred in mid-2006, shook theconfidence of even the most fervent Scanlon proponents among theworkforce. The event served as an emotional lightning rod in theplant and as a temporal dividing line between good and bad times inthe plant. By the time Joe Haley joined the management team inJanuary 2007, there was increasing evidence of workerdisaffectation. For example, Haley’s review of inventory reportsled him to suspect pilfering, and his conversations with workersonly deepened his suspicions. Now, in May 2007, Bent felt heurgently needed to make changes before conditions deterioratedfurther. But he wondered what kind of change might work. In all thereading and listening he’d done he hadn’t heard of any alternativeincentive plan that motivated superior employee performance in bothgood times and bad – so he saw no reason to replace Scanlon withanother plan. Could he revise Scanlon in some way that workedbetter during a downturn? Could he try to identify and changeorganizational factors that might be undermining Scanlon at theplant? As Bent’s uncertainty about these issues deepened, personaldoubts arose about his own performance. He felt a heightenedrecognition of Scanlon as more a process of organizationaldevelopment than a plan prescribing specific steps to follow. Hadhe and his top managers done everything they could to make Scanlona sustainable success? Had they thought of it too narrowly as abonus plan instead of a broader opportunity to build a differentworkplace culture? Or was there something else he was missed.

Milestone Four of your final project is now based on a workplaceanalysis. You should use your previous milestone submissionsregarding the case study to inform your workplace analysis. Thismilestone considers actual work experience and asks you to conducta detailed and in-depth version of a root cause analysis applied toyour own workplace experience.

This milestone will cover Section IV, Parts A, B, and C of thefinal project and should include the following criticalelements:

1. Explain actual workplace organizational issues drawing fromyour own experience.

2. Analyze root causes from a human behavior perspective andvalidate the analysis with supportive research evidence.

3. Examine the impact of poorly aligned and administrated humanbehavior theories and concepts