Working and careers at Lincoln Electric
Lincoln Electric is an old firm famous for having extensively and successfully used piece rates incentives in manufacturing even after other manufacturers faced substantial problems with them, tending to removing them. On February 2010, the job openings at Lincoln’s website asserted as follows below. Please, explain the logic of in the context of managing objective evaluation of workers’ performance, specifying your explanation at least for those aspects indicated in italics.
“Both entry-level and skilled positions require working a rotating shift on either a two or three shift basis. In addition, most plant operations positions pay on a piecework basis. That means pay is based directly on output.
All of these positions offer excellent opportunities for quality-conscious, productivity-minded individuals who are interested in being rewarded for their excellent performance.
Incentive Performance - A Cornerstone of Our Culture. The Incentive Performance System primarily attributed to James F. Lincoln has been in place at Lincoln Electric since the early twentieth century. It has resulted in one of the oldest ‘pay-for-performance’ systems in the country, and is frequently used for benchmarking by other businesses and studied by academics around the world.
The Incentive Performance System in place in the U.S. Lincoln operations features:
· An elected Advisory Board for direct and open communication with senior management since 1914.
· Piecework incentive rewards for all production work.
· A profit-sharing Bonus Plan for employees paid annually at the discretion of the Board of Directors since 1934.
· Guaranteed Employment after three years of service. The company has not exercised its layoff options in the U.S. operations since post war 1948.
· A 401(k) plan offering the employee a variety of pre-tax investment options.
· Competitive compensation and other benefits.
· A Financial Security Program which includes company contributions based on years of service from 4 - 10%.
· An attractive vacation package based on comparable years of service.
Through this well-defined group of incentives, Lincoln encourages and compensates individual initiative and responsibility. Employees work together to reduce costs and improve quality. These individual and cooperative efforts create a more profitable company, the success of which each person shares according to his or her own contribution.” (http://www.lincolnelectric.com/corporate/career/openings.asp, visited February 13, 2010, emphasis added).
Explore the organization of the Spanish subsidiary and how it differs from the US’s organization. You may start at http://www.lincolnkd.com/corporate/about/.
Lincoln Electric Europe
Lincoln K.D. S.A.
Ctra. Laureà Miró 396-398
08980 Sant Feliu de LLobregat
Telf.: ++34 (0) 93 6859600
Fax: +34 (0) 93 6859623
a) The system is designed to trigger self-selection of “quality-conscious, productivity-minded individuals who are interested in being rewarded for their excellent performance”.
b) The age of the system, in place since the early twentieth century, assures workers that Lincoln knows how to manage it and has a reputation in managing it well.
c) It is place in the US only because likely institutional constraints make it impossible in other countries.
d) The elected Advisory Board (not mandated by law) seems designed to avoid misunderstanding, having workers directly informing on managerial mistakes that, if left uncorrected, could destroy trust and thus make the systems impossible to apply (ratchet effects and so on).
e) What does the fact that all production work is paid with piecework incentives suggest? Is it likely that the whole of production at Lincoln is suitable for piece rates? Is there a need to avoid resentment?
f) The profit-sharing Bonus Plan is discretional, what probably allows adjustment in bad times. I am curious about how it is distributed. I would bet that in proportion to total earnings or variable earnings.
g) Guaranteed Employment is given only after three years of service, ensuring good selection. Contrary to Spain, the guarantee of employment is based on second party enforcement: Lincoln could lay off workers in bad times. However this would damage its implicit contract with workers and Lincoln refuses to use its options in this regard. It is like a “Japanese” firm we all know: El Corte Inglés. It exercised the option after the war, which were exceptional circumstances (probably a very high drop in demand)
h) A final fact: Lincoln workers work very hard and make a lot of money. And their facilities are not fancy.
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