The Lincoln Electric Company is a manufacturer of arc-welding and electric motor products. Its equipment is considered to be among the best in the world because productivity and quality are so good. Lincoln’s employees are 21/2 to 3 times as productive as their counterparts in similar settings,” and much of this advantage is attributed to the company’s use of incentives and gainsharing.
Each year the gain sharing process begins with a commitment to employees, “guaranteeing” each worker a minimum of thirty hours of work
per week during the next year. (The company aims for forty-two to forty-three hours per week, adjusting that number up or down to match
sales.) The company honors its pledge by using extensive overtime rather than hiring new workers who might have to be laid off during a recession. Applicants are screened so that they tit Lincoln’s strong “promote- trim-within” policy. Even then, they are considered probationary tor two years betore they receive “guaranteed” employment.
Lincoln’s compensation program has tour parts: traditional wages and salaries, incentives, gainsharing, and fringe benefits. Wages are comparable to those in the Cleveland area. Managers’ salaries, however, are fixed at about 80 percent ot what similar jobs pay. About 90 percent ot the workers are on an incentive system. Salespeople, interestingly, are salaried, not on commission. All employees-whether receiving salaries, wages, or piece rates-are part ot the merit and bonus system. This system has resulted in bonuses averaging 97.6 percent ot regular earnings since 1934, which is almost like a second paycheck.Fringe benefits are also provided.
The bonus’ amount equals total protits minus taxes, reinvestment reserves, and the stockholders’ dividend. Individual bonuses, however, are determined by merit. In twice-a-year reviews, workers are evaluated on the quality and quantity of their output, their dependability, and their ideas and cooperation. With input from other departments, the supervisor allocates a predetermined pool ot points among workers to deterrriine each person’s bonus.”
Although Lincoln Electric is a unique example, research shows that nontraditional pay plans are gaining in popularity. A study of 1600 companies found that 75 percent had implemented reward and incentive systems during the precedingfive years.” Another study found that: Research summary Directors of top firms favor a stronger pay /performance link, according to a national survey of directors, CEOs, and human resource executives. More than 70 percent of all directors, and 74 percent of HR managers rated “more effectively relating pay to performance” as the most important issue facing large companies.