Incentive Plan Pushes Production

By Wiley, Carolyn | Personnel Journal, August 1993 | Go to article overview

Incentive Plan Pushes Production


Wiley, Carolyn, Personnel Journal


In 1984, an article printed in The New York Times praised Control Data, IBM, Hewlett-Packard, Motorola, Digital Equipment, Nissan USA, DuPont, Procter & Gamble, Exxon, Lincoln Electric, Bank of America, 3M, Upjohn and R. J. Reynolds Tobacco for maintaining extensive no-layoff policies. Today, at least one of these firms still can boast the survival of its no-layoff policy. That company is the Lincoln Electric Co., which hasn't had a layoff in 45 years.

Although the Cleveland-based manufacturer of welding machines and motors suffered a 40% decline in sales during the 1981 to 1983 recession, it didn't lay off one employee. Instead, because of an incentive plan that rewards workers based on their productivity, workers had brought Lincoln's sales back to normal by 1984-and had earned shared profits of about $15,000 each.

During the current recession, the firm lost money in its foreign operations--its first loss since it began filing consolidated annual reports. Still, it didn't lay off any U.S. employees, and even rewarded them with a total of $48 million in year-end bonuses. In 1992, production workers received bonuses averaging between $18,000 and $22,000, which equalled approximately 75% of their salaries. Their total annual pay, including wages, profit sharing and bonuses, averaged $45,000.

These high wages are the result of a reward-and-recognition system that successfully connects the company's and the employees' goals. The comprehensive, organizationwide Lincoln Electric Incentive Plan, which combines pay for output, bonuses and job security, has enabled Lincoln to gain a competitive advantage in its industry. It has helped the organization increase production efficiency and lower the cost of its products.

According to Paul Beddia, VP of HR for Lincoln, the company's productivity rate is double to triple the productivity rate of any other manufacturing operation that uses steel as its raw material and that employs 1,000 or more people. (He measures the productivity rate by dividing the total sales, which is approximately $500 million for Lincoln, by the total number of employees, which at Lincoln is 2,700.)

On top of maintaining a high rate of productivity, Lincoln has been able to maintain a stable price structure as a result of increased employee output. For several decades, Lincoln maintained 1933 prices on most of its products. These pricing policies held until the 1970s, when inflation caused a shift in pricing philosophy.

THE LINCOLN INCENTIVE PLAN LINKS EMPLOYEE SUCCESS TO COMPANY SUCCESS. The Lincoln family always has been interested in the well-being of its employees as well as the productivity of its business. When John C. Lincoln established Lincoln Electric Co. in 1895, he developed a win-win-win philosophy. The prime tenet of this philosophy is simply that all stakeholders in a business venture can win. The Lincoln Electric Incentive Plan satisfies the bottom line for:

* The stockholder, through enhanced stock values and regular dividends

* The customer, through lower-priced, quality products

* The manufacturer, through efficient operations, minimal customer problems, no strikes, increased market share and increased sales

* The employee, through job security, empowerment and good wages.

Many experts argue that, given the pressures in today's economy, compensation plans and policies quickly lose their punch. Therefore, most managers continually tinker with their pay systems. This isn't the case with the Lincoln Electric Incentive Plan. It has been in its present form since 1959. Indeed, it has been enhanced, in spite of two World Wars, the Great Depression and two recessions. Although the company's biggest customers have been in highly cyclical markets, such as oil, steel and construction, Lincoln has remained solvent because of its approach to managing and rewarding people.

Lincoln Electric isn't an easy place in which to work, however. …

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