Employee satisfaction has been one of the key elements that companies try to successfully achieve, as they consider it as highly essential to the success of their business. Aware of the consequences that result from employee dissatisfaction, companies continually try to determine factors that can cause employee discouragement and design polices to improve these factors.
The Lincoln Electric Company’s philosophy, established by James F. Lincoln, believed that competition and adequate incentives are the main attributers that lead to a person’s fullest potential. Considering competition as the foundation of man’s development, James F. Lincoln believed that competition leads to progress and it is necessary for everyone to grow. He considered the development of his employees as a progressive process and a greater development will be achieved under continued proper incentive.
Under this philosophy, James F. Lincoln had developed his incentive management policies. Compensation policies, which were the key element of his policies, had three components: (1) wages based solely on piecework for most factory jobs, (2) a year-end bonus which could equal or exceed an individual’s full annual regular pay, and (3) guaranteed employment for all workers.
Through the first component, the Lincoln Electric Company tried to encourage his employees to work as much as possible, since their annual payment is directly linked to their output. The price of the piecework was jointly set by the management and the employee. Once the price of the piecework was set, the price could not be changed regardless how much money the worker was making or management’s opinion. The piecework price would be changed only if the methods for completing that certain job would change. Nevertheless, employees were expected to provide the anticipated quality and they were not paid for the defective work. By doing so, the company ensured both the quality and employee satisfaction. This approach is a different one from Fabritek Company, which faced quality issues since its employees were paid based on the output only and not the quality of their output as well.
With the second element, the company aimed to share the successful results achieved from an efficient operation based on the contribution of each employee. Through this component, the company aimed to create a meritocracy approach since each individual’s share of the bonus based on “merit rating”, which measured an employee’s performance compared to other workers of the same department. There were four factors which determined an employee’s merit rating: (1) dependability, (2) quality, (3) output, and (4) ideas and cooperation. This policy, not only that encouraged employees to work hard about their bonuses, but also made them feel part of the company as they were entitled to provide ideas that would improve process efficiency, fulfilling employee’s physiological, safety, belonging, esteem, and self-actualization needs.
By applying the third element of the compensation policies, the company ensured that the work is shared among employees on a fairly manner. Every employee that was part of the company for more than two years was guaranteed employment for at least 75% of the standard 40-hour week. This policy ensured production improvement and efficiency. Moreover, employees’ safety needs were met, since they never feared that they would lose their job. Attaching production process to the Human Resource policies had enabled the company to meet its business strategy for provide the customer the quality he needs, when he needs it, at the lowest cost.
An important factor that enormously contributed to the success of the company was its management style and the fact that the company had no formal organization chart, creating a flat hierarchy. At Lincoln Electric Company, every employee could feel a manager. This was achieved through company’s Advisory Board which consisted elected employee representatives. This approach eliminated barriers between management and workers, creating an open communication. Through the Advisory Board, employees could address their issues to top management, make improvement suggestions, and question company policies.
Another important factor that immensely contributed to the success of the company was the promotion style. The was dedicated at filling any level position, but entry level positions, by promoting within the company. An important factor to mention is also the process of how this promotion was applied. The open job position was communicated to all offices and any employee interested on applying could do apply. This approach had a positive effect on employees as they were provided the opportunity to advance and encouraged to work harder. Regarding entry level positions, new employees would enter the company either through a factory job or after completing the company’s training programs in sales or engineering, depending on the job position. Interestingly enough, the incentive management principles were applied at other nonmanufacturing departments such as, administration, marketing, traffic, etc.
It can confidently be said that the philosophy followed by the Lincoln Electric Company has played a tremendous role in the company’s success. The company’s flat hierarchy, advancement opportunities, and compensation policies had made employees feel they belong to the company. As it can be seen from their views, the policies designed by the company make each employee directly responsible for his/her own success, encouraging them to work as hard, while meeting the quality standards set by the company.
It is clear that the Lincoln Electric Company has managed to closely tailor its incentive system to the goals of the organization, which is the primary condition for an incentive system to work. Even though, the monetary incentive is considered as a weakness by a union leader stated on the 1947 Harvard Business School case study, I strongly believe that if the company manages to fanatically follow this well-established system, it can overcome the challenges of the 21st century. However, the company’s management has to meticulously adapt this system to the changes that the technology and cultural diversity might bring to the production process. With the current system, the Lincoln Electric Company can overcome employee diversity.
Companies should be considered as countries, which have their own distinguished culture, tradition, and ways of doing things. Just like a foreigner who decides to live in a certain country has to adapt to that country’s traditions, also a new employee has to adapt to the policies set by the company. However, whenever a company’s policies are designed, room for certain adjustments or flexibility must be provided for cultural diversity, technology improvements, or immediate reactions toward market change and competitors’ movements.