Control Systems CHAPTER 9 CLOSING CASE Lincoln Electric is one of the leading companies in the global market for arc welding equipment. This is a cost-competitive business in which consumers are price sensitive. Lincoln's success has been based on extremely high levels of employee productivity. The company attributes its productivity to a strong organizational culture and an incentive scheme based on piecework. Lincoln's organizational culture dates back to James Lincoln, who in 1907 joined the company his brother had established a few years earlier. Lincoln had a strong respect for the ability of the individual and believed that, cor- rectly motivated, ordinary people could achieve extraordinary performance. He emphasized that the company should be a meritocracy where people were rewarded for their individual effort. Strongly egalitarian, Lincoln removed barriers to communication between workers and managers, practicing an open-door policy. He made sure that all who worked for the company were treated equally, for example, everyone ate in the same cafeteria, there were no reserved parking places for managers, and so on. Lincoln also believed that any productivity gains should be shared with consumers in the form of lower prices, with employees in the form of higher pay, and with shareholders in the form of higher dividends. The organizational culture that grew out of James Lincoln's beliefs was reinforced by the company's incen- tive system. Production workers receive no base salary but are paid according to the number of pieces they produce. The piecework rates at the company enable an employee working at a normal pace to earn an income equivalent to the average wage for manufacturing workers in the area where a factory is based. Workers are responsible for the quality of their output and must repair any defects spotted by quality inspectors before the pieces are included in the piecework calculation. Since 1934 production workers have been awarded semiannual bonuses based on merit ratings. These ratings are based on objective criteria (such as an employee's level and quality of output) and subjective cri- teria (such as an employee's attitudes toward cooperation and his or her dependability). These systems give Lincoln's employees an incentive to work hard and to generate innovations that boost productivity-doing so influences LINCOLN ELECTRIC Productivity Beaters! The pay of employees at Lincoln Electric is tied closely to productivity targets. So successful have these incentive systems been that the company has the highest productivity in its industry, along with the lowest cost structure Courtesy of the Lincoln Electric Company 227 their level of pay. Lincoln's factory workers have been able to earn a base pay that often exceeds the average manufac- turing wage in the area by more than 50 percent, and they also receive bonuses that in good years can double their base pay. Despite high employee compensation, the workers are so productive that Lincoln has a lower cost structure than its competitors.31 CASE DISCUSSION QUESTIONS 1. What kind of control systems does Lincoln Electric rely on to generate high employee productivity? 2. Can you think of any possible unintended consequences of an incentive pay system based on piecework? How does Lincoln guard against these unintended conse- quences? 3. Do Lincoln's control systems match the strategy of the enterprise'? How?