Lincoln Electric Case (Strategic Management)

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Question 1a: Lincoln’s incentive system played a crucial role in the success that Lincoln experienced for decades. The elements of the incentive system, which can be seen in the attached Figure 1: Lincoln Electric Incentive System, - the resources, processes, and values - are all interconnected and vital components of the incentive system. Lincoln’s piecework payment system (process), the year end bonuses (process), the guaranteed employment plan (process), and the internal hiring policy (value)are highly important elements to Lincoln’s incentive plan. The incentive system employed at Lincoln uses four main processes to compensate and reward employees. The first of these processes is the piecework payment system. At Lincoln, manufacturing employees are compensated for the work based solely upon the number of pieces that they have completed (p.131). Rates for each piece were predetermined by management and fixed at that rate unless the method or process of production was changed as noted in Figure 1. However, employees are given the opportunity to challenge management about the rates if they believe the rates are inadequate as noted in Figure 1. To ensure the quality of the products being produced at Lincoln, employees were only compensated on products that were not defective and employees had to repair the products on their own time in order to receive payment for them (p.132). The piecework payment system was a process that was received favorably by employees and gave employees the impression that they were their own boss and had complete control over their job. Year end bonuses, another process of Lincoln’s incentive system, relates directly to the piecework payment system. The total year end bonuses were determined by the performance of the company and these bonuses were generally increased as a result of lower production costs. On average, the bonuses

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