Lincoln Electric Company, a Cleveland-based company that celebrated its centennial in 1995, is known for its unusual pay for performance compensation system. Under this system, employees are treated largely as independent contractors: they are not paid for sick time or holiday pay, and they have a base pay rate that is higher than the average manufacturing wage in the area. Each employee receives only a minimal amount of feedback from their supervisor, and they are rated twice per year in terms of quality, output, dependability, cooperation and ideas. These ratings are used to determine the cornerstone of the system, the amount of bonus that the worker receives. In years past, this bonus could result in workers receiving 100 percent of their salary as bonus, a fact which led to a low turnover rate for employees who remained at the company for more than a few months.
However, Zachary Schiller notes in Business Week that Lincoln Electric is not likely to be able to maintain this unusual and generous pay structure (Schiller, "A Model Incentive Plan Gets Caught in a Vise," Business Week, January 22, 1996, pp. 91-92). Although the company is recording record revenues, it now has a larger number of outside shareholders and outside directors who are interested in trimming costs, including costs associated with the bonus program.
Morale has suffered as a result, and the company has had to establish committees to investigate the best way to approach the situation. When word was initially received that the bonus program was in jeopardy, workers openly protested and morale has suffered as a result of the changes in the work environment.
Lincoln Electric is taking the changes seriously, however, and has enlisted the help of Price Waterhouse to examine productivity and bring total earnings into the picture rather than just the bonus pay that workers receive. However, it is unlikely that workers who have received sizable bonuses in ...