Lincoln Electric Company Employment Policy Case Study

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issue in labor relations in North America. Before, it was widely used in the garment industry. Lincoln understood that much of the American public viewed piecework as a barbaric method to squeeze workers to produce more for less through the application of relentless pressure by management. The poor reputation of piecework was due to the behavior of incompetent managers. Frequently, the piecework system was abused because as soon as the worker increased his rate to increase his earnings, the compensation rate was reduced by management, thereby decreasing the workers earnings. The system’s weaknesses could be easily overcome for the mutual benefit of employer and employees. In Lincoln Electric’s piecework system, the company guaranteed piecework rates forever and allowed employees the right to challenge every change in rates. Lincoln Electric also introduced a new element that departed from the piecework systems of that time—it would not place a limit on the potential compensation that a worker could earn. Piecework at Lincoln Electric has earned overall acceptance by those who have profited from it over the generations because it is a system committed to avoiding surprises and capricious decision-making by managers, offering complete transparency.

Secondly, the Lincoln Electric merit-based bonus system is considered to be a powerful mechanism for curing many of the common failings that have been associated with piece-rate manufacturing. The quality measurements in the evaluation system counter-balance the tendency for piece workers to rush production and get sloppy with tasks in order to achieve higher rates. Piecework rates combined with merit-based bonuses structures a manufacturing environment where it is in an employee’s own interest to consistently produce high-quality work as quickly as he or she can. Another persistent challenge with piecework has been how to instill a sense of cooperation and teamwork among a group of employees. At Lincoln Electric, it is in each employee’s interest to help other employees improve the quality of production. Employees can also raise the number of points they receive on their evaluations by offering suggestions for improving the overall production levels or by reducing production costs. The suggestion system has really paid off for Lincoln Electric, where workers have voluntarily collaborated to solve production and administrative problems.

Finally, guaranteed employment is not about having a job for life. It is a contract that describes in precise detail the obligations of workers and management on a day-to-day basis and the penalties that ensue when the obligations are not met. The plan is considered by the company as one its greatest competitive advantages. The guaranteed employment plan works because the policy is executed by design, not through happenstance or poor manpower planning. Lincoln Electric typically staffs manufacturing processes with employees working about 40 to 45 hours per week. In the industry, 50-hour weeks are the norm. However, when business starts to slow, the company can reduce work weeks back to 30 hours for most employees, having the same effect as if they had laid off 33 percent of their workforce, but without having to send anyone out the front door to the unemployment office. When business is booming, scheduled overtime becomes mandatory and the system can deliver even more when needed. The promise of guaranteed employment generated a trusting relationship between management and workers that instilled a strong sense of loyalty rarely seen today in modern enterprises. That commitment came to transform the culture of the organization. The transformation was built on trust and loyalty, which in turn supports a production system that minimizes turnover, improves productivity, sharpens inventory control, and increases quality provided to customers.

However, attempting to implement organizational transformation may not have much effect, and, under some circumstances, it could actually be counterproductive. For instance, employment security can be counterproductive unless the firm hires people who will fit the culture and unless incentives reward outstanding performance. The idea of employment security does not mean that the organization retains people who don’t perform or work effectively with others—that is, performance does matter. Lincoln Electric has very high turnover for employees in their first few months on the job, as those who don’t fit the Lincoln culture and work environment leave. Employment security means that employees are not quickly put on the street for things, such as economic downturns or the strategic mistakes of senior management, over which they have no control. The policy focuses on maintaining total employment, not on protecting individuals from the consequences of their individual behavior on the job. The idea of providing employment security in today’s competitive world seems to belong to the past or impossible and very much at variance with what most firms seem to be doing. It certainly requires time for employees to believe in employment security and for that belief to generate the trust that then produces higher levels of innovation and effort. Consequently, Lincoln’s competitive advantage is sustainable over the long-term. This advantage lies in the interlocking support between the firm’s no-layoff employment policy, unique production system, and cultural norms. This system cannot easily be imitate because it is based on a sense of trust and community accumulated over decades as the result of the company’s proven commitment to its practices through good and bad times for which there is no substitute. As a result, the Lincoln’s system is difficult to copy for all but the most dedicated competitors.

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