Long, He, Stephanie Rivera
ACCT 521: Case Analysis
Chapter 12: Case 12-1 Lincoln Electric
The Lincoln Electric Company, the largest manufacturer of arc welding products and a leading producer of industrial electric motors, employs about 2,400 workers in the US and more worldwide. The firm is known for its incentive management plan. Despite the death of James Lincoln and the recession of 1982-1983, the management system prevailed with high profits and bonuses, high productivity, good employee morale, and little to no employee turnover. Market share was stable and high stock dividends were being paid out.
The founder of Lincoln electric, John, was more concerned with the engineering and innovation more than the management so, James Lincoln took the reins and moved forward with the creation of an Advisory Board that would report to the CEO every two weeks regarding the operations of the company. James Lincoln was also the first to establish innovative personnel policies. Courtesy of the Advisory Board, the working hours were reduced from 55 hours to 50 hours a week. The company was also able to offer each employee paid-up life insurance policy and a medical plan along with retirement.
In 1919, the Lincoln Electric Employee’s Association was developed and provided employees with health benefits and social activities. By 1923, a piecework pay system was established. The piecework system let employees earn money by completing products. Employees could make many products by working efficiently. Although the incentive to be more productive exists within a piecework, system there also exists the potential for employees to reduce the quality of the product in favor of completing more products for more pay. 1925 saw the start of a stock purchase plan for all employees. In 1929, the board of directors began a suggestion system that awarded points to employee’s year-end bonuses. In 1934, the favored bonus plan started and prospered. The first annual bonus started at 25% of wages and was received every year after that. In 1944, a pension plan was developed, a policy of promotion from within, and continuous employment. All of these introductions, developments, policies and improvements helped foster a culture of caring for Lincoln employees and customers. Over the course of the years, Lincoln made significant changes in the way it handled its employees and made a difference by showing employees how much the company values their worth. In addition to extreme employee respect, customers were also highly valued. Employee performance and productivity were measures used to ensure customer satisfaction. Performance and productivity were key contributors to keeping customers satisfied. James Lincoln’s Christian background was evident in the company’s philosophy. Pricing, competition, customer satisfaction, advertising, quality, distribution, production and other processes were all embarked upon with good intentions and true effort. It was this company philosophy that laid down a strong foundation upon which to establish Lincoln’s cornerstone bonus, increase of $20 million in sales over the course of seven years, the well-known incentive management system, and the high stock dividends. Raison d'être is a French term meaning, “the most important reason or purpose for someone or something's existence.” James always put the customer needs first, even before that of the stockholders. The constant goal was “to build a better and better product at a lower and lower price.” The Lincoln policy was “at all times price on the basis of cost and at all times keep pressure on our cost.” In contrast to the generous and high priority attitude toward consumers, the attitude toward stockholders was very low priority, “The last group to be considered is stockholders...because they think it will be more profitable than investing money in any other way.” The market was highly price-competitive. Prices only varied from one to two percent. The...
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