Lincoln

Lincoln Electric- A case study on salary package in a company’s trans-national subsidiary

Lincoln Electric, a leader in the design, development and manufacture of welders in western countries, was entering Chinese market in the year of late 1990s, and was considering whether to introduce its remuneration scheme, proved to be very successful in west, into China.

The remuneration system, known as “Lincoln Way” was a piecerate payment scheme that only paid employees for what they produced, and a bonus system that provided employees with year-end bonuses based on their performance.

Piece-rate pay gives a payment for each item produced – it is therefore the easiest way for a business to ensure that employees are paid for the amount of work they do. Piecerate pay is also sometimes referred to as a “payment by results system”. Piece-rate pay encourages effort, but, it is argued, often at the expense of quality. From the employee’s perspective, there are some problems. What happens if production machinery breaks down? What happens if there is a problem with the delivery of raw materials that slows production? These factors are outside of the employee’s control – but could potentially affect their pay. Another consideration in Lincoln’s China situation is, they just got into the market, they present brand new technology to its Chinese workers, people were learning, as an insider of Lincoln China points out, “you can’t introduce a piecerate system until you have a steady, stable process. And this is for new equipment. It’s new for the operation, people have to go up a learning curve, and you cannot introduce a piecework system on that learning curve…”

The answer to these problems is that piecerate pay systems tend to have two elements:

• A basic pay element – this is fixed (time-based)

• An output-related element (piece-rate). Often the piece-rate element is only triggered by the business exceeding a target output in a defined period of time

Based on this logic, I...