Performance Management And Employee Engagement At Lincoln Electric

Reward practices at Lincoln Electric

Discuss about the Performance Management and Employee Engagement.

Lincoln Electric is among the fortune 1000 company which was started by John C. Lincoln to produce electric generators and later John along with his brother James started producing high quality arc welding machines and became a leading suppliers of such equipment’s (Lincoln Electric, 2017). Both of them shared the same ideology of employee motivation at workplace. Lincoln electric is widely known for their no layoffs policy which means they haven’t fired any of their workers in the tough times of depression. The reason lies in their incentive pay system. They clearly knew that the key to secure a competitive position in the market is the strategic contribution of every individual in achieving the desired goals and objectives. The report discusses about the various performance management techniques in the context of rewards and their implications on the performance on their workforce. The report also highlights the existing incentive pay scheme (Burton, 2012). Employee motivation is very important to achieve strategic goals of the organization and performance management ensure this. Performance management refers to the process of monitoring and managing employee’s performance and aligning their efforts into the direction of achieving the management goals. The person responsible for increasing the productivity of the employees of Lincoln Electric is their CEO Mr John Hastings, who in this ever changing dynamic environment managed to retain its employees and ensure a job satisfaction (Hastings, 1999).

Mr Don Hastings, the CEO of Lincoln Electricals was responsible for integrating the ideologies of Lincoln brothers to motivate the employees through an effective incentive pay system. He knew the importance of compensation and rewards to increase the productivity of the employees and organization. Employee’s welfare in an organization is very important and he made sure that by offering them the rewards they deserve. The reward practices that are being followed at Lincoln Electrics are:

Piece work system: The piece work system refers to the policy of earning on the basis of the output produced by a line worker in a manufacturing unit. This system directly rewards the contribution of the worker in the total production of an organization. Lincoln Electric has implemented this system for their factory workers. There is no fixed base wage and every individual is strictly paid for their produced output. This system gained a lot of criticism because it reminds the condition of garment workers, who are exploited and paid poorly on every piece produced. James Lincoln saw this piece work system as a great opportunity to induce the factory workers to contribute productively and they will be paid fairly. The output produced was directly linked to their personal interest as more they will produce the more they will earn. This system was proving to be very successful at Lincoln Electric because there was no restriction on how high can an individual earn. The rate of Absenteeism due to this has been very low.

Alternative Reward practices

Though this system undoubtedly increased employee’s motivation but having a no base wage was a threat to the workers living. It has been also been mentioned in the case study that the workers were much tensed due to the recession which has directly affected their earnings. They were not earning well as they were earn earlier.

Profit Sharing system: Profit sharing system refers to the distribution of profits as bonus to employees. This is a very effective incentive plan that ensures strategic contributions of every individual working in an organization because the more efficiently they work the more profits will an organization earn. The risk and rewards earned by an organization is also being shared among the employees. This concept is also known as share economy. A major part of profits earned by Lincoln Electric is distributed to the employees as yearly bonus. The employee retention rate is very high under this system. They know they will get a share from profits in the boom phase and during the tough times only the incentive amount is less. Profit sharing results directly into no layoffs (Jana & Petr, 2013).

The profit sharing system can prove to be a costly affair for an organization. Profit retention is very important for the growth and expansion of the business. During the time of recession, when organizations are struggling to earn profits for survival they have an obligation to pay the employees (Koller, 2013).

Year-End Bonus: Lincoln Electric follows year-end bonus policy to give bonus to their employees. Bonus amount is calculated on the basis of the profits earned by the company and the grades which are given by the supervisor on the basis of their performance, competitiveness and flexibility in the working environment (Brown & Reily, 2009).

Though it works as great motivator but it creates a feeling of jealousy and unfriendly   competition among the workers. The measures of the employee’s performance are the grades. Low grades are reflected in their bonus amounts.

No Layoffs policy: Lincoln Electric is famous for their no layoff policy. They haven’t dismissed anybody from their organization since World War II or in during the time of recession. This gives an individual a job security and they are more motivated and committed to achieve organizational goals.

Health insurance cover: Lincoln Electric does not provide any life insurance to the employees. Life insurance is often perceived as an additional cost burden on the organization’s financial structure. But it is a major factor in recruiting and retaining potential talent. Workers at Lincoln electric who are involved in Arc welding are exposed to many health hazards such as electric shock, exposure to welding fumes and gases, risk of fire and explosion due to extreme temperature created by welding arc and loss of hearing power due to high welding machine noises (Lincoln Electric, 2017). All these can risk the lives of workers and their families who are dependent on them. Offering them the life insurance plan will give them assurance that their families are financially secure even after their death. This will increase the morale of the employee and will affect their performance in a positive way. Also, the firm will also get some tax benefits under this scheme (Miller, 2015).

Workers Wellness programs: Lincoln Electric can also initiate a workers wellness programs which will not only include health care benefits for the employees but their family members too. The main objective of these programs is to create a healthy corporate environment to work in. The wellness package can include regular workplace health check-ups of employees to analyse their mental and physical wellbeing. For the line workers, employers can arrange workshops to enhance their knowledge on the factory safety methods. Also for the families paid health check-ups can be arranged (Kohll, 2016). This wellness programs can ensure productivity of the employees as the health risks will be low and due to this the absenteeism rate will also decrease. Workers who do not have fixed pay can benefit from these programs as the cost of health care benefits is high. This can ensure employee satisfaction and retention (Sullivan, 2013).

Offsite employee activities: Offsite activities are recreational activities which are organized by the employer outside the organization. The reason behind conducting offsite activities is to provide employees and workers a break from their routine, so that they can relax and resume their workplace responsibilities with enthusiasm and contribute productively in achieving organizational goals. It includes many activities such as Volunteering in which employees participate in activities of giving back to the community they live in. These generally include CSR activities. Offsite activities also include fitness activities or playing sports and some field trips. Outdoor trips on the working days can bring a change in their usual working routine; it also strengthens the bonding between the co-workers. These activities also give an opportunity to the top level management and executives to interact with the people working in their organization which is not possible on the daily basis. This will help management to address employee’s issue (Sarita & Gautam, 2015).

Managing employee’s performance in an organization is very important to ensure a sustainability position in the market. Lincoln Electric has been emerged as a leader in the arc welding product globally and the reason behind its success is their efficient workers and employees who are working continuously without taking any leave. There are certain issue of workers and employees that are needed to be resolved in order to manage their performance so that they can contribute strategically in the growth of the organization. An effective performance process will not only increase the productivity of the employees but lower the turnover and absenteeism rate of employees (Lin & Jee, 2011). Factors that can improve the performance management process are:

Basic wages: The line workers at Lincoln Electric are seen quite concerned because the economic position of the country directly affects their piece work wages. They are earning less than what they used to make earlier. Lincoln Electric should start providing a decent basic wages as per the industry norms to its workers. Basic wages gives workers a financial security to fulfil their obligation towards their families (Luce, 2012). Piece work wages are heavily dependent on many situations such as economic position of the country and the organization’s performance in the market. By providing financial security to the workers in form of fixed wages, an employer will be able to retain and attract hardworking workforce.

Non-monetary rewards: Employees of Lincoln Electric are induced by the management in form of attractive yearly bonus and share in the profits. But this is not the only factor to improve their performance. It is the responsibility of the employer to praise the employee’s hard work and performance (Laakso, 2012). They should acknowledge the efforts of employee in front of their co-workers so that they feel motivated to perform more efficiently. Also, the employer should take regular feedbacks from people working in the organization (Waqas & Saleem, 2014).

Mandatory breaks: At Lincoln Electric the workers resist lunch breaks or refreshment breaks due to the piece work system. They want to produce more output so as to earn more wages. They do their lunch at the factory and at times come even before their shifts starts. This is a very hectic schedule and may affect workers health and productivity in the future. The supervisor should fix a compulsory break time which will refresh the workers and they can do their work with enthusiasm.

All these activities will help in performance management of employees and helps organization to retain the potential talent and increase their efficiency so that they can collectively achieve strategic goals of the organization (Saks & Gruman, 2011).

Conclusion

Lincoln Electric has been emerged as a leader in its industry. The organization has secured a competitive position in the market because of their highly competent and dedicated workforce. By giving employment security to the individuals and maintaining their commitment of not laying off employees during economic downturns is an indication of long term commitment towards securing employee’s interest in the organization. Their incentive pay system which includes piece work system and profit sharing system has been idolised by many organizations and it directly affects their productivity at the workplace. They know the importance of employee’s contributions and as result they don’t fix any incentive bar for them. There are certain issues that are needed to be addressed so that they can increase employee’s engagement and manage their performance for the sustainability of their business.

Reward practices of Lincoln Electric have proven to be successful in managing the performance of the employees but still front line workers are worried about their substantial decline in their piece rate so in order to secure their financial interest, employer should provide them with fixed wages. Also, the practice of giving yearly bonus which includes evaluating the performance of employees by giving them grade in comparison to its co-workers should be avoided as it increases unhealthy competition. Rather they should switch to acknowledging the work of the best performers and rewarding them accordingly. This will result into increase in the self-esteem and morale of the employees and help them to be productive at workplace.

References

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Burton, K. (2012). A Study of Motivation: How to Get Your Employees Moving. Retrieved from https://spea.indiana.edu/doc/undergraduate/ugrd_thesis2012_mgmt_burton.pdf on 4 April 2017.

Hastings, D.F. (1999). Lincoln Electric’s Harsh Lessons from International Expansion. Retrieved from https://hbr.org/1999/05/lincoln-electrics-harsh-lessons-from-international-expansion on 4 April 2017.

Jana, F. & Petr, P. (2013). Profit-Sharing – A Tool for Improving Productivity, Profitability and Competitiveness of Firms? Journal of Competitiveness. Retrieved from https://www.cjournal.cz/files/148.pdf on 4 April 2017.

Kohll, A. (2016). 8 Things You Need To Know About Employee Wellness Programs. Retrieved from https://www.forbes.com/sites/alankohll/2016/04/21/8-things-you-need-to-know-about-employee-wellness-programs/#31b315a840a3 on 4 April 2017.

Koller, F. (2013). The miracle of profit-sharing: Year 65 and still no layoffs. Retrieved from https://www.pbs.org/newshour/rundown/the-miracle-of-profit-sharing-year-65-and-still-no-layoffs/ on 4 April 2017.

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Lincoln Electric. (2017). Company History. Retrieved from https://www.lincolnelectric.com/en-us/company/Pages/company-history.aspx on 4 April 2017.

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