Lincoln Electric Case Analysis

Situation:
Through the year 1974, the Lincoln Electric Company experienced rapid growth in net income and overall sales. Though a small company, Lincoln Electric was able to dominate the welding market by focusing on reducing costs and raising quality. These goals were achieved by rewarding employees with an innovative financial incentive program.
Lincoln Electric paid their employees a base salary that was slightly lower than market. However, all employees were included in a merit-based profit sharing program. This program rewarded hard-working, efficient, and quality-conscious employees with big bonuses that could potentially equal up to 100% of their full-time salary. After having gone through an initial work probation period, all employees were guaranteed employment.
One of the founders of the company, James F. Lincoln, believed that competition was a fundamental foundation of employee development. He set up a system that would reward the hardest working and most efficient workers with large financial prizes. The workers were encouraged to skip smoking breaks, take short lunches, and work as quickly as possible, while still paying attention to quality standards.
Though challenging, the work environment was viewed favorably by the employees who were interviewed for this case. All respondents admitted that there were serious deficiencies in the system, but that it was generally favorable. The employees accepted that the system fostered competition; however, they agreed that the financial incentives and the freedom from micromanagement were much more important.
The conclusion of the case summarizes the success of the Lincoln Electric Company. A 1947 Harvard Business Case is referenced, which asks the question whether Lincoln Electric’s business model can be sustained in a period of growth. As the