1. Explain the sweatshop issue in this case.

Why is trust important between manager and employee?

COMPENSATION TODAY 5.1 PIECE RATES SPARK PRODUCTIVITY AT LINCOLN ELECTRIC Lincoln Electric, based near Cleveland, Ohio, is the world's Employees don't have to worry about cuts to the largest producer of arc welders. While it is an acknowl- plece rate either. If workers think up a way to improve edged Industry leader in its field, the company often attracts more attention for its reward system. The com- productivity, the company never cuts piece rates. But doesn't this system cause employees to think only about pany provides no base pay and very little indirect pay to themselves, rather than the best interests of the firm? To its production workers; Instead, all are paid on an intricate avold self-centred motivation, the firm also provides profit piece rate system. The firm offers no paid sick days and sharing to all employees, which is distributed according to only the minimum paid holidays allowed by law. Lincoln employee merit. In some years, this bonus can approach employees have to pay their own health insurance and 100 percent of regular earnings. Another feature is an have no choice about accepting overtime work and unex employee stock purchase plan under which employees pected job assignments. If older workers decrease in own a large chunk of the company's shares. Profit sharing productivity, they earn less. Management also does not and employee stock ownership balance the self-centred take seniority into account for promotions. The firm has perspective caused by the piece rates and encourage no union to protect the interests of the company's 3,400 citizenship behaviour, with job security as the founda- employees. This sounds like a classical manager's dream. tion. Extrinsically, the result is production workers who are among the highest paid in the United States. Intrinsically, But what worker would want a job at a sweatshop like the result is employees who are highly committed to their this if he or she could find something better? Think employer. Because of the self-control these features gen- of the employee turnover there must bel Imagine all erate, the company has very few supervisors. the problems there must be with conflict over piece Trust between management and employees is the rates and adversarial relations between workers and foundation of this system, accompanied by a system of management. open communication. For this reason, the company has an But in fact, productivity is very high at this company, elected advisory board of employees that meets with top and hardly anyone ever quits. Workers and management management twice a month. (There is no union, although have an excellent relationship. Whenever jobs become this type of manufacturing is normally unionized.) Mutual available, there are hundreds of applicants. Over the past trust also allows adjustments to the piece rates to be 50 years, the company has never lost money. What is made in a nonadversarial way without the conflict that going on? Doesn't this example contradict research into normally accompanies this process. the problems with plece rates? One reason for the good employee-management In fact, this case actually reinforces the key points relationship is the pay system for managers. Managers about piece rates. In reality, Lincoln is not a classical orga are not treated much differently from workers. They nization, nor is it a human relations organization. Consider too depend heavily on profit sharing for their income. some of the other policies of the firm. First, job security. They receive no executive "perks -no cars, no execu- The company makes it a policy never to lay off employees. tive dining room, no club memberships, and no reserved According to a company spokesperson, "We don't lay off parking. When new MBAs join the firm, they must spend anyone unless he steals, lies, fights, or has a record of eight weeks on the welding line so that they truly come to understand and appreciate Lincoln's unique shop-floor very low productivity. The firm guarantees workers at culture. Recruitment of both managers and workers is a least 30 hours of work a week, even in lean times. So lengthy process, the key criterion being their fit with the workers don't have to worry about working themselves out of a job. high-involvement managerial strategy. Sources: Kenneth W. Chilton, 1994, "Lincoln Electric's Incentive System: A Reservoir of Trust, Compensation and Benefits Review 26, no.6 (1994) The Ghhe and Mail October 21, 1996, Gary Johns, Organizational Behaviour. Understanding and Managing Life at Work (New York 1920