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In the process of benchmarking, a colleague of yours notes that Lincoln Electric, a producer of...

In the process of benchmarking, a colleague of yours notes that Lincoln Electric, a producer of electric arc welders, has much higher productivity than does your company. Unlike your firm, Lincoln has an extensive piece-rate compensation system; much of its employees’ total compensation is simply the number of units produced times the piece rate for that type unit. Your colleague recommends that your company adopt a piece-rate compensation system to boost productivity. What do you advise?

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Answer #1

Piece rates are one part of Lincoln Electric’s organizational architecture. Piece rates work will for them because they fit well with Lincoln’s particular economic environment, business stragegy, and other elements of the organizational architecture. It might be inappropriate to use Lincoln Electric as a benchmark if the firm is in a different environment or has a different business strategy.

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