Running head: PAY FOR PERFORMANCE CASE STUDY 1Pay For Performance Case StudyLujing Chen (1610163)University Canada WestProfessor: Dr. Min KayORGB 601: Human Interfaces7thMay 2017AbstractMotivation is defined as using incentives to align the interests of the employees with
PAY FOR PERFORMANCE CASE STUDY 2the management in order to measure their performance and get the desired outcome. Accordingly, motivation can be divided into two forms: extrinsic and intrinsic motivation. The paper analyzes that Lincoln Electric company developed a unique management approach which is called incentive compensation system to encourage both individual performance and teamwork effectively. This incentive system includes piecework pay, large annual bonus, guaranteed employment, and limited benefits. Furthermore, the paper shows that SAS Institute implemented different practices including offering no stock options or phantom stock to its employees and not paying sales commissions to them. Instead, the company focused on intrinsic motivation. The paper aims to evaluate how does pay for performance (PFP) work so well in Lincoln Electric and how does SAS Institute develop its system and culture that stays away from PFP. This paper uses numerous examples to support the author’s points. The analysis of two cases shows that the incentive system Lincoln Electric used is similar to the extrinsic motivation. However, SAS Institute used a different incentive system, which is similar to intrinsic motivation. The result indicates that every incentive system that best fits for the company is the best motivational approach.Keywords: pay for performance, incentive system, extrinsic motivation, intrinsic motivationIntroductionPay for performance refers to using incentives to align employees with the
PAY FOR PERFORMANCE CASE STUDY 3management, which helps to motivate the employees. Lincoln Electric was founded by John C. Lincoln in 1895 in Cleveland and became a leader of welding electrodes market. The company developed a unique management approach which is called incentive compensation system to encourage both individual performance and teamwork effectively. This incentive system includes piecework pay, large annual bonus, guaranteed employment, and limited benefits. The piecework pay was beneficial because employees had to ensure product quality and they could earn as much as they wanted by working faster and harder. Second, the annual bonus was alsovery essential since the employees were rewarded based on their contribution to the company’s performance in terms of output, ideas, cooperation, dependability, and quality. Third, guaranteed employment helped the company assign workers to different tasks effectively and appropriately in case of problems occurred so that the company could prevent laying off. After that, limited benefits helped the firm minimize company-paid benefits.