Incentive Pay

At first it looked like another Jack & Heintz case of fabulous bonuses paid to evade taxes. A $4,100-a-year foreman got $25,000 extra; an $8,000 superintendent got $50,000; a $6,600 vice president got $50,000 too. All told, $2,071,315 was passed out in bonuses last year--nearly 10% of gross sales, and about 80% of net profits.

But when the House Naval. Affairs Committee finally got the whole story of the Lincoln Electric Co.'s bonus system last week, it looked like something else again. It was, in fact, the story of an eight-year-old wage and production policy established by a Cleveland electrical engineer with a mania for incentive pay.

James Finney Lincoln is the biggest maker of electrodes and welding equipment in the U.S., and he likes to intone that "the labor cost of any product can be reduced to zero" through inciting workers to make continuous improvements in production method and design.

Since 1934, Lincoln Electric's own operations have been a case history of James F. Lincoln's pet theory. With sales ballooning from $4,273,000 to $24,189,000, and profits rising more slowly from $1,403,000 to $2,583,000, he raised his incentive bonus payments from 10% of net to 80%. This system is worked in conjunction with low base pay compared with going rates for the trade, so as to permit the company--in James Lincoln's words--to "skate through a tough period without going broke." Nevertheless the average worker's total pay has gone from $1,996 to $4,879 in the past decade, while the productivity per man has gone from $6,107 to $25,025. And a Lincoln welding electrode that sold for 16-c- a Ib. in 1929 now sells for 4.8-c- per Lb.

Ninety percent of Lincoln's whopping bonuses go to the men behind the machines and, to make them still more profit-conscious, they have been permitted to buy 30% of the company's stock. As for the specific 1941 extras that horrified the House Committee, they went to reward executives for the following kinds of value received:

> The $4,121-a-year "foreman" who raked in a $25,000 bonus was actually Lincoln's chief metallurgist. He developed a new welding electrode that cut production costs 20%, discovered a new way to weld light and heavy armor plate that saves 20% on nickel and chrome.

> The $8,015-a-year plant superintendent with a $50,000 bonus had developed new operations methods that cut direct labor costs 10%, effected a $750,000 annual saving despite pay increases of 10%.

> The $6,634-a-year vice president and secretary got his $50,000 bonus for developing a welding manual that became "the Bible of the welding industry."

Surprised Boss. Mr. Lincoln told the Congressmen that his bonus system had surpassed even his own wildest dreams. When they heckled him, he said "I don't blame you. In 1933, if you had told me that I would be paying bonuses of 100% of the salaries and still reducing the costs, I wouldn't have believed you either." To committee counsel Edmund Toland's contention that these bonuses (plus a $1,000,000 trust fund established to retire extra wartime workers) had milked the Government out of over $4,000,000 in taxes from 1939-41, he retorted with a fancy statistic. Had his incentive pay not developed new manufacturing short cuts, he said, the electrodes and welding equipment he had sold the Government (and his company is now almost 100% on war work) would have cost the U.S. $35,000,000 more.

In other words, the way Mr. Lincoln sliced it, he had put the profit motive to work. It was just as simple as that.

This file is automatically generated by a robot program, so reader's discretion is required.