Incentives and Compensation

1
Incentives and Compensation

• If labor represents only 2 of manufacturing
  costs, why is incentive compensation so
  important?
• Incentives boost productivity, capacity
  utilization, overhead, etc. which represents
  20 of manufacturing costs.

2
Lincolns Culture
Low PD Fewer management layers, open-door policy, non-discriminatory cafeteria parking places
Low UA No base salary, piece-work, uncertain bonus
High IND Equity-based system, individual effort begets individual rewards
High M-F Results-oriented, competition, merit-based relativism
Implications Lincolns selection and
compensation culture is unique even within the
U.S.
3
Cultural Biases in Lincolns Merit Criteria?

• Ability for self-supervision High IND, Low PD
• Output/performance absolutism work rate,
  quality, attendance High MASC, Low UA
• Ability to innovate, initiate and adapt to change
  Low UA
• Teamwork Low IND
• Who is likely to work effectively in this
  context?
• Is cultural similarity necessary for successful
  transplantation?

4
Cultural Distance
No Difference vs. Some Difference vs. Big
Difference
PD UA IND MASC
U.S. Med. Low High High
Indonesia High Low Low Med.
Canada Med. Low High Med.
France High High High Med.
Japan Med. High Low High
Australia Low Med. High High
Great variation within U.S. on these dimensions.
Other countries, especially Japan, are more
homogeneous.
5
Cultural Distance
No Difference vs. Some Difference vs. Big
Difference
PD UA IND MASC
Lincoln Low Low High High
Indonesia High Low Low Med.
Canada Med. Low High Med.
France High High High Med.
Japan Med. High Low High
Australia Low Med. High High
6
Non-Cultural Explanations

• Lincoln had success in highly-unionized Australia
• success in highly-regulated, semi-socialized
  France
• Late Chinese Premier Deng Xiaoping visited U.S.
  Lincoln plant suggested as model for Chinese
  factories
• In any cultural, political environment Lincolns
  success depends on recruiting individuals who buy
  into Lincolns values