Friday, July 21, 2017

Incentive alignment: Lincoln Electric



I show this video on the first day of class as it is a stark illustration of how difficult it is to align the incentives of individuals with the goals of a company.  At Lincoln, they do it by devoting lots of effort to measuring individual productivity.  When you have a good performance metric, it is much easier to design incentive compensation schemes that (i) give employees enough information to make good decisions; and (ii) the incentive to do so.

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