Good, But Should Be Condensed to an Article - – Loyd E. Eskildson – Phoenix, AZ.
Koller opens by reporting that the best-selling Harvard Business School (HBS) case study of all time is about the Cleveland-based arc-welding manufacturer Lincoln Electric – actually, the HBS has created 8 cases about Lincoln Electric. With 14% of world market-share, it is the largest in the world, and has survived the Great Depression, globalization and the decline of industrial America, and the recent Great Recession. Like Toyota, there are no designated parking spots, special entrances, or eating places for management. Any employee with over three years of tenure is promised the company will do everything it can to avoid layoffs for economic reasons – and for more than 60 none have. Lincoln Electric also has paid a profit-sharing bonus every year for 74-straight years. The amount has almost always exceeded 60% of an employee’s base earnings.
Lincoln Electric’s story begins in 1895 when John C. Lincoln was laid off from his job at a Cleveland manufacturer of electric motors. Lincoln decided to go into business for himself, and by 1907 had expanded into welding machinery. John’s brother, James, soon joined and took over management – John was an inventor. James is the one that implemented piece-rate payment, open-door communications, and the annual bonus. James was accused by various congressmen for years of using the bonus system to avoid paying U.S. taxes. The first payout, in 1934, represented 22% of worker pay. The company has now settled on a standard payout of 32% of earnings before interest, taxes, and bonus.
James also initiated an Advisory Board of elected representatives from throughout the factory, meeting every two weeks. Neither James nor his successors always agreed with the representatives, but they did as much as possible to accommodate the group’s requests.
Employees have the right to challenge new piece-rate standards, and the standards cannot be raised unless a new method or materials are introduced. Merit ratings for bonus purposes are based on productivity, quality, adaptability/flexibility (workers have to change assignments when requested), dependability, and awareness and compliance with environmental, health, and safety priorities. Persistent ratings below 80 result in discussions about one’s future at the firm, and possible eventual termination.
The ‘no-layoff’ policy began in 1958. Thirty-hours/week is considered the minimum; standard staffing calls for about 45 hours/week. (Minimum hours are lower in Canada, which has a more liberal unemployment policy.) Lincoln Electric recently implemented an early retirement program to get through the current downturn. The company also has new facilities in China and 17 other nations.
Author Koller asked Lincoln’s current leadership if it was concerned that guaranteed employment made workers overly complacent – management admitted that was a concern, and was aware of potential competition from laser welding and some sort of super-adhesive.
Bottom-Line: Lincoln Electric has developed an envirable relationship with its workers and maintained that over the years. However, that bond will be tested as more and more competitors expand production in Asia. I hope Lincoln continues to succeed.
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