'SPARK': Lincoln Electric Distributes Christmas Bonuses

By David M. Kinchen

Editor's Note: In 2011 I reviewed Frank Koller's book "Spark", which explored Lincoln Electric of Cleveland, OH, and other companies with no-layoff policies.

Below this note, I'm reprinting my review of "Spark." Today, Friday, Dec. 13, 2013, I received the following email from Koller:

"You know of my long-standing interest in Lincoln Electric's decades-long no-layoff track record in the North American economy. The annual profit-sharing bonus ceremony was held today in the firm's Cleveland cafeteria. Here are the details: 

    
80  =     uninterrupted years of paying an employee bonus  (i.e. profitable every year since 1934.)  

$33,029
  =    average 2013 bonus per U.S.  employee (roughly 3,000) 


$81,366 
=     average 2013 total earnings per U.S. employee    (= wages-or-salary + bonus)

$100.7 
million  =     total pre-tax profit shared with employees ... largest bonus pool ever     

0 =   number of layoffs in 2013       (65 years 
without any layoffs)
 

  AND ....           Lincoln remains #1 in the global marketplace (LECO: Nasdaq, currently at an all-time high)     

 " These figures once again provide convincing and reassuring evidence that it is possible to run a very profitable, very large, technologically superior multinational business based in North America while honoring your obligations to employees, customers, investors and society at large. This need not be a zero-sum game, a delusion embraced by far too many, especially in the past few years.

  "Lincoln Electric has roughly 3,000  employees  in the US, 264 in Canada and 7,500 more around the world.
"The firm remains in 2013, as it has since the 1930s, the dominant player in the global electric welding industry and yet, it refuses to lay off its employees in tough times.       The Guaranteed  Continuous Employment Policy  remains unbroken since at least 1948.       That's 65 years!   (The no-layoff track record may in fact go as far back as 1925.)     No one has been laid off for lack of work through the Great Depression, wars and now the Great Recession.

 

Happy Holidays  and all the best for 2014.

Frank Koller


FRANK KOLLER     see   www.frankkoller.com for information about SPARK the book, the Author and upcoming appearances 

  
  * Wall Street Journal: “Striking … against the backdrop of the layoff mania that has claimed more than eight million American jobs since late 2007.”

 * Harvard Business Review: “A fascinating depiction of a rare human resource practice in a company with a long and hearty track record—food for thought for the rest of us.”
 * Princeton University: "2010 List of Best Books on Labor Economics and Industrial Management." 
 * Globe and Mail (Canada): "Engrossing ... inspiring ... useful public policy." 
 * MIT/Sloan’s Tom Kochan: “Timely, well-researched and well-written.”
 * Richard Freeman, Harvard: “A remarkable story of the better side of American capitalism.”
 * MotleyFool.com: "Excellent Book ... a remarkable true story."


BOOK REVIEW: 'Spark' Explores Lincoln Electric Co., Other American Companies with No-Layoff Policies   REVIEWED BY DAVID M. KINCHEN

 

The trouble with normal is it always gets worse -- Bruce Cockburn, Canadian folk/rock guitarist and singer-songwriter, from his 1981 song "The Trouble with Normal"


Canadian author Frank Koller quotes his countryman  in "Spark" (PublicAffairs paperback, 272 pages, $15.95) in his extended examination of Cleveland, OH-based Lincoln Electric Co. and other companies with no-layoff policies. 


"Normal" in American corporate practice is to lay off workers when times get tough, as they have been for the last three or more years. My own profession, journalism, has seen unprecedented layoffs at such major newspapers as The New York Times, the Los Angeles Times  (where I worked from 1976 to 1990), the Chicago Tribune,  and many other newspapers.  


Since 1948, Lincoln Electric Co., the world leader and innovator in arc welding equipment and supplies, has adhered to a policy of not laying off permanent workers (those with three or more years of service)  during slow periods and recessions. Instead, as Koller describes in this page-turning economic thriller -- it thrilled me to see humane policies from a publicly traded corporation -- the company reduces its bonuses, cuts hours and even cuts the salaries of top management. In the current "great recession," Lincoln Electric has resorted to buyouts for highly compensated employees -- many of them at or near retirement age. 


Workers at Lincoln Electric even spruce up the grimy Cleveland area plants during slow periods. Everybody enters the plant from the same door and there are no special parking spots for the management. Everybody eats in a spartan cafeteria that reminded one former employee of those in "correctional facilities." The company doesn't even pay for medical coverage for its employees, although it requires them to have health insurance. With typical annual shop floor salaries north of $90,000, Lincoln Electric reasons that employees can afford the premiums. Just before Christmas, Lincoln Electric distributes annual bonuses that can exceed the yearly wages of most employees. 


The book's long subtitle -- "How Old-Fashioned Values Drive a Twenty-First Century Corporation: Lessons from Lincoln Electric's Unique Guaranteed Employment Program" -- distinguishes the company, founded in 1895 by John C. Lincoln with an investment of $200 to make electric motors and later run for many decades by his brother James F. Lincoln -- who instituted its guaranteed employment plan -- from its "normal" former neighbors. Companies near Lincoln Electric in Euclid -- TRW, Addressograph-Multigraph, Chase Brass, GM's Fisher Body -- are out of business or relocated to other countries, but Lincoln Electric soldiers on in Euclid with its not-so-"normal" employment policy. 


Koller interviewed more than 60 Lincoln Electric employees, including management, to find out how a guaranteed employment program works. His legwork included interviewing multigenerational families who've worked at Lincoln Electric, including a husband-wife team. He also looks at the company's business model, the subject of  best-selling case studies by Harvard Business School and many other business schools around the world. (For a summary of the 1975 case study by HBS professor Norman Berg and his co-author Norman Fast, click: http://hbswk.hbs.edu/item/4949.html). The 1975 study has sold in excess of 275,000 copies, making it a best-seller in anybody's language! 


It should be emphasized is that Lincoln Electric is not just a small company in Rust-Belt Cleveland. It's a global concern, with 39 manufacturing locations in 20 countries, including Koller's Canada. Among the  operations, manufacturing alliances and joint ventures in those countries are plants in such low-cost producers as China and India. Lincoln Electric is truly a company upon which the sun never sets, with distributors and sales offices covering more than 160 countries. 


Chances are pretty good that if you look at an auto body shop, a repair garage, a farmer's workshop or a do-it-yourselfer's shop, you'll find a Lincoln Electric arc welder in the workplace. The company's most popular portable welder was even featured in John Hughes's  hit movie "Home Alone!" 


While factories across the Midwest shutter their doors, Lincoln Electric has thrived for more than a century. In addition to being profitable and technologically innovative, through good times and bad, the company has fulfilled its unique promise of "guaranteed continuous employment." Workers are viewed as assets—not liabilities. Through flexible hours and job assignments, as well as a merit-based bonus system, Lincoln Electric's employment policies have proven healthy for the company's bottom line its employees and its shareholders. 


In "Spark" Koller examines how this unusual and profitable Fortune 1000 multinational company challenges the conventional wisdom shaping modern management's view of the workplace. Through insightful storytelling and extensive interviews with executives, workers, and leading business thinkers, Koller uses the Lincoln Electric example to illustrate how job security can inspire powerful growth and prosperity in our communities, which in our hollowed-out manufacturing base is especially relevant. 


 Unfortunately for America's workers, the Lincoln Model is heavily studied, but not put in practice by many companies. Koller takes us to two companies, Xilink in California, and Hypertherm, in New Hampshire, that have tried guaranteed employment. Following a change in CEO's, Xilink abandoned the policy, reverting to  the "normal" layoff practice of its Silicon Valley comperes. Hypertherm, which makes equipment that cuts rather than welds metal, continues to practice a no-layoff policy for employees that have been at the company for a stated period, like Lincoln Electric. Koller also mentions Southwest Airlines, founded in 1971 and based in Dallas, TX, that adheres to the policy. 


One thing that struck me as hypocritical among the academic critics of guaranteed employment that Koller interviewed was the almost universal opposition to it. Coming from academics who enjoy tenure, this stands out as hypocrisy of the highest order.(for comments by Koller on Harvard Business School and the Lincoln Electric case studies, click: http://www.huffingtonpost.com/frank-koller/did-anyone-at-harvard-bus_b_568373.html).

Frank Koller
Frank Koller

About the Author 
Frank Koller covers the workplace for the Canadian Broadcasting Corporation. Over a 27-year career with CBC, he has worked and lived around the world as a foreign correspondent, including seven years in the United States. He holds a Master's Degree in Engineering from the Massachusetts Institute of Technology. He lives in Ottawa. His website and blog: www.frankkoller.com.

Reviewer's note: Here are the complete lyrics for "The Trouble With Normal" by Bruce Cockburn (pronounced Coburn). He's a prolific writer and for some reason I'd never heard of him! I've followed the careers of Canadians Leonard Cohen, Gordon Lightfoot and Ian and Sylvia, Anne Murray, etc.,   but was not aware of Cockburn:
  

Strikes across the frontier and strikes for higher wage
Planet lurches to the right as ideologies engage
Suddenly it's repression, moratorium on rights
What did they think the politics of panic would invite?
Person in the street shrugs -- "Security comes first"
But the trouble with normal is it always gets worse

Callous men in business costume speak computerese
Play pinball with the Third World trying to keep it on its knees
Their single crop starvation plans put sugar in your tea
And the local Third World's kept on reservations you don't see
"It'll all go back to normal if we put our nation first"
But the trouble with normal is it always gets worse

Fashionable fascism dominates the scene
When ends don't meet it's easier to justify the means
Tenants get the dregs and landlords get the cream
As the grinding devolution of the democratic dream
Brings us men in gas masks dancing while the shells burst
The trouble with normal is it always gets worse 


* * *   Publisher's website: www.publicaffairsbooks.com 
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