Earlier this week, I introduced the newest version of Ortegrity a mechanism to create win-win relationships in organizations. Pioneers in synergic organization already exist. Synergic economist Wayne Perg, Ph.D recently told me about a North American company that was very successful at empowering their employees and building win-win relationships.
Lincoln Electric of East Cleveland, Ohio (a rustbelt company with 2700 employees), welding equipment and electric motors – To glean more innovative suggestions from employees, Lincoln instituted a lifetime guarantee of employment in 1959 – so employees would not fear innovating themselves out of a job. Lincoln has not had a layoff since, though their workweek ranged from 55 hours a week to 32 over a two-year period in the early 1980s and has made several shorter trips below 40 since then. Lincoln has a 3-year mutual approval period before they give a new employee their lifetime employment guarantee, in return for which they ask three things:
1. acceptance of the principle that everyone sacrifices together, starting at the top
2. willingness to accept job reassignment
3. complete cooperation (no unions)
Lincoln Electric reinvests massively in its products and its employees. It distributes to employees a huge merit bonus annually. Lincoln employees have the highest productivity and morale and the most pay of any rust-belt employees in the world. Lincoln has not had a layoff since 1959 when the lifetime employment guarantee was extended to the entire company after 8 years of testing. Read a brief history of Lincoln Electric
Pioneering Synergy
The Lincoln Electric Company
Debra Sherman
Foundation for Enterprise Development
Company Profile
- Company founded in 1895
- Business: manufacturer of arc welding products; major producer of premium quality industrial electric motors, robotic welding systems, environmental systems, and plasma and oxy-fuel cutting equipment
- Worldwide operations employ 6,300
- Headquarters: Cleveland, Ohio
- Annual sales: over $1.1 billion in 1997
- Registered on the NASDAQ (LECO – voting, LECOA – non-voting)
- Employee ownership since 1925
- Over 90% of stock owned by employees and Lincoln family members
Company Background
The Lincoln Electronic Company is considered a leader and innovator in its industry due to its dedicated and talented workforce, superior technology, worldwide manufacturing capability, commitment to quality, strong distribution and customer service, and an incentive performance system.
Pay For Performance Compensation System
The incentive management system has been in place at Lincoln Electric since the early twentieth century. It has resulted in one of the oldest “pay for performance” systems in the country, frequently used for benchmarking by other businesses and studied by academics around the world. Lincoln Electric operates on the belief that two key elements – responsibility and recognition – must be present for people to be productive.
Employees have three major responsibilities:
- Responsibility #1 – Attendance
If employees do not come to work, they are not paid and they are penalized.- Responsibility #2 – Earning Power
Production workers are paid on a piecework basis. They must guarantee the quality of each piece they produce. If the piece is not good, they are not paid for it.- Responsibility #3 – Self-management
The foreman-to-worker ratio at Lincoln Electric is one-to-100. The company feels that all workers must manage and all managers must work.Recognition includes several items diligently attended to by the company. Promotion from within is combined with an open door policy. Employees who have performed outstanding work are invited to meet with the chairman and president of the company and participate on an employee advisory board. The board meets with the president and chairman on a bi-monthly basis to discuss topics that can help improve the company’s operations and performance. The minutes of the meetings are published and posted so employees are well informed about company affairs. Lincoln Electric also has a quarter century club for employees who have been with the company for 25 years or more.
The Incentive Management System in place at Lincoln Electric features the following:
- An elected advisory board for direct and open communications with senior management. This advisory board has been in existence since 1913.
- Piecework incentive rewards for all productive work. Pay is directly based on output. Employees are merit rated every six months; they are rated on the quality of their work minus days of absence; the quality of their work minus customer rejections; dependability; and on their ideas and cooperation. In addition, there are daily incentives for all production workers. Employees are paid the average rate for a worker of that skill type in the Cleveland, Ohio area; but with the daily incentive, they can potentially earn in excess of $100,000 a year.
- A profit-sharing bonus plan for employees paid annually at the discretion of the Board of Directors.
- Guaranteed employment after three years of service. The company has not laid off an employee since 1948.
- A 401(k) plan offering employees a variety of pre-tax investment options.
- Competitive compensation and other benefits.
Through this well-defined group of incentives, Lincoln Electric encourages and compensates individual initiative and responsibility, motivating employees to work together to reduce costs and improve quality. These individual and cooperative efforts create a more profitable company, where each person shares in its success according to his or her own contribution and ownership.
Stock Ownership System
Lincoln Electric’s stock program is based on restricted stock, whereby the company has the right of first refusal on the sale of company stock. The company has never failed to exercise that right. The price of Lincoln Electric’s extremely liquid stock is based on book value. When employees wish to sell stock, the company generally buys it within 24 hours. In addition, employees are permitted to borrow from the company up to 65% of the value of their stock and generally can have the cash in hand within one day. Over 90% of the company’s stock is owned by employees and Lincoln family members (a small amount is traded on the public market).
The company’s gain-sharing program, where production employees receive piecework incentives for all productive work, is unique in this industry and has been extremely successful. Employees are paid competitive wages within the industry, but can earn significant annual bonuses based on receiving merit bonus points. Bonus points are earned based on attendance, quality, and production quotas as well as on individual merit. The more points the employees earn, the greater the bonus. If anyone is absent from work for any reason, bonus points are reduced. If a customer rejects a product due to production quality, all employees who worked on that product have bonus points taken away. Through this incentive system, employees can earn bonuses equal in value to their annual pay.
The employee ownership and incentive management system has allowed Lincoln Electric to be extremely successful over its 100 year history. Including 1997, when the company recently completed four consecutive years of record sales, earnings, and earnings per share. Although difficult to manage, their system works, as evidenced by the fact that Lincoln Electric employees are among the most highly compensated, productive, and skilled work forces in the world.