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Getting a glimpse of the rare Guaranteed Employment Program

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Frank Koller’s recently-released business book entitled Spark. How Old-Fashioned Values Drive a Twenty-First-Century Corporation: Lessons from Lincoln Electric’s Unique Guaranteed Employment Program explores a topic we seldom read about in today’s headlines – a public company that has been productive while staying true to the value of retaining its workforce through good times and bad.

For over 110 years, Lincoln Electric has been a successful manufacturing company of welding devices.  Based in Cleveland, the company has consistently retained its position as the leading global manufacturer of welding equipment without resorting to layoffs at its main facility in the U.S.

Through extensive historic research, access to company records, and interviews with today’s senior executives and factory workers, Mr. Koller focuses on the culture and business practices that have enabled Lincoln Electric’s guaranteed employment program to thrive, from the policy’s advocacy by its earliest president James Lincoln in the early 20th century, to its official indoctrination as a core value in 1958.  Sure, there is fine print to the policy – employees can be laid off prior to three years of employment, and seasoned workers can be fired for poor performance, among others.  But for the most part, Lincoln Electric has done well by treating its employees well, and effectively creating trust between management and workers.

Some keys to Lincoln Electric’s successful labor relations are:

Trust begins at the top: John Lincoln, the inventor who founded the company, tapped his brother, James, to become its visionary management leader.  “At his core, James Lincoln believed every company had to earn the right to expect hard work from is employees, but at the same time he was absolutely convinced that no employer could expect to motivate his employees to work hard just by paying money.”  They had to earn the trust of its employees.

Direct access to management: Lincoln Electric has a strong Advisory Board made up of factory workers and an open-door policy to senior management.

Everyone knows the deal: “Guaranteed employment, as people inside the company call it, is not about job for life. It is a contract that describes in quite precise detail the obligations of workers and management on a day-to-day basis and the penalties that ensue when the obligations aren’t met.  New employees are introduced to the policy as soon as they are hired, and in dozens of interviews over many years, I have never run across anyone who doesn’t understand the terms of the plan and what it means for them.” (Spark p.59)

Worker flexibility is linked to merit-based bonuses: “If trust is the first overarching principle necessary in any workplace that hopes to thrive with a guaranteed employment promise such as Lincoln Electric’s, the second is surely flexibility. Everyone – from the bottom to the top of the company – must be willing to be flexible about virtually everything involved with doing a job and being paid for it.” (Spark p. 99)  An example, is the flexibility to assign and then re-assign workers where they are needed, as well as to increase hours or decrease hours at will.

Financial discipline has been followed by management: The firm has historically followed conservative financial operating procedures, so it has avoided wild fluctuations that might force layoffs.  In addition, CEO compensation levels are below today’s exorbitant norm.  Koller cites a source saying that the average CEO in the S&P makes 344 times more than the average American worker $30,617. In 2008, Lincoln Electric’s CEO made $4.6 million, and the average worker made $70,000 – or 65 times his workers.

Koller is the first to admit that Lincoln Electric has a unique history and current set of circumstances that have allowed its guaranteed employment policy, and understands the difficulties at large public corporation might face in trying to implement a similar policy.  In fact, highlighting the complexity of exporting a culture globally, Lincoln Electric has hit roadblocks in some of its own overseas manufacturing operations in China and Latin America, for example.

But Koller does make a spirited argument that Lincoln Electric doesn’t have to be an anomaly.  He cites studies that say in the long run it is more expensive to lay off manufacturing workers than to keep them employed, and believes that today’s CEO – due in part to the short-term interest of Wall Street – thinks of layoffs as an automatic necessity to reducing costs.  To Koller, today’s business leaders aren’t educated enough on the advantages of guaranteed employment.

It could be argued that Koller’s own effort to sway them, might keep him employed a long time.

April 3rd, 2010 | No Comments
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