No unions, no paid sick days, no layoffs, no unshared profits

Religion and Ethics Newsweekly had a story over the summer about a Cleveland company called Lincoln Electric.  Check out the video in the link (a little less than 10 minutes) or see the transcript by clicking on the link.  Do you think that this is a good business model?  I wish I knew more about business and economics so I’d have a better answer.

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  1. The way it is presented certainly sounds good, both for employees and the business as a whole. I know brain drain is an enormous problem in manufacturing. Communication is key, as is meritocracy. Their longevity speaks well of them.

    Most important to me, however, is that their business model is even possible to try. They are not forced by the government to hire union employees, or pay sick days, etc.

  2. Good point. The liberty to try these things is important. It’s also too bad that so many employers in history have used that liberty to take advantage of employees. But perhaps given time and lack of interference more would choose something like this.

  3. Very interesting business model It seems like they have increased the year-to-year variability of earnings for employees, while also guaranteeing them some sort of minimum base pay.

    While paid sick days are an invitation to abuse, they also keep people from going to work sick and making other people sick; people who often can’t afford to take the time off. Perhaps it is one way to keep away potential employees with weakened immune systems, and thus more expensive healthcare costs? Probably that’s not the intention, but it does seem like a fringe benefit of the policy.

    I liked this quote on why one employee didn’t think there had ever been a union at LE: “I think because people feel they’ve been treated fairly and they’ve had it every bit as good or better opportunity than any union opportunity could provide them.”

    • Interesting point about the sick policy.

      I read a book called “Standing at Armageddon” about the period 1877-1917 period in American history a while back and one of the author’s points is that there were two models of worker-employer relations at this time: “identity of interest” (workers and employers have the same interests) and a populist idea of democracy. Painter portrayed identity of interest as a sell-out to the rich, but when the interests of employers and employees really are identified it can make for a pretty good system.

  4. Hi Scott ..
    Good discussion ….
    First of all, true confession: I am the author of the recent book SPARK, about Lincoln Electric’s no layoff, profit-sharing program and I was in the PBS show.
    The only point I would make here is that for nearly a century, Lincoln Electric has maintained its role as the largest manufacturer of arc welding technologies in the world, kept its investors and shareholders exceedingly happy and yet done all that while defying the conventional wisdom on Wall Street that in tough times, the first thing a CEO should do is reach for the layoff-lever.
    Lincoln Electric’s business model does not ask for special treatment in the marketplace because it treats its workers well.
    The company’s conviction is that not only is it “possible” to protect both a corporation’s profits and its employees but that it “the best way” to keep those profits flowing into the firm is precisely to protect the workforce from shouldering all the risks facing the firm.
    The story I try to tell in my book is how that process has worked and demonstrate that history has proven this model can provide a powerful competitive advantage.
    Frank Koller

    • Thank you for your comment, Mr. Koller. I hope that Lincoln Electric can flourish in the current conditions and that the model does catch on. It seems that this kind of trust between employers and employees is in short supply and that this kind of model promotes the dignity of work and the worker.

  5. I ran across an interesting article that talked about defined benefits plans in regards to increased productivity and smaller workforces.

    It seems that Lincoln Electric was able to fully fund their defined benefits model up through 2005, which is pretty impressive given that so few companies have been able to do that (and public pensions are even worse off due to “creative” accounting maneuvers that would be illegal for private corporations). I wonder how they were able to maintain their competitiveness for so long with what would seem to be relatively flat or increasing labor costs. Have they been able to grow sales and market share so that the same workforce produces more welders? Is there industry more immune to foreign competition because their primary consumers are union shop hands with a “Buy America” attitude?

    • Douglas..
      Just some quick replies, from my research for my book ..
      re: maintaining competitiveness … that’s been the goal of the company’s complex incentive system, all along (the no-layoff policy is just one of 4 elements in that structure) – to encourage everyone in the firm to work hard, together and smart to improve productivity ….
      re: rising labor costs .. Lincoln’s overall labor costs have always been proportionately lower because output (or sales) / worker has always been much higher due to consistently rising productivity .. i.e. as you say, more welders per workforce .. this was true even back in the 1940s when James Lincoln testified about this to a Congressional committee .. paying workers well is NOT seen as a problem but a positive element, because it is evidence that overall, the firm is doing better ..
      re: immune to foreign competition? Not a chance! While it is true that Lincoln has been the largest producer of arc welding tech since the 1930s, there is a lot of fierce and very smart competition .. Miller and Hobart in the US, ESAB elsewhere in the world, and now Chinese firms .. it’s a tough market and Lincoln has to fight every inch of the way .. no free lunch here

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