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 LINCOLN
ELECTRIC
I recommend on
Frank Koller. 2010. Spark: How Old Fashion Values Drive a Twenty-First-Century Corporation. New York: PublicAffairs.
Arthur D. Sharplin. The Lincoln Electric Company. 1985 & 1996.
Don Hastings. Lincoln Electric's Harsh Lessons from International Expansion. Harvard Business Review, May-June 1999: 163-178.
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QUESTIONS
 Which
system - Command & Control/Scientific Management
vs. TQM/High Performance
How to
choose?
Must we
choose between two systems?
The Congruence Model
What are the building blocks of a HR system with a guranteed
employment? Why is it so rare in North America?
Interestingly, guranteed employment is available only to the US
workers. By 2009, LE had manufacturing facilities in 20
countries, distribution and sales partnersdhips in more than 160
nations, and a global workforce of more than 9,000 employees with
roughly 3,300 of them being in the US and 250 in Canada (Koller, 2010:
84).
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THE GENESIS OF THE LE HRM SYSTEM
1895 -
John Lincoln founds LE
1914 - James Lincoln becomes president
1914 -
Employee Advisory Committee is created to advise James Lincoln. The president can veto its decisions
1915 -
Paid-up life insurance policy is given to every employee
1915 - Piece-rate system of compensation is instituted. Rates change following techological changes
1919 - The
Lincoln Electric Employees' Association is formed to provide health
benefits and organize social activities
1925 -
Employee Stock Ownership Program: Each employee with more than one year
of service may purchase stock in LE. Stock must be offered back
to LE upon termination of employment.
1929 - The
board of directors votes to start a suggestion system; new suggestions
are rewarded by additional points which affect year-end bonuses
1934 - The
famous merit bonus plan is accepted on a trial basis
1942 - The House of Representatives Naval Committee argues that LE has
devised a scam to avoid taxes and grab extra profits from the war
through its profit sharing program
1944 - Employees enjoy a pension plan, a policy of promotion from
within, and continuous employment
1958 - The
policy of lifetime employment is
formalized -- every worker with over two years' longevity is guaranteed
at least 30 hours per week, 49 weeks per year. The requirement
was changed to three years in the recession of 1982. No
employee has ever lost a job due to economic downturn since 1958. Note,
the idea was originally suggested to James Lincoln by the worker
representatives on the Advisory Board (Koller, 2010: 59).
1995 - LE goes public
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CURRENT HRM PRACTICES
Intensive
employee involvement
 Advisory committee
Employees' Association
Suggestions plan
Job
security (for deatils, see Koller, 2010: 60)
After a 2 (3 since 1982)-year probation period
The early 1980's were a time of hardship, with Lincoln's
sales dropping 40 percent in response to the combined effects of
inflation, sharply higher energy costs, and a national recession.
Although guaranteed continuous employment received a severe test, not
one Lincoln employee was laid off for lack of work.
Last layoff was in 1948, but the exact circumstances are not clear (Koller, 2010: 97).
Compensation is based on Base Salary, Merit Rating, Profit Sharing
Merit
rating is done twice a year for each employee - output, quality,
dependability, and acooperation.
Average
of 100 points for each group (average of 20 points on a scale).
Typically, merit points
range from 80 to 110. Ratings above 110 points require approval
from higher management. Note, an employee can be awarded more
than 20 points on a particular scale for superior performance, but only
if somene else in the same work group being evaluated by the same
supervisor receives less. A consistent pattern of poor
performance will lead to a lower merit rating, which will significantly
reduce the bonus at the end of the year and, in extreme cases of
substandard work, lead to disciplinary procedures including dismissal.
 Bonus
is % of profits (e.g., 60%) times total rating points (e.g., 80) times wages
(e.g., .6 x .8 = 48% of salary). Since 1955 it has averaged 77%
of base pay (Koller, 2010: 45).
Note
the tension between the spirit of cooepration (profit sharing) and
the spirit of competition (individual bonuses are zero sum).
Note
the tension between guaranteed employment and the element of quality in the merit rating system.
No paid sick days or vacations. The company shuts down for 4
weeks a year (2 weeks in the Christmas season and 2 weeks in August)
but does not pay for vacation days.
(Ohio workplace
vacation laws say vacations are fringe benefit of a job and not a
right. State law leaves the decision of whether or not to grant
vacation up to the discretion of the employer.)
No paid
training (OJT only)
LE does not pay for medical insurance yet requires every person to show
proof that s/he is covered by a comprehensive hospital and medical
insurance plan from the moment they first begin to work (Koller, 2010:
139).
Strong
management control
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GUARANTEED CONTINUOUS EMPLOYMENT
(Koller, 2010: 60)
The plan covers permanent employees in Cleveland (95% of the US workforce) who have completed three years of service.
Employees are guaranteed at least 30 hours of work per week, 49 weeks per year.
Employees are required to work overtime whenever scheduled.
Workers are not guaranteed a particular job or rate of pay.
Every employee must be willing to accept transfer from one job to another.
The plan only covers employees who uphold LE's well-defined performance standards.
If the company's survial is threatened by conditions beyond its control
- from recessions to natural disasters - the guarantee does not hold.
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HRM SYSTEM/ORGANIZATION CULTURE
JOB SECURITY
OPEN COMMUNICATION
MUTUAL RESPECT
LABOR-MANAGEMENT COOPERATION
SENSE OF OWNERSHIP
PAY FOR -- INDIVIDUAL AND ORGANIZATIONAL -- PERFORMANCE
EMPLOYEE INVOLVEMENT
STRONG MANAGEMENT CONTROL
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PHILOSOPHY
Customer
needs are the raison d'être of the company
The
customer's interests, not the stockholder's, come first
Stockholders
are given last priority
The
earnings of each employee should be in accordance with the employee's
accomplishment
Labor and
management are parts of one organization in which they must cooperate
fully
There must
be complete honesty and understanding between the hourly workers and
management if high efficiency is to be obtained
Management
must have complete power
Each
person should participate only in those decisions s/he is most
knowledgeable about
Ratio of
salary between CEO/Average hourly worker is 14; in America it is around
100 (20 in Japan)
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JAMES F. LINCOLN'S QUOTES
(Arthur D. Sharplin. The Licoln Electric Company, 1985.)
The Christian ethic
should control our acts. [Lincoln turned this vision into a
focused effort to improve continuously product quality while
continuously reducing unit costs of production and distribution and
passing the cost savings on to the customer.] If it did control our acts, the savings
in cost of distribution would be tremendous. Advertising would be
a contact of the expert consultant with the customer, in order to give
the customer the best product available when all of the customer's
needs are considered. Competition then would be improving the
quality of products and increasing efficiency in producing and
distributing them; not in deception, as is now too customary. Pricing
would reflect efficiency of production; it would not be a selling dodge
that the customer may well be sorry he accepted. It would be
proper for all concerned and rewarding for the ability used in
producing the product.
The greatest fear of the worker, which is the same as the greatest fear
of the industrialist in operating a company, is the lack of income.
... The industrial manager is very conscious of the company's need of
uninterrupted income. He is completely oblivious, evidently, of
the fact that the worker has the same need.
He is just as eager
as any manager to be part of a team that is properly organized and
working for the advancement of our economy. ... He has no desire to
make profits for those who do not hold up their end in the production,
as is true of absentee stockholders and inactive people in the comapny.
If money is to be
used as an incentive, the program must provide that what is paid to the
worker is what he has earned. The earnings of each must be in accordance with accomplishments.
Status is of great
importance in all human relatioships. The greatest incentive that
money has, usually, is that it is a symbol of success. ... The
resulting status is the real incentive. ... Money alone can be an
incentive to the miser only.
There must be complete honesty and understanding between the hourly worker and management if high efficiency is to be obtained.
When you use "participation," put quotes around it. Because we
believe that each person should participate only in decisions he is
most knowledgeable about. I don't think production employees
should control the decisions of Bill Irrgang (then-president of Lincoln
Electric, 1965-1986). They don't know as much as he does about
the decisions he is involved in (a director of public relations).
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