Where People Are Never Let Go

By Daniel Eisenberg

At first glance, Lincoln Electric, the $1 billion Cleveland, Ohio, maker of arc-welding equipment, seems like every other U.S. corporation trying to weather the current economic downturn--heartless. It is slashing overtime, cutting temps and applying an elaborate rating system to assess employee performance. But no matter how bad things get, or how low they score, workers at Lincoln won't flunk out.

"I never have to wake up in the morning and wonder if I've got a job," says foreman Bob Knapik, 41. For almost a half-century, it's been that way at Lincoln's headquarters--guaranteed lifetime employment for all full-time workers who have been there at least three years. And that doesn't mean, by the way, that Lincoln is some Rust Belt relic of the 1950s. Thanks to its fabled incentive-compensation plan--which, instead of an hourly salary, pays assembly-line workers based on how much they produce, plus a year-end bonus (hence the grading)--Lincoln is a model of efficiency.

Fortune 500 executives regularly visit to learn its secret, and Lincoln has been a case study at Harvard Business School since 1947. Despite having some of the highest-paid factory workers in the world, it dominates the price-sensitive welding market, having pushed industrial powerhouses like General Electric out of the business. Though Lincoln's first-quarter sales and profits dropped about 10%, its stock has more than doubled in the past year.

Which begs the question: If Lincoln is such a proven winner, why don't more companies play by the same rules? Answer: most companies aren't willing to make the necessary trade-offs. Lincoln may guarantee a job, but not much else. Workers get neither sick days nor holidays and have to pay for their health insurance. Not surprisingly, organized labor, which relies on solidarity, doesn't like the competitive set-up at Lincoln, which isn't unionized. Seniority barely exists: if older workers slow down, their salaries could too. Management also moves employees at will, from payroll and sales to the assembly line, adjusting their paychecks accordingly.

A few critics call it a dressed-up sweatshop; proponents call it good business. "It gives us the flexibility to move people where they're needed," says John Stropki, executive vice president. Indeed, during the recession of the early 1980s, when sales tanked 50%, the company turned 30 factory workers into salesmen to drum up business.

Even if a company were willing to try, it wouldn't be easy to imitate Lincoln. "So much depends on the culture they have built up," says Norman Berg, professor emeritus at Harvard Business School. When Lincoln embarked on an international expansion in the early '90s, it learned the hard way that its system wasn't easy to export; many foreign workers valued perks more than individual advancement.

Mind you, the rewards are not small. Over the past three years, Lincoln has doled out nearly $200 million in profit sharing to its Cleveland employees alone. In 2000, the average bonus was $17,579, about 45% of an employee's salary; the top factory workers pull in more than $100,000 a year. When the firm faced its first loss in 1992, Lincoln even borrowed millions to keep the payouts coming.

Of course, that might not go over so well on Wall Street. Lincoln has been a public company for six years now, and shareholders might not be tolerant during a pronounced slowdown. As Joseph Maciariello, professor of business administration at Claremont Graduate University, says, "Lincoln puts the employee first, customer second and shareholder last." For the rest of corporate America, that ranking still won't make the grade.

--By Daniel Eisenberg. Reported by Maggie Sieger/Cleveland and John Greenwald/New York

With reporting by Maggie Sieger/Cleveland and John Greenwald/New York