A firm that guarantees employment
Frank Koller talks with Kai Ryssdal about his new book "Spark," and manufacturer Lincoln Electric's unique program that promises workers won't get laid off for economic reasons if they meet the company's performance standards.
Frank Koller (frankkoller.com)
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TEXT OF INTERVIEW
Kai Ryssdal: President Obama took to the Rose Garden this morning. He signed that jobs bill that passed Congress passed earlier this week -- $18 billion in tax breaks for companies that hire people who've been out of work for at least six months.
But what if you never had to worry about losing your job in a down economy? That is the stuff of fairy tales for most. But for workers at Lincoln Electric, in Cleveland, Ohio, it's reality. Frank Koller's book about the company and its Guaranteed Employment Program is called "Spark." Frank, welcome to the program.
FRANK KOLLER: My pleasure.
Ryssdal: It's important I suppose to point out what this program at Lincoln Electric is not.
KOLLER: It's definitely not a job for life. This is a bargain between a company and its workers. The deal is very clear cut, that as long as you meet the performance standards of the company that you will never be laid off for economic reasons. That may mean your job may change, that may mean your pay goes up and down. But the bottom line for the workers is that mortgages get paid, health insurance gets paid and your family does OK over the long term.
Ryssdal: Give us a slice of life. You profile pretty extensively this woman who assembles nozzles. She was the employee of the year a couple of years ago.
KOLLER: Yeah, Melissa Latessa. She's a piece worker, which means that every piece that she makes she earns a fixed rate for, and that's her job. And in good years, she does extremely well, and in tough years -- I mean last year her bonus wasn't as big, her pace wages weren't as big -- but it really is about a shared bargain, about sharing the gain, but also explicitly sharing the pain in the hard times.
Ryssdal: You mentioned a bonus. This company has paid a bonus basically every year, and it's a substantial portion of their base wages. And it works in good times and bad times, and it really adds to the compensation package.
KOLLER: Absolutely. The bonus started in the depths of the Depression. That bonus has been paid every year since without exception. It's averaged about 70 percent of an employees' base wages. Now last year was a tough year. It was only 38 percent of your base wages, but that meant that the average bonus check was $17,000.
Ryssdal: I was struck to read -- and maybe I should've known this, I don't know -- that Lincoln Electric is a publicly-traded company. And so Wall Street analysts, and people who keep an eye on companies that trade on the stock markets, they obviously are aware of this guaranteed employment program?
KOLLER: No, that's what's so fascinating. Many of the investment analysts -- these are the folks that recommend Lincoln to institutional investors and mutual fund holders as a good stock that performs over the long term -- had no idea that Lincoln Electric had anything resembling a guaranteed employment program. Now, it's not like it's as if it is hidden. It's in the annual report that goes to the SEC. And several of them were actually quite dismissive of the idea. Their view was that guaranteeing any kind of certainty to anyone other than a shareholder was in fact a zero sum game, that's simply not Lincoln's view. Lincoln's view is that everyone shares long term.
Ryssdal: Obviously one of the reasons you wrote this book was because the guaranteed-employment program struck your fancy. But isn't it just kind of an oddity? I mean how relevant is it in a 21st-century economy?
KOLLER: I've been in a lot of boardrooms and a lot of announcements where CEOs with almost crocodile tears are saying, "you know our employees are our most valuable asset," even as they are letting people go. And then they say that famous line, "you know, we have no options." Well Lincoln seems to suggest that there are options. But I think it does stand out as a symbol that there must be ways to organize your company to succeed in the marketplace long term so that you're not putting all the risks on the backs of your workers.
Ryssdal: Frank Koller was for many years a correspondent for the Canadian Broadcasting Corporation. He's got a book out about a company in Cleveland, Ohio, called Lincoln Electric. The book is called "Spark." Frank, thanks a lot.
KOLLER: My pleasure, Kai.
Comments
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From Washington, DC, 03/19/2010
This story reminds me of the history of what is now called FedEx Express (the original Federal Express, now one company under the FedEx umbrella). FedEx Express maintained a no-layoff policy at least until 2003 - don't know if they still have it, given current market conditions. In 2003, the company reduced somewhere between 3-5K staff through early retirement and buy-out. They continue to be rated among the best companies in the US to work for.
From Houston, TX, 03/19/2010
"that as long as you meet the performance standards of the company that you will never be laid off for economic reasons." I agree with this model, and more cooperative employment structures like this would be great for the economy and creating a more equitable society. As long as "performance standards" aren't unreasonable.
From Toledo, OH, 03/19/2010
Mr. Koller is simply not telling the full story. Lincoln Electric has the ability to slide and change their already rigid employee performance standards to "terminate" employees during an economic recession instead of laying them off, as other companies would. This leaves former Lincoln Electric Employees jobless and sometimes unable to collect unemployment due their termination status. Their holiday bonus is not an additional benefit to their compensation. The company merely offers lower salaries and gives a bonus during Christmas time that brings the compensation level up to the average.
Mr. Koller: Have you worked for Lincoln? If you have, you would already know all the things I have said and your book would be a little different. I suggest you go a little bit further in depth with your research. Talk to some *former* Lincoln Electric Employees about the harsh work atmosphere and the real reason they no longer have a job that pays the mortgage. Don't ask any current employees, because they won't say anything negative about the company for fear of losing their job too.
The fact is that employees of Lincoln know, although they may not say, that they work in a stressful environment where every day they are worried about losing their job. During an economic recession, management will use every meaningless infraction (such as accidently leaving with a company-labeled pen, or calling your spouse from a company phone while on lunch break) as an excuse to terminate your employment so they can say they never have lay-offs during an economic recession.
From OH, 03/19/2010
The study of Lincoln Electric is a staple in many graduate business programs. It’s nice to see that the good organization, employee development, and competitive strategy of the firm is getting some limelight.
From NC, 03/19/2010
The model at Lincoln Electric is not for everybody, whether employer or employee. But everyone should study this model, as an example of co-operation. It also serves as an example of dedication to freedom.
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