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Between November 2008 and April 2010, Forbes.com tracked layoffs at America's 500 largest public companies. As you would expect in the wake of a major economic meltdown, a lot of jobs were shed: 697,448 of them by Forbes' count.
Among the companies shedding jobs were industrial equipment makers, who saw global demand slump as the housing and automotive markets softened. Caterpillar (NYSE: CAT ) slashed nearly 20,000 jobs in 2009. Deere (NYSE: DE ) announced a comparatively smaller 700-job cut the same month.
Yet Cleveland-based Lincoln Electric (Nasdaq: LECO ) , itself an industrial equipment manufacturing company, bucked that trend.
According to journalist and author Frank Koller, since at least 1948 (and likely much longer), no Lincoln Electric employee who meets predetermined performance criteria has been laid off for economic reasons -- that is, because of slowing sales or a lack of demand in the marketplace.
That includes 2008, 2009, and 2010
Now, that doesn't mean life at Lincoln wasn't stressful during that stretch. Indeed, according to Koller -- who is the author of the excellent book Spark: How Old-Fashioned Values Drive a Twenty-First Century Corporation -- through voluntary early retirement incentive offers, a hiring freeze, and performance-related terminations, Lincoln's employee base shrunk by some 15% from 2008 to 2010.
But the pain of the downturn was shared. Salaries were cut, from the CEO on down through the managerial ranks. Many white-collar workers had to work longer hours to get the factory employees back to work.
In Spark, Koller takes pains to show that despite its no-layoffs policy, Lincoln isn't idyllic -- its performance standards are demanding and sound exhausting. But there is something remarkable about a company with that kind of relationship with its workers. At the risk of devolving into cliche, at Lincoln, there really does seem to be a sense of shared sacrifice, grown out of a culture of trust.
"Guaranteed" employment, and more
Lincoln has four practices in place to create that culture:
1. Advisory Board and open-door management policy.
Lincoln's Advisory Board is made up of elected representatives from across the company and meets every two weeks. There's also an open-door policy, in which any employee can voice a concern directly to the chairman or president's office. (When I chatted with Koller on the phone last month, he said many Lincoln employees have taken advantage of this policy, so it's not just a perfunctory offer.)
Piecework is, simply, the notion that you're paid for what you produce on the factory floor. Koller admits that "piecework is a system where it's easy for employers to abuse employees." But in 1914, James Lincoln introduced it, and it's been a pillar of the company's culture since then.
There were two important wrinkles to the piecework system at Lincoln. First, once the piece rate was established by management, it was not to be changed until the production environment changed. And second, there's no cap on earnings -- as long as a worker produced good product, there was no limit on his or her earnings.
3. Merit-based profit sharing.
This practice started at Lincoln during the Great Depression -- a bonus has been paid every year since 1934. Koller's research found that since the 1950s, the average bonus has been roughly 74% of base wages. The average payout in 2010 was $24,000. And to begin with, Koller says Lincoln pays "good wages."
The "merit" of the bonus is carefully measured by the company's sophisticated five-part rating system.
4. Guaranteed continuous employment.
Lincoln formally adopted this policy in 1958, but Koller says it was a de facto policy years prior. "Guaranteed continuous employment" does not mean employees have a job for life, no matter what. In fact, the ground rules are strict:
- Covered after three years on the job
- Must meet the company's performance standards, which are transparent and widely discussed (i.e., if employees aren't performing, guaranteed employment doesn't apply)
- Guaranteed at least 30 working hours a week
- Overtime is compulsory
- Assignments are not guaranteed, nor is the pay rate
- If the company's survival is threatened by conditions beyond its control, the guarantee doesn't hold
That final point may seem like classic fine print, but the company's track record speaks for itself. To repeat: Lincoln hasn't laid off anyone for lack of work since at least 1948. Cisco Systems (Nasdaq: CSCO ) , which wasn't even founded until 1984, laid off 2,000 employees in the dot-com aftermath; this summer, it's expected to lay off even more than that.
If this seems like a quaint anomaly of a Rust Belt firm doing old-fashioned things, consider the investment philosophy of Fool co-founder and Stock Advisor co-advisor Tom Gardner: "The most important factor I look for in an investment is how a company takes care of its employees and what sort of culture it is developing."
Lincoln has developed a culture to take care of its employees. Investors haven't fared badly, either: Since going public in 1995, Lincoln has outperformed the S&P 500 by a 2-1 margin. It's also outperformed the market over 10-, five-, and one-year time frames. And customers are satisfied with the arc welding equipment Lincoln produces -- it's the world leader in the industry.
That's a beautiful alignment. As Tom put it, "There are just so many examples of great businesses that cared about their people (e.g., Johnson & Johnson, Whole Foods, Netflix, etc.). It was by doing that, I believe, that they created massive long-term returns for their shareholders. Just watch the turnover rate of employees versus relevant competitors and you will get a useful read on who will create the long-term value." (Koller told me that the annual employee turnover at Lincoln is about 6% a year, well below the 25% to 30% industry average.)
To be sure, this isn't new-age, feel-good stuff -- it's simply good business. James Lincoln, the architect of many of the company's welfare capitalist benefits, summed it up perfectly. Quoting Koller's book Spark: "I knew that if I could get the people in the company to want the company to succeed as badly as I did, there would be no problems we could not solve together."