For the 63rd Straight Year (at Least), This Remarkable Company Says "No" to Layoffs

Yesterday,Jefferies (NYSE: JEF  ) announced that it is cutting 11% of its workforce amid fears that it cannot exist as an independent investment bank, Fox Business reported.

Jefferies' management is doing a painful yet prudent thing here -- in the face of uncertainty it is slashing expenses. But in an era of near-9% unemployment, it's worth noting that there's another way...beyond the layoff lever.

The Lincoln model
In June, I highlighted Cleveland-based Lincoln Electric (Nasdaq: LECO  ) , an industrial equipment manufacturing company. Lincoln designs and develops arc-welding products and systems and remains the world's technological leader in its industrial sector.

You can read the full story of Lincoln, but the short story is this: The company hasn't laid anyone off for lack of work since at least the 1940s, and it offers employees generous pay and an open-door management policy. It's not idyllic, but the Lincoln culture of trust really does work.

Frank Koller is an expert on the company, having profiled it in his excellent book Spark: How Old-Fashioned Values Drive a Twenty-First Century Corporation (which I'd recommend). Last week, Lincoln Electric had its annual bonus distribution ceremony in the cafeteria of its Cleveland headquarters.

Koller told me via email that:

  • 2011 is the 78th consecutive year Lincoln Electric has made a profit.
  • The total "bonus pool" of profits distributed among U.S. employees was $84.3 million (32% of pre-tax profits).
  • The average bonus per employee was $30,775.
  • The "bonus multiplier" was 63.75%. That is, each and every employee received a bonus equal to 63.75% of her/his base earnings.
  • The average total compensation of a U.S. Lincoln Electric employee was $79,050.

And perhaps most impressively, no worker who met the firm's performance standards was laid off for lack of work in 2011 -- meaning Lincoln's no-layoff policy has been intact since at least 1948.

The next time you find yourself nodding your head about the necessity of layoffs, think about Lincoln Electric: a rule-breaking company that's managed to retain its workers and stay profitable over the very long run.

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Fool.com managing editor Brian Richards doesn't own shares of any company mentioned. Click here to see his holdings and a short bio. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 13, 2011, at 11:57 AM, searcher12 wrote:

    That's not absolutely true. Each employee gets a percent of the bonus percentage based on their ranking. If you're a 95% and the bonus was 50% you get 0.95X 50% =47.5%.

    And for new employees, they consider part of your bonus as part of your salary. If you should make $50k any where else, Lincoln might start you at $39K cause part of the bonus is salary.

    New employees can only make 70-80% of the bonus the first year, cause you're a new employee.

    It's an interesting company, but it's not ever going to make the list of a 100 best places in America to work.

  • Report this Comment On December 13, 2011, at 6:46 PM, Mega wrote:

    Distributing so much compensation in annual bonus doesn't sound good for the average blue collar worker, who might have cash flow issues during the year because of the lower percentage paid in wages.

  • Report this Comment On December 13, 2011, at 10:03 PM, CaptainWidget wrote:

    They haven't laid off an employee "who met performance standards"

    Meaning...they still trim the fat. They're just doing it based on performance (the right way) instead of senority (the wrong way).

  • Report this Comment On December 13, 2011, at 10:54 PM, TMFBrich wrote:

    @searcher12: Thanks for the clarifying comment.

    @MegaShort: In my research I found that, aside from its annual performance bonuses, Lincoln pays good wages in the first place.

    @CaptainWidget: Indeed. Lincoln's performance standards are transparent but quite rigorous.

    Thanks for reading. Foolish best wishes,

    Brian Richards

  • Report this Comment On December 13, 2011, at 11:52 PM, xnicholas wrote:

    Company OOO:

    Nobody will ever be laid off, but if the company were to experience a loss for more than two quarters, pay will be cut across the board to make up for the loss.

    This is our policy and we will stick to it.

  • Report this Comment On December 14, 2011, at 1:11 PM, Smitter11 wrote:

    I would question the company's technical leadership. They've been passed by their rival (Miller Electric), which is owned by Illinois Tool Works (ITW) in the past several years.

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