Right from the Start

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How well do employees do? In a good year, a top performer can more than double earnings with the bonus. And even in bad years, the bonus often exceeds 50% of an individual's other pay. The average bonus in 1987 was $18,773, or about 70% of other earnings. Over the past decade, Lincoln has handed out checks totaling about $421 million -- more than 12% of revenues. Why so much? Because, thanks to the system, there's more money to play with, Hastings says -- and because the system's future depends on it. "Our goal is to make the bonus checks significant enough to make a difference to people.'

Clearly, money can be a great motivator. But the managers doubt that employees would be so dedicated if it weren't for the company's long-standing commitment to maintaining employment. Anyone who's been working at Lincoln for more than two years is virtually guaranteed a job somewhere in the company. The guarantee does two things: it assures the employees that they won't be done in by their own efficiency, and it protects them in downturns. Technically, the company pledges that it will give workers at least six months' notice before laying anyone off, but the last layoff was at least 30 years ago.

Job guarantees can be dangerous, but Lincoln's commitment has weathered even serious downturns. Back in 1982, for example, revenues fell by 40%, from $450 million to $220 million, when Lincoln's major customers -- especially those in the steel industry -- hit hard times.

Hastings admits that it was a frightening period. "We had never seen anything like it," he says. "Every market we were in went down." The company trained some production people to sell, and put others on maintenance crews, rebuilding machines and painting fences. Hourly workers went on a shorter, 30-hour week and their earnings were cut in half -- an average of $22,000 versus $44,000. But nobody lost a job. Since the company made a profit and paid dividends to shareholders, management went ahead and paid bonuses that year, an average 55% of earnings. "To skip a bonus would have been devastating," Sabo says.

Since then, business has picked up. Lincoln is today a $370-million company with no debt. What's more, it's a leader in its market, something that Hastings and his management colleagues -- nearly all of whom are Lincoln veterans -- doubt could have happened under another kind of system.

To be sure, Lincoln's work environment is not modeled after a company picnic. During busy periods people are expected to work extra shifts and weekends, and, unlike a lot of companies of its kind, there's no seniority. People are producing all day long, and competing with their peers for bonus money. Tough as it is, it seems to work. Turnover rates are high -- around 25% -- during the first three months or so, as people learn that nothing is given away. But after that, most employees stay longer than 30 years.

"An employee has to want to be in a system like this," Hastings explained one afternoon, sitting in his windowless office. And the same might be said of managers as well. Clearly, it's not for owners who find competition among employees distasteful or who need to be totally in charge of the show. At Lincoln, says Hastings, "if workers see waste -- or a new vice-president they don't think we need -- they question it." And those at the top have to be willing to talk about it, or the system breaks down. Ultimately, says Hastings, it depends on trust. "If all an owner wants to do is make more money, my feeling is that he'd be very disappointed with this system. It's not going to work unless people feel they're being treated fairly.'

LINCOLN ELECTRIC'S PAY FORMULA

A combination of earnings and bonuses

Even in slack periods, Lincoln Electric pays hefty bonuses. Since 1983, bonuses have averaged 66% of other earnings.

Earnings Bonuses
1983 $18,476 $10,347

1984 22,097 15,026

1985 23,486 17,380

1986 24,690 16,049

1987 26,442 18,773

(All figures averaged by Inc. )

(continued)

SEE FOR YOURSELF

Want to know more? Lincoln Electric will be happy to show you

Since 1983, The Lincoln Electric Co. has been sharing the inner workings of its incentive management system with managers from all over the world. Most months, the company sponsors a four-hour seminar for outsiders at its plant in Cleveland. The sessions, which are free, include a plant tour, lunch in the cafeteria, and a question-and-answer period. To date, they've attracted more than 2,500 managers, and that doesn't take into account special tours organized for the likes of Ford and General Motors.

The purpose of Lincoln's sessions was -- and still is -- at least partly altruistic, insists Richard Sabo, assistant to the chief executive officer and organizer of the seminars. "We wanted other companies to see that it's possible to remain profitable during difficult times." Lincoln has never worried much about giving away information to its competitors, he says, and there may, in fact, be a benefit to the exposure. "If other companies are profitable," Sabo says, "some of them may end up buying our products."

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