TOPICS > Economy

Cleveland Manufacturer Welds Together Job Security, Profits

July 13, 2011 at 12:00 AM EDT
Economics correspondent Paul Solman revisits Lincoln Electric, a welding manufacturing company based outside Cleveland, Ohio. Through its use of merit-based profit-sharing and a no-layoff policy, the firm is an unlikely Rust Belt success story that hasn't laid off anyone for financial reasons since World War II.

JUDY WOODRUFF: Now, as the unemployment rate remains stuck above nine percent, NewsHour economics correspondent Paul Solman looks at a Cleveland company that has handled economic turmoil very differently. The manufacturer hasn’t laid off anyone for economic reasons since World War II.

Our story is part — our story is part of Paul’s ongoing reporting Making Sense of financial news.

PAUL SOLMAN: A bright light in Rust Belt America: Lincoln Electric, making welding equipment in Cleveland for over a century.

Four million U.S. factory jobs lost in a decade, a quarter-million in Ohio alone, yet here, they protect jobs, and did so even through the crash of ’08, says CEO John Stropki.

JOHN STROPKI, Lincoln Electric: We didn’t lay off any of our employees during that tremendous recession.

PAUL SOLMAN: That’s because, after three years, workers here are guaranteed at least 30 hours a week as long as they continue to meet quality standards.

Journalist Frank Koller is the author of “Spark,” a book about the firm.

FRANK KOLLER, “Spark”: Every CEO, when it comes time to announce a layoff, always says two things, first, our employees will remain our most valuable asset, even as we lay off 10, 15 percent of you, but second, we had no option.

The Lincoln Electric example does provide evidence that it is possible to protect people, as well as profits.

PAUL SOLMAN: Lincoln has made money in every year of its history, save two, and it keeps growing. Its Cleveland facilities span almost a mile. It now boasts one of the biggest wind turbines in North America, and the company has operations in 19 countries.

So, how does Lincoln do it? Through its so-called incentive management system, first chronicled back in 1951 by James Lincoln, the brother of the founder.

To see how the place works, we now donned our safety apparel, steel-toed shoes, earplugs and ventured out onto the factory floor. First, workers are not paid by the hour, but by output, the piecework system, once common in manufacturing America.

Kim Mattina has been a pieceworker at Lincoln for seven years.

KIM MATTINA, Lincoln Electric: Other people would like to be on an hourly job, where there’s just — there’s no pressure there. They just get paid no matter what they do.

PAUL SOLMAN: Here, the pressure’s always on, because, if you don’t do, you don’t earn. And since time is money, even lunch breaks can become too costly.

Brad Barnes eats at his workstation.

BRAD BARNES, Lincoln Electric: I like to be close to my work and get done eating and get right back to work again.

PAUL SOLMAN: So this is an efficiency move on your part?

BRAD BARNES: Yes, yes. Yes.

PAUL SOLMAN: How many people here in the factory, or what percentage, do what you’re doing?

BRAD BARNES: I would say more than half.

PAUL SOLMAN: Furthermore, overtime is at the company’s decision, not yours. The amount of work dictates the length of the shifts.

Fifteen-year veteran John Fazi:

JOHN FAZI, Lincoln Electric: It’s just long hours. When you get busy, you get busy. So, you have got to take the good with the bad.

PAUL SOLMAN: But the bad is getting paid overtime.

JOHN FAZI: Yes, but, sometimes, it’s not being with family, you know, little daughter and all that.

PAUL SOLMAN: Normal work week, 45 hours. The aim is to hire the hardest workers around.

CEO Stropki first came to Lincoln as a summer pieceworker to pay for college.

JOHN STROPKI: If I worked harder, I could make more money than somebody who had been here for 20 years or 30 years who wasn’t working as hard.

PAUL SOLMAN: “I’m pleased to offer you a job in our factory.”

Pay estimate: $3.20-$3.80 an hour. Stropki made far more, even when the plant was on holiday.

JOHN STROPKI: In the vacation time, I came in and swept the floors in the factory to keep — so I could keep earning those wages during that period of time, too.

PAUL SOLMAN: While workers at Lincoln today work hard to produce as much as they can, the piecework rate is forever being cut to reflect productivity improvements.

KIM MATTINA: Nobody wants to get their prices cut, but it’s usually for a reason.

PAUL SOLMAN: You figure it’s fair enough?

KIM MATTINA: It’s fair enough. I mean, you have to be fair to the company for the company to make money.

PAUL SOLMAN: But wait. Why care about the company making money? Because, in exchange for the rigors of piecework come job security and profit-sharing. Though its stock is publicly traded, Lincoln sets aside a full one-third of its earnings for a bonus pool.

JOHN STROPKI: That is shared by all full-time employees, based on their wages earned during the year and then based on their performance. So, if they make more parts, they get paid more. If they help us generate more profit, they get paid more.

We had 25 pieceworkers last year make over $100,000.

PAUL SOLMAN: The average worker makes $68,000 a year. But note that Stropki says the bonus is tied to performance. That’s a rating given by your supervisor. Those who rate very low over a long period of time either quit or can be fired.

The rating is another form of internal competition, and yet one of the things you’re rated on: your cooperativeness.

Journalist Frank Koller:

FRANK KOLLER: I think what Lincoln Electric is doing is striking a balance between competition at the individual level, so that each individual worker is trying to do the most, and, as a result, earn the most for himself, and the need for cooperation, where each worker is also very, very clear that he can’t or she can’t work on their own; they need to work together at the same time.

PAUL SOLMAN: Stropki says cooperation scaled new heights during the crisis year, when Lincoln’s sales dropped by a third.

JOHN STROPKI: We had to pull out all the stops, based on the severity of the recession. And if you look at going from 45 hours to, say, 30, at an extreme, that’s a pretty big contraction.

We offered a very modest early retirement program. And their attitude was: I had been here. I had gotten mine. It’s time for me to provide that same kind of opportunity for others.

PAUL SOLMAN: You’re almost choking up.

JOHN STROPKI: Yes, I am. You know, when you see people willing to give up something for others, that’s — that is something special, yes.

PAUL SOLMAN: The Lincoln system is intriguing enough that foreign firms often traipse through, says manager Frank Sufer.

MAN: I think the Chinese people that were here were a little bit surprised that we haven’t, like, laid people off. It’s kind of a shock to them.

PAUL SOLMAN: Hey, even we traipsed here 19 years ago, and profiled Lincoln for the NewsHour. Eight cases on the firm have been written at Harvard. There are James Lincoln’s books, Frank Koller’s.

So, why don’t more firms do as Lincoln does?

JOHN STROPKI: This system is harder to manage than other systems are. To have to come in, in the worst of a recession or depression and think about how you’re going to preserve the jobs of 2,000, 3,000 employees is not an easy system to manage with.

PAUL SOLMAN: Pieceworkers say the system is also too tough for most workers.

KIM MATTINA: I know, personally, nobody in my family could do the job that I do. And I would think maybe only a third of the people out there could actually survive doing piecework.

PAUL SOLMAN: Novella Todoroff has been at Lincoln for 12 years.

NOVELLA TODOROFF, Lincoln Electric: We have a lot of people that do come, they don’t make it.

PAUL SOLMAN: And they don’t make it why?

NOVELLA TODOROFF: Because we’re hard workers.

PAUL SOLMAN: Harder than the average?

NOVELLA TODOROFF: Yes, much harder than average.

PAUL SOLMAN: Frank Koller says the U.S. labor movement may also be partially responsible, long ago opting for income security over the job security at non-union Lincoln.

FRANK KOLLER: Income security implies that, if you’re hired for a job, you’re guaranteed a certain hourly wage, let’s say, in an auto factory in Detroit. The idea of employment security is that you will always have employment, but that, in tough times, because the company is not doing so well, your income is going to decline, and that, in good times, it will increase again. Now, ultimately, the idea of income security won out.

PAUL SOLMAN: As did, on Wall Street, the idea of income for shareholders.

Harvard Business School Professor Norm Berg, who’s taught Lincoln as a case study for decades, says Wall Street’s increasing stress on maximizing shareholder value has fought the profit-sharing/no-layoff model.

NORMAN BERG, Harvard Business School: If you ask the financial community, they would say this is practically traitorous. It’s like a bumblebee. It’s not supposed to fly, you know?

PAUL SOLMAN: Or, as a Wall Street investment banker said of the firm:

NORMAN BERG: I would love to get control of this company. I would cut the costs, lay off people, refinance, and make a lot of money.

PAUL SOLMAN: And, yet, here’s the actual bottom line. For more than a century, Lincoln Electric has made money the old-fashioned way and is on track for $200 million in profits in 2011, while offering its workers essentially lifetime employment in still somewhat rusty Cleveland, Ohio.