In early August, Lincoln Electric Holdings Inc. Chairman, President and CEO John M. Stropki Jr. visited one of his international factories. Not an unusual trip for the leader of a $2 billion global manufacturer, but during this stop in Mexico, Stropki had some downtime while the workers were going over their quarterly goals. Instead of catching up on e-mails and phone calls, Stropki grabbed a protective mask and gloves and went to work.
The Mexican facility had developed a new arc-welding machine, which makes up nearly half of Lincoln's sales (the other half being supplies), and Stropki wanted to give the welder a test drive. While today's typical CEO is usually more comfortable handling a BlackBerry or a PowerPoint presentation, Stropki is equally adept with a 1,000-pound metal-fusing torch capable of generating heat of more than 6,500 degrees.
"I think the young Mexican engineering group was pretty amazed to see an old — well, aging — CEO that can weld pretty well and evaluate a machine," says the 56-year-old Stropki. "I think that's what makes us so unique, because I doubt there are many CEOs in the welding business that know how to use the products they're making and/or selling."
Lincoln Electric is not your typical manufacturer and never has been in its 112-year history. Not only has it survived numerous economic peaks and valleys, but it is also in the midst of its most successful global expansion to date — having learned from lessons of its past. Lincoln has 35 facilities in 19 countries and is nearly complete on its 36th facility in its 20th country: India.
"We're taking the fight to the competition in all regions of the globe," says Stropki, who took the baton in 2004 on the company's latest global expansion from previous CEO Anthony Massaro.
Stropki is also growing the company domestically — a large canvas banner is even tacked up outside Lincoln's facility that reads "We're Hiring!" Although it recruits all ages, Lincoln's history shows it is inclined toward new employees not much older than Stropki was in the late 1960s when he sought a summer job at Lincoln Electric as an engineering student at Purdue University. In 35 years, he's never worked for another company.
"If you look at the makeup of the people within this company, we have a very, very high percentage of people who have been here their entire careers," says Stropki, who is only the seventh CEO in the company's history. "That's unusual in today's marketplace."
After 35 years in one place, it gets pretty easy to rattle off its history. Stropki, who technically started at Lincoln full time in 1972, had worked for the manufacturer summers earlier.
Stropki needed a job to help pay for his college education, which even in the late 1960s was expensive for an out-of-state student. A neighbor of his in Mayfield Heights told him about Lincoln Electric and its unique pay structure, where even a kid like him could make a lot of money if he worked hard enough. It's a method that's been studied in business schools for decades.
"Lincoln Electric's compensation system is featured in every introduction to HR and/or compensation textbook I've seen," says Bryan Pesta, assistant professor, Department of Management and Labor Relations at Cleveland State University. "They are indeed unique — so much so that they've managed to remain nonunion in a highly organized manufacturing environment."
Called the "piecework" system, the concept was developed by company co-founder James F. Lincoln, an entrepreneur and amateur psychologist, in the early 20th century as labor unions and government reform swept industrial manufacturing.
Convinced that employees are motivated, in part, by a larger paycheck, Lincoln believed workers would assemble more products faster if they were paid per unit, but wouldn't sacrifice quality if there was no payment for a faulty product. While unionized employees have a scale that guarantees pay raises after a number of years or hours worked, Lincoln employees can make as much (or as little) as they want, as long as they at least meet a certain standard.
Lincoln believed employees would try to find faster, less expensive and more efficient methods of manufacturing, which would not only benefit their paychecks, but also the company's bottom line.
"There is no doubt, however, intelligent selfishness has been the driving and guiding global force that has produced every advance man has made," Lincoln wrote in his groundbreaking book, "Incentive Management," first published in 1951. That basic philosophy has not changed since that time.
"I was 19 years old, and I was working as part of a team with six or seven other people — some of whom are still here, by the way — who were feeding their families doing the same job I was doing," Stropki says. "I made the exact same wage for the exact same output they made. I was not limited by being the new employee or the summer employee."
Stropki ended up making $10 to $11 an hour in the summer of 1969, at a time when his friends were flipping burgers and tearing movie tickets for $2 an hour, if they were lucky.
"If I worked hard, I made a lot of money; if I didn't, I didn't make a lot of money," Stropki says. "For somebody who needed the money for college, it was a great opportunity, and it was a great motivation to keep coming back and [to continue] working hard."
Not just its piecework system, but also Lincoln's annual profit-sharing bonuses are legendary among manufacturers and business-management scholars. The extra pay, instead of solely going to a top salesperson or executive, is awarded to all workers, based on the company's performance that year — an annual lump sum that can equal 50 to 150 percent of the employee's base pay for the year. In those early days, being a summer employee meant Stropki couldn't participate in the profit sharing, but he knew of its appeal among his fellow workers.
"Profit sharing has been a very strong driver," says Stropki, who last year handed out $60 million in bonuses to 3,000 employees in its Euclid and Mentor facilities, averaging $22,330 per person. "We've paid a profit-sharing bonus every year since 1934."
Having lived through tumultuous economic times, James F. Lincoln realized future economic swings would cause production slowdowns, but he did not want to lose the skilled, motivated workers through downsizing or temporary layoffs like unionized workers. So Lincoln scaled back employees' time during slow periods to as little as 30 hours a week, or moved them to other facilities. No Lincoln employee is ever terminated due to the company's performance, only their own. That tradition also continues, although it hasn't been used much in recent years with sales growing from $994 million in 2002 to $1.97 billion in 2006.
"The corporate strategy is to make all employees accountable, to demand extra effort, and then to reward that effort by sharing profits and guaranteeing continued employment," says Pesta. "Hard workers can earn wages substantially higher than the market rate for manufacturing jobs in the Cleveland area. This lets Lincoln Electric attract, retain and motivate the best workers in the area."
Lincoln's systems are so rare that Harvard Business School began studying the manufacturer in 1947, and its reports have since become the best-selling and most scrutinized case studies published by Harvard Business School Publishing.
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At A Glance
John M. Stropki Jr.
Title: Chairman, CEO and President
age: 56
Born: Cleveland
residence: Solon
Family: Wife, Liz, and two grown children, John Michael and Suzanne, both married
First job: Shipping department, Lincoln Electric
education: Bachelor’s degree in engineering, Purdue University; master’s in business administration, Indiana University
Career Highlights: After graduation in 1972, Stropki joined Lincoln full time as a sales trainee and later worked in the Indianapolis, Fort Wayne and Chicago district offices. He also served as district manager for the company’s offices in Columbus and Cleveland and from 1992 to 1994 was national sales manager for Canada. Stropki was named senior vice president of sales in 1994, responsible for both U.S. and Canadian sales. In 1996, he was appointed executive vice president and president, North America.
Hobbies: “I am a golfer — not a very good one,” says the 14.8 handicapper at The Country Club in Pepper Pike. “I spend better than 50 percent of my time traveling.”
boards: Serves on trustee and executive committees of the Manufacturers Alliance/MAPI, is a member of the Gas and Welding Distributors Association and the board of the Greater Cleveland Partnership
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"The Lincoln Electric case features core management issues that are as critical to business today as they were when the case was written," says Susan Minio, senior publicist for Harvard Business School Publishing. "Lincoln Electric showcases the company's innovation, both in terms of products and its management philosophy, and gives students a number of compelling issues to explore, which makes for a dynamic and engaging class discussion."
An update of the Harvard study was published late last year, which prompted a visit by Stropki to the world's most renowned business school. "We were there for the first day of the new class," says Stropki, chuckling. "We got all kinds of good suggestions."
Lincoln's unique structure, while successful for decades in its North American plants, did not at first translate to foreign workers, especially in countries where labor was government-controlled.
Lincoln usually expands globally by acquisition, first with foreign partnerships and then, after learning the ropes of a particular market, buying out its partner. The learning curve in the late 1980s and early 1990s included a failed German acquisition and selling off money-losing operations in Brazil, Japan and Venezuela, according to Cleveland historian Virginia Dawson, who wrote "Lincoln Electric: A History." The expansion forced the company to seek a $230 million loan from KeyBank (then Society) and other lenders to, in part, continue to pay bonuses to its U.S. workers who were not at fault for its missteps abroad.
By 1995, the European operations were again profitable and Lincoln was more targeted with its overseas acquisitions. As China emerged as the fastest-growing market in the world, Lincoln established the Lincoln Shanghai Welding Co. in 1997 in a free trade zone, finding other Chinese companies with which to form joint partnerships.
"I think we're considerably ahead of our competition, our global competition, in achieving our objectives in China," says Stropki, who, before becoming CEO, was the chief operating officer leading foreign markets. Today, Lincoln operates five manufacturing plants in China and is steadily luring business away from its domestic competitors.
To protect its intellectual property — an issue that continues to plague U.S. manufacturers — Lincoln maintains most of its high-tech welding equipment manufacturing in its North American facilities. In China, Lincoln makes its welding supplies (called "consumables"), which are the metal electrodes that are heated during the welding process. Consumables are relatively low tech but make up approximately 58 percent of Lincoln's sales.
So rather than exporting its coveted welders from plants in China, Lincoln is shipping more than $25 million of its Northeast Ohio-made products there as the country continues to develop industrially at a torrid pace.
"Lincoln has taken a bigger role in being able to sell its products internationally," says Steve Barger, research analyst for KeyBanc Capital Markets Inc., who covers Lincoln and other industrial manufacturing companies. "It's a very strong company financially, which gives it the ability to start doing acquisitions, to take a more aggressive role overseas, and I think that has brought it to more investors' awareness."
With its latest facility in Chennai, India, Lincoln currently has 10 plants under construction or major expansions around the world. "That's by far the most aggressive plan we've ever had in the history of the company," says Stropki, who sees a huge demand for Lincoln's welders as the world's thirst for oil, gas and other energy sources grows along with the need for pipelines to deliver those resources.
"You'd be hard pressed to find anybody who is manufacturing metal kinds of products, who uses metal, that doesn't use welding," Stropki says. "So if you look at the diversity we have from a customer base, we don't need to be diversified because our customers are so diversified."
That's how it's been for Lincoln: The more the world changes, the more it stays the same. Its eight-word mission, written by James F. Lincoln, is painted in big capital letters on the wall of its lobby: "The actual is limited: The possible is immense."
"Success is driven by your effort and energy, not by external factors," Stropki explains. "We're 112 years old now. We've been uniformly successful — ups and downs — but in comparing us against our competitors, we're uniformly successful, and there's really nothing that is in the way of our very bright and successful future."