What Makes Lincoln Electric One of America's Best Companies

The 25 Best Companies in America
The 25 Best Companies in America

At first glance, Lincoln Electric seems like a typical mid-sized manufacturer. It focuses on producing materials and supplies used in welding, which has become increasingly important for a wide variety of applications in fast-growing industries, including oil and gas drilling, power generation, shipbuilding, automotive, and industrial construction. The Ohio-based company reports having nearly 10,000 employees worldwide and has posted more than $2.8 billion in sales over the past 12 months.

What truly makes Lincoln Electric special, though, is its long history of treating its employees better than those of nearly any other U.S. industrial company. In an era in which most manufacturing companies have moved their operations overseas in the name of cost savings, Lincoln Electric understands that by holding onto its experienced U.S. workforce, it retains the human capital it has helped develop and train, saving it from having to spend thousands of worker-hours bringing a new workforce up to speed.

The case for Lincoln Electric
Lincoln Electric strives to find balance in its treatment of everyone affected by its business, including its customers, workers, investors, and members of the general public. For its employees, the company provides an amazing level of pay and additional benefits, not to mention unparalleled job security.

Just this past December, Lincoln Electric marked its 79th straight year of paying its 3,000 American employees an annual bonus. For 2012, the company distributed $99.3 million in pre-tax profits those workers, amounting to an average bonus of nearly $34,000 per worker. Perhaps more impressively, the company avoided laying anyone off again last year, extending a streak of no layoffs that goes back at least to 1948. That's likely a huge part of why the company gets an 82% approval rating among employees on Glassdoor.

For customers, Lincoln Electric does an excellent job of making its products an essential part of their users' work. By keeping its equipment easy to use yet effective for the multiple purposes it must serve, Lincoln Electric builds loyalty among those who use its products, making it more likely that they'll come back to be repeat customers.

In some cases, shareholders would worry that such dedication to workers would come at their expense. Yet share prices have risen at a 15% annual clip since 2008 and at more than 18% over the past decade, with revenue growth posting average annual gains of more than 5% and a more than respectable return on capital.

Moreover, Lincoln Electric has done a good job of sharing its wealth with shareholders through dividends, with payout increases having come at about a 10% annual pace since 2010. Analysts continue to be optimistic about Lincoln Electric's prospects, projecting sales growth in the 6% range this year with similar gains for earnings.

Holding it all together is Lincoln Electric's corporate leadership, which understands that sacrifice can't simply come from the bottom of the ladder. During the recession, then-CEO John Stropki didn't hesitate to cut executive salaries as part of overall cost-cutting efforts, accepting a base-pay cut and a 55% cut in his bonus in 2009 from the previous year. Combined with hanging onto staff, the moves helped the company inspire its workers and get through tough times together.

Lincoln Electric also does plenty to help those beyond its walls. David Lincoln, the son of founder John Lincoln, has become a major philanthropist in the Phoenix area, founding new businesses of his own and donating millions of dollars to nonprofit organizations and educational institutions. Moreover, Lincoln Electric's Green Initiative Program includes training systems that avoid unnecessary waste of welding gas and other power sources, as well as a commitment to reduced emissions and air systems designed to capture fumes from welding fuel exhaust.

Things to consider
As much as Lincoln Electric has a reputation for being a populist employer, it's important to understand that top managers do get bigger rewards than workers on the floor. In 2011, then-CEO Stropki earned more than $6.1 million in total compensation, much of which came from incentive plan compensation. He and other top executives have seen massive pay increases as the company recovered from the financial crisis.

Yet Lincoln Electric doesn't have to be perfect in order to outperform the vast majority of its peers. With so many companies treating workers badly and still giving even more compensation for top executives, Lincoln Electric stands out among the corporate crowd.

Foolish bottom line
Lincoln Electric's unparalleled commitment to its workers has paid dividends not just for them but for investors, customers, and the communities in which the company works. The company stands as an example of how short-term-focused cost-cutting can be short-sighted and counterproductive in the long run.

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The article What Makes Lincoln Electric One of America's Best Companies originally appeared on Fool.com.

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