The $4B Company That Pays 77% Bonuses

Today, I'm looking Lincoln Electric (LECO), a $4 billion revenue welding equipment company. For those familiar with welding and shop work, it's no surprise they have build a memorable brand. But it's their people philosophies which jumped out to me.

Here's what caught my attention:

• They pay average bonuses of 77% of base wages (not a typo)

• Haven't laid anyone off since 1958 despite multiple recessions

• Workers produce 2-3x more than competitors using the same equipment

• Public competitors can't copy them without destroying quarterly earnings

The kicker? This isn't some Silicon Valley startup burning VC cash. Lincoln's been profitable for 129 years straight.

Three things that matter for your business:

• Their "Incentive Management System" proves culture beats technology for competitive moats

• Counter-positioning strategy forces competitors into lose-lose decisions

• Multi-generational employee families create knowledge that money can't buy

The money shot: 36.7% gross margins and 17.3% operating margins in a commodity business. That's what can happen when your workers act like owners.

The risk: AI is the trend of our times but I'm hearing more and more about how major advances in robotics are right around the corner. Robotic welding is nothing new but when humanoid robots become technically and financially viable for a small/medium-sized business, welding is an obvious job-to-be-done for them to tackle. It's good to see the company making investments in automation but this is going to be a trend I'm following closely.

With that, I'll see you tomorrow.

Nick

TL;DR

• Business Model: $4.0B welding equipment/consumables company, with about half of revenue from consumables

• Key Insight: Decades-long U.S. no-layoff tradition and substantial profit-sharing bonuses create an hard-to-replicate competitive moat

• Financial Strength: 36.7% gross margins, 15.9% reported operating margins (17.6% adjusted), 29 consecutive years of dividend increases

• Strategic Position: Market leader through counter-positioning—public competitors can't copy management model without shareholder backlash

• Entrepreneurial Lessons: Build advantages competitors cannot replicate; culture amplifies technology for sustainable moats

The 30,000-Foot View

Lincoln Electric runs a "razor-and-blades" business model in welding, with a large share of sales from higher-margin consumables (wires, electrodes, flux). The company serves industrial markets including fabrication, automotive, oil and gas, and construction across 160 countries.

Key Statistics:

• Market Cap: $13.25 billions

• 2024 Revenue: $4.009 billion

• Gross Margin: 36.7%

• Net Income: $461 million

• Employees: ~12,000

• Industry: Industrial Manufacturing Equipment

Revenue Mix by Segment (2024):

• Americas Welding: $2.565B

• International Welding: $0.934B

• Harris Products Group: $0.510B

Company History

• 1895: John C. Lincoln founds company with $200 to manufacture electric motors

• 1907: Brother James F. Lincoln joins, takes over management in 1914

• 1914-1934: Implements revolutionary management system (advisory board, piecework, profit-sharing)

• 1934: First profit-sharing bonus year—$131,800 distributed on $4M sales

• 1958: Guarantees employment for workers with 2+ years service

• 1995: IPO after 100 years private, raises $100M for international expansion

• 2012-2023: CEO Christopher Mapes delivers company-reported 523% TSR through 20+ acquisitions

• 2024: Steven Hedlund becomes CEO, continues automation focus with 6 acquisitions

Show Me the Money

Stand-out Financial Features:

• Operating margins above 15% show pricing power

• 30% revenue growth 2021-2023 before industrial headwinds hit

• Debt increased for strategic automation acquisitions

• 29 consecutive years of dividend increases

Financial Data

The N.O.O.B. Nine — Competitive Powers

The Nerd Out on Business Nine is made up of Hamliton Helmer's famous "7 Powers" of competitive advantage (Scale Economies, Network Economies, Counter-Positioning, Switching Costs, Branding, Cornered Resource, and Process Power) combined with two of my own (Data Flywheel and Distribution Advantage).

Average Score: 4/5 - Lincoln's strongest moats center on brand, human capital and culture.

Memorable Marketing

Lincoln's marketing emphasizes education and purpose over traditional advertising.

Digital Investment: Annual budget targeting industrial engineers through content marketing and technical resources.

TradeLife Campaign (2023): Partnered with YouTuber Jimmy Diresta and HGTV's Josh Temple documenting Boys Town's welding program.

Training Programs: Annual investment reaching thousands through Lincoln Electric Welding School (since 1917).

Trade Shows: Exhibition budget focusing on hands-on demonstrations at FABTECH, Automate, and regional events.

Tactical Takeaways:

1. Use education-based marketing to build expertise positioning

2. Partner with influencers authentically connected to your industry

3. Address industry-wide challenges (skills gap) to build goodwill

4. Invest in hands-on demonstrations

5. Create multi-generational customer relationships through training

AI Uses & Opportunities

Current Implementations:

• VRTEX Virtual Reality training with AI-driven weld quality analysis

• Power Wave technology processing 90x faster than previous generations

• Cooper Cobots enabling collaborative robot welding

• Novarc partnership achieving significant productivity gains in pipe welding

Future Opportunities:

• Enhanced computer vision for automated weld inspection

• Predictive maintenance analytics

• Supply chain optimization through machine learning

• Expanded VR/AR training scenarios

• Fully autonomous welding systems for hazardous environments

Bumps in the Road

Asbestos Litigation: Used asbestos in welding rods until 1981. Has faced verdicts related to historical asbestos exposure; has not filed bankruptcy or set up a trust.

Discrimination Issues:

• 2014: $1M DOL settlement for racial discrimination in hiring

• 2024: Gender pay lawsuit

International Expansion Crisis: 1990s failure to adapt Incentive Management System globally caused losses.

Current Challenges: Q1 2025 earnings miss, 8% organic sales decline, heavy industrial down high-teens.

Your Swipe File

1. Create competitive advantages through compensation

2. Choose counter-positioning forcing lose-lose competitor decisions

3. Build ecosystem switching costs over contractual lock-in

4. Invest in multi-generational culture as cornered resource

5. Maintain ownership structures that enable long-term thinking(similar to yesterday's Penske Automotive report)

6. Address legacy liabilities directly

7. Adapt core philosophies for international markets

8. Recognize execution barriers exceed IP protection