What Profit Sharing Has Done
Some Arguments, Which are Used in Favor of and Against the System A Careful Summing up of Facts, After Exhaustive and Impartial Investigation and Study Shows That the Advantages Outweigh the Disadvantages.
Fred C. Lariviere
IN reference to the system of profit-sharing in business, I would say, that a fixed salary, even if it were combined with
the premium system or other similar ways of encouragement, has rarely lead the workman to economy. Unlimited increase in salaries has never produced good results ; it provokes rather increased cost of everything, and is quickly spent. Profit-sharing, on the other hand, puts the workman in position to spare money, and it can even, when judiciously applied, oblige him to become a capitalist. A reserve fund is created by means of the excess of profits in prosperous years. This extra capital is for the benefit of both the employer and the employe. Profit-sharing should not, however, be a substitute to salary. It is simply intended to complete it, to improve it and to add to it a part of the proceeds of the enterprise and interest the workman. It constitutes, consequently, the best means to be employed, to guarantee a fixed salary, and, at the same time, its stability, thus avoiding any indefinite raise of salaries resulting from strikes without, however, depriving the workman of the advantages of a prosperous enterprise.
Profit-sharing can exert a more favorable influence over the social and moral situation of workman. The workman becomes free, more independent and more responsible; he does not look upon himself as a simple salaried man, but as a partner and proprietor tied to the interests of the enterprise. He feels that he is in a higher position, and tries to merit this new situation. He is naturally led to live more peacefully in the midst of his family and to shun drinking habits. The payment ot
profits opens a new field to his eyes and gives him hope for the realization of his little dream. He intends to buy a house, would like to start a small store, aims to save enough money for his old age, and, seeing this is not impossible, he acquires the good habit of remaining at home. His wife seeing this favorable change, tries to do everything in her power to entice her husband to continue such a practice in the evenings.
Workmen, that receive a fixed salary, do not give all their intellectual and physical strength. There are even some who say in the morning: “I wished the day was over.” A workman in this disposition does not care about his family nor for the success of the enterprise. A moral sloth takes hold of his mind and he looks with indifference upon all things. He tries to forget everything by means of alcohol. Some factories have by profit-sharing met with wonderful success and have made of their employes very sober men. \\ ithout profit-sharing workmen often think hut little of themselves and of their own advantage. With profit-sharing each one considers his companions as members of the same family and all work for the success of the enterprise. Economy in the use of raw material is seen, and, if one does something wrong, he is quickly reminded to do his duty. This is done by a companion in a pleasant tone and has more power over the workman than anv other advice.
The employer is indemnified tor. sharing his profits with his staff, causes a greater zeal on the part of his employes, more regularity, better care of tools, machinery and raw material, more attention in the
manufacturing of goods, all qualities that contribute to the name of the firm. It is even possible that with time gains will increase to such an extent that actual profits will outstrip the profits of the preceding years when profit-sharing was not in practice. In any case, these increased profits will swell the reserve fund, thereby fulfilling its object, i.e., to counterbalance losses in unsuccessful years. The workman interested in a factory is like a foreman or a superintendent, and, when difficulties are met on the way, he is always willing to increase his output rather than stop work.
In the Ihops we see satisfaction, peace and co-operative activity. W hatever may be the financial result of the year the proprietor will see his influence and his authority always maintained and even increasing. He will in a more effective manner repress any disorder against the united interest of all concerned, being upheld by his workmen in this difficult task. The proprietor will also feel more comfortable in his daily occupations, being able to move in peaceful atmosphere from which antagonism between capital and labor are banished to make room for a freer and more familvlike spirit.
The Board of Trade of Geneva has given careful attention to profit-sharing questions. At one of the regular meetings Mr. Billon declared that his system was working in a most satisfactory manner, and had so much influence over his workmen that, without being asked, they offered themselves to work ten hours and a half a day. Naturally this offer was not accepted. He added that were the Socialists’ ideas to predominate in Geneva, his workmen would defend their factory with the same energy that the shareholders themselves would.
With the salary method, capital seeks to give labor the least money and labor the least work for the most money. It is for this purpose that factory owners and workmen have formed associations who, by fighting, together swallow up large sums of money. Strikes generally commence when work is in abundance or arise from exaggerated claims. Unlimited debates take place during which the favorable circumstance of increasing the annual product is left aside. The two parties hold to their views and both lose money. By profit-sharing the workman needs not the
help of any association whose object is to exert a strong influence over employers. Both parties learn to understand eacli other in a better way and esteem comes with time. They gradually perceive that an enterprise of any kind will come to ruin through either lack of energetic administration or bad will and false ideas on the part of the staff. Without profit-sharing workmen remain strangers to these questions; they keep away from them and take pleasure in their systematic opposition.
Neither salary by the piece nor premiums or donations or other similar methods of remuneration can produce the results obtained through profit-sharing, because salary of any kind cannot unite their interest nor can it create forced savings or own a share of the social fund.
Similar results cannot be obtained! through salaries by piece work because it does not oblige workers to save money, and, even if some of the workmen earn large salaries, few are they who know how to save part of it.
The premium system is too much left to the good-will of the employer and easily excites jealousy between workmen. Under the system of salary by the piece the workman tries to do his work in the least time possible, so as to earn the largest sum. It therefore requires very severe inspection soas not to pass defective goods that would injure the firm’s reputation. With profitsharing each one tries to do his work as perfectly as possible so as to give the factory larger contracts. It induces the workman to have better tools so as to save time and‘do more competent work.
Profit-sharing offers to workmen, when no work is to be had, very efficient help and. advantage. A few years ago on the occasion of a debate-on profit-sharing at the Board of Trade of Geneva, reference was made to the success of the firm of Billon & Tsaac. One speaker said : “We need not
be surprised of the good results obtained through profit-sharing in a factory of so thriving industrial branch, directed bv men of such high intellectual standing. But it is not to be concluded that it is possible to universalize the practice of the system. Everyone would not be so fortunate as to avoid all possibility of losses.” Messrs. Billon & Isaac answered this objection by giving the results obtained during the last industrial crisis which was felt, also in their
own factory. The number of workmen fell clown to 73, when during the five preceding years it had been usually from 100 to no and even 135. The obligatory savings made through profit-sharing during the five prosperous years for each workman, had permitted to those without work to await an offer of employment in Geneva or elsewhere without suffering. Those who remained in the factory could in an easier way sustain the reduction of working hours, because they were authorized to complete their ordinary salary with their savings account.
The directors of many factories consider as ill-founded the supposition that profitsharing would necessarily bring the interference of workmen in the bookkeeping and in the management of the business. The predictions made in that sense are contradicted by the experience of the system since its foundation. In all contracts between two parties there are and there ought to be limits and restrictions, that cannot be overstepped without breaking the contract. Placed in such a condition workmen will always recede if they have honest employers. In these establishments workmen’s rights are fixed through statutes and regulations, and they have access through delegates to the general meetings, where they are on the same footing, as shareholders. It is generally forgotten that profit-sharing well applied and fairly practiced is liable to smooth difficulties and simplify situations.
The system must be founded on mutual confidence and loyalty as well as on complete liberty and authority of employers. The policy of management of the business should not be departed from. Strife or debate in reference to profit-sharing shall be decided through arbitration. It is therefore the duty of the employers to state how results of profit-sharing will be made known to the employes.
The necessity of developing at the beginning, the workman’s education is generally considered as an argument against profit-sharing. This situation, on the contrary, is in favor of the system. The necessity to elevate the workmen’s education and to keep them in mutual peaceful relations is really a kind office Under the profitsharing system this education for a good part is done by itself. A manufacturer
who has adopted profit-sharing, recently said: “The intellectual level of my staff is not above that of ordinary workmen or that of their neighbor. All political and religious opinions are duly represented, from the Socialist to the Royalist, from the free child of the Gospel to the devoted servant of the Rope. Rrofit-sharing has had the effect of interesting them to their work, but, nevertheless, it is not an enchanter’s wand that changes instantly the workman. As all good things it needs a certain time to produce good results. I must not say that profit-sharing does not offer certain difficulties, but I must not also exaggerate these. Are we not in the presence of the same kind of industrial enterprise and of unequal situations resulting from different managements. Salaries do not only differ from locality to locality, from factory to factory, but even in the same establishment they vary a great deal. An active and clever workman, who can work two machines, receives a far higher salary than that of ordinary workmen. These inequalities cannot disappear from the earth unless humanity instead of trying to improve her welfare would fall to a lower degree of occupation and of pleasure. There will not be more jealousy between workmen when these salaries necessarily share in the profits. Employers, who pay the lowest possible salaries and who use the worst mechanical devices, will see their situation more intricate still. But industrial and social progress can but be helped under a system that will lead all forces in the way of superior services, and that will oblige employers to organize their industries in a way that will assure their employes a situation as advantageous as that of the most favored ones in the same industrial branch.” Are you in favor of profit-sharing? Dr. Angel, director of the Royal Statistical Bureau of Prussia, Prince Louis Philippe of Orleans, Count of Paris; Mr. Dupasquir, of Cortaillod, Canton, of Neuchâtel, Switzerland, a large manufacturer of clocks, watches, etc.; Mr. Grenier, manufacturer of Bex, French Switzerland ; Professor Vonder Goltz; Mr. John Stuart Mill, of London, England ; Air. Henry Fauvatt. Professor of Political Economy at Cambridge University, England; Mr. Thorton. J. M. Leidgow, and Mr. Lloyd Jones, economists, of London. England: Nicholas
Paine Gilman, Meadville, United States,
and many others, are strong and persistent advocates of the system.
AGAINST THE SYSTEM.
I now wish to briefly sum up some of the arguments against and in favor of profit-sharing. 1 will first present those which are put forward as being unfavorable: Profit-sharing w ill never be a substitute to salary.
Unequal gains will always exist in the same industry.
Antagonism between capital and labor will always subsist.
The shares to each individual are too small to be appreciated.
The generalization of profit-sharing would have the effect of reducing profits.
The prosperity of an industry depends on its management, consequently the application of profit-sharing is an in just departure.
The mistrust and ignorance of employes will be prejudicial to good management.
Piece work or high wages are the only just substitutes to ordinary salary.
It is impossible to have employes share in the losses.
It is very difficult to establish the proper proportion of remuneration between capital and labor, especially in manufacturing industries.
Profit-sharing with no share of ownership in the industry is based on unsound principles.
Profit-sharing forces an employe to stay under penalty of loss of share of profits for the full term fixed by rules and regulations.
To be just, a profit-sharing system must give to the employes the right to be represented for stock taking and for the balancing of accounts, which is a very serious objection, inasmuch as it makes known the results, and, if favorable, will encourage others to start in same line of business, and, if reports are unfavorable, can cause very serious financial difficulties.
FOR THE SYSTEM.
Those points in favor of profit-sharing are :
It is a more logical and a much fairer way of remunerating the wage earner.
It promotes economy amongst the laboring classes.
To a certain extent, it prevents the possibility of strikes.
It gives an employe a chance to apply the full force of his physical and moral energy.
When properly applied, it helps to promote the employers’ interest.
It spreads on the largest number the care and responsibilities of the management.
\t decreases the antagonizing influence of labor agathst capital.
It facilitates more intimate and friendly intercourse between employers and employes.
It gathers money to be distributed amongst laborers during dull time and scarcity of work.
It does not bring about the meddling of employes with the management of enterprises.
There is nothing known that will make disappear inequality of salaries and profitsharing has never had this result in view in any of its applications.
In concluding my series of articles for The Busy Alan’s Alagazine on the advantages of profit-sharing, I desire to state from this study that it will be seen that the application of the profit-sharing system has been in operation in various industries, if not in the whole world, at least, in the most progressive and aggressive business countries as an improvement in the mode of remuneration of labor with good moral results for the working class.
Profit-sharing must not be considered as an innovation with infallibly good results, as a cure-all of all labor troubles, but as an amelioration over the old wage system, and its good results have conferred, when the nature of the enterprise permitted its application, benefit on both employer and employes.
The principles of profit-sharing are sound and just, but its application in a unique form is impossible.
The various results heretofore described prove that each case has its own solution, and rules and regulations first adopted have oftentimes been changed. It must not be forgotten that profit-sharing imposes on each sharer, to obtain good results, more duties and a better knowledge of the industry.
To make a success of the application of profit-sharing the following will be useful: Profit-sharing should be organized in such a manner as to establish a joint re-
sponsibility of interest between employers and employes, also a capital and labor.
The salary question should not be mixed with profit-sharing, but be considered separately and be based on the general fluctuation of wages.
The industrial production and business management should be seriously considered in adopting a profit-sharing system as well as the relation of labor and capital.
Salary seems to be the basis most generally adopted, although some add the consideration of the number of years spent in the factory.
The amount set for profit-sharing should be sufficiently large to really interest the staff.
Profit-sharing should extend to the larg1 est possible number of employes, and be well defined at its inauguration, not left to the good-will of the employer.
All firms adopting profit-sharing must necessarily be in very good financial cir-
cumstanccs, especially if results are to be made public.
Shares ot profit-sharing should not be paid in cash, but placed to the credit of each employe with an allowance for interest. and to determine a number of years, during which the owner cannot dispose of his earnings except in case of death, purchase of house, or out of work.
The principal object of profit-sharing should be the creation of a savings department for each employe, to enable him to become a property owner or a co-proprietor of the industry.
All I have said in this study is from various authors that I have referred to and from answers to my inquiries of the different firms, who are operating with success a profit-sharing system. Jt has taken over a year of my spare time and the compilations that I have presented constitute the only personal merit that I lay claim to.