Sharing Up Profits With the Workers
W. A Craick
Profit sharing is a product of the new times, the herald of a new age. It marks a new era of amity and co-operation between employer and employee. /Is yet it is not generally^ practiced in Canada, but it has long since passed the theoretical stage and will soon be accepted as one of the guiding principles in all big business concerns. In the meantinme something of interest concerning the profit sharing scheme itself and the movement and motives behind it will be acceptable.
THE profit-sharing idea has not made much progress in Canada as yet. For this at least two reasors may he advanced. In the first place, the country has not reached the point industrially where employers can spare much time from the work of organization and development to devote their thoughts to plans for the betterment of the workman. And in the second place there is not yet that keen competition of interests which has made it so necessary in other countries to secure the loyal support of the most skilled and efficient artisans. Possibly, too, an ignorance in some quarters of what profit sharing in its most successful forms really is, how it may be operated, and its value in obtaining continuous and competent service, may have something to do with the tardy deveolpment of the conception. On the other hand, it is hardly likely that the various objections which have been raised by opponents of the idea have had any important bearing on the situation in Canada, since, for one firm which has rejected profit sharing, there must be a hundred which have given it no consideration whatever.
THE UNDERLYING MOTIVES.
There have been various basic motives which have actuated employers in adopting the profit sharing idea and these motives are to be found influencing such Canadian firms as have schemes in force just as much as those in the United States and on the continent. There is the altogether philanthropical motive, which sees in the system only a just recognition of the employer’s duty to the employee. There is again the self-interest motive, which realizes that to get the best service from a workman he should be given some stake in the product of his labor. And there is the motive which combines a little of each element and which, on that account, is probably the most effective of them all.
In the modern development of business and industry, with their myriad systems and inventions, the importance of the human element, instead of being diminished, is actually increased. Nothing can take the place of human incentive to achieve results. To make an enterprise the greatest success possible, every human
being connected with it must be working at the highest pitch of his ability. The point which must always concern an employer of labor is how to get the best that is in him from each individual. A few workmen of 'the conscientious, loyal and honest sort, may be expected to give consistently good service in spite of everything, but it will be found that with the great majority there is a percentage of possible effort lost because the man or woman is only working half-heartedly. In short there is a vast difference between the work that a human being performs in a perfunctory, machine-like manner, and the work he does with a keen, loyal interest in what he is about. As a solution of this problem, the claims of profit sharing have been advanced by numerous advocates, who point to various examples of its application to show that it does give the necessary incentive to induce men and women to work more earnestly and efficiently.
Generally speaking there are two forms which profit sharing has assumed in Canada, based on ideas already worked out in the United States and Europe. There is profit sharing pure and simple which takes a proportion of each year’s profits and assigns a share to each employee or to such a list of employees as qualify under the plan. This idea is more often to be found in the case of mercantile establishments, financial institutions and banks but is also to be noticed in some industries. And in the second place there is the more advanced plan of enabling employees to participate in the profits by furnishing them with favorable opportunities of becoming actual shareholders in the enterprise. This latter plan, carried to a remarkable development in the case of several important American industries, is gaining ground in Canada and has already been adopted by a few companies. A combination of the two plans has been attempted by some firms, who for special reasons may not desire to give all employees opportunities to hold stock but may yet wish to have them participate in the profits. In all plans in force there are necessary modifications to suit the needs of the various businesses. For instance, one firm may not permit an employee who holds stock to retain it after he leaves their employ, while another
may make no such stipulation. One may pay out the profits in cash and another by certificate. All these differences will come to light as the various plans are described in detail.
PROFIT SHARING IN CANADA.
While it wrould be a difficult undertaking and one involving the expenditure of much time and study to compile a complete list of all the firms in Canada which have in force profit sharing schemes of one sort or another, yet it is possible to quote several outstanding examples in order to show what is being accomplished in this direction. As compared with the United States progress has been slow, but opportunities for development work have been feiver. The fact that quite a number of firms have plans under consideration, which they purpose putting into force in the near future, is sufficient to prove that the question is becoming one of increasing importance.
One of the first of the purely Canadian firms to devise a profit sharing plan in Canada was the William Davies Company of Toronto. About twenty-five years ago the management decided to set aside annually a portion of the profits to be diyided among all employees of a certain standing. The original arrangement ivas to give to each a certificate redeemable in cash after a number of years, the idea being to retain the interest and services of employees as long as possible. It was soon found, however, that these certificates were more bother than they were worth, as employees were constantly finding pretexts for coming to the firm to have them cashed. The plan wras accordingly changed and the arrangement now in force was adopted. A distribution of a proportion of the profits, as determined by the directors of the company, is made annually to all employees of two years standing and upwards, the amount paid to each being based on the wage or salary earned. The money is not handed out in cash but is placed to the credit of the beneficiary in the bank, in the hope that the men will be induced to save and thereby provide against a rainy day. Such employees as have been in the service of the company less than twro years, but over twelve months, may be given a share of the profits at the discretion of
the management and in certain cases the directors reserve the right to increase or diminish the amount distributed according to the merits of the recipients.
W. J. Gage & Company, manufacturing and wholesale stationers, Toronto, started a profit sharing plan a few years ago, which they have found most effective in securing and retaining the sympathetic interest of many workers in their employ. The staff was divided into two parts, heads of departments and employees. A block of the capital stock of the company was transferred to the president, who in turn allotted to each of the heads of departments a certain amount of stock varying with the experience and length of service of the beneficiary. The transfer was made under an agreement between the president and each individual concerned, by which the first charge on the dividend declared on the stock is that of reasonable interest on the portion of the stock remaining unpaid. The balance of the dividend after paying this interest is then applied tc the purchase of the stock together with such further sums as the beenficiary may desire to apply. If in any year no dividend is declared by the company, it is agreed that no interest shall be charged and if, in any year, the dividend falls below the fixed rate for interest, the dividend shall be regarded as paying the interest in full. The agreements are for a term of years at the end of which time the entire stock, or such as has been fully paid for, becomes the property of the beneficiary. Should the beneficiary die or leave the service of the company, it is the president’s privilege to buy back the stock, paying for it the full amount paid in by the beneficiary.
In the cases of employees who are not provided for by the above arrangement, it has been the custom of the firm for a number of years to distribute a percentage of the profitsearned among those who have been continually in their employ for at least twelve months. This distribution is based on the wage or salary of each employee.
A somewhat similar scheme, so far as it concerns the division of stock among certain selected employees, has been adopted by the Canadian Fairbanks Company of Montreal. This company picked
a number of the men in their employ, whose interest they were specially anxious to retain, and offered them a block of stock on particularly favorable terms. Ninety per cent, of the men to whom the stock was offered took it up and became thereby directly interested in the welfare and progress of the company. The Fairbanks stock is not a listed security so that its value is determined annually by accountants. When a stock-holding employee dies or leaves the company, his shares are bought back at a valuation based on the preceding annual statement.
But it is as a subsidiary portion of a larger plan in force in the United States that the most significant example of profit sharing is to be found in Canada. The Canadian plant of the International Harvester Company at Hamilton shares with the American plants in a scheme, the excellence of which has been widely recognized. The Harvester Company divides its plan into two parts—an immediate distribution in cash each year and an occasional offering of stock on favorable terms to its employees.
The cash distribution is made annually from a sum of money set aside by the company out of its earnings, the size depending on the amount of the profits. The distribution of the sales department’s share in this sum is based upon two important points,—first, increase of sales; second, reduction of selling expense. The distribution of the work department’s share depends on increased production, decreased cost or a combination of both. Employees in any branch of the company’s service, showing marked ability during the year, are entitled to receive recognition under this plan.
The stock distribution is arranged on the purchase plan, employees being afforded an opportunity to subscribe to and purchase stock in installments. In order to treat all alike, no employee is allowed to subscribe for more stock than he can pay for by using twenty-five per cent, of his salary in any one year. The stock is issued to the men at a price below the market price and on deferred payments a charge of five per cent, is levied. Dividends, however, are paid at once and in addition there is a bonus system which works to the advantage of those who remain in the employ of the company for
five years. This bonus consists of a credit of four dollars a year for five years on each share of preferred stock taken up and of three dollars a year on each share of common. Should an employee leave in the meantime, he ceases to receive this bonus and the amount, which would otherwise be placed to his credit, goes into a general fund, which is divided up at the end of five years among those who have adhered to the plan. The idea, of course, is to give those employees who stand by the company, an advantage over those who desert its service. The plan of the International Harvester Company, which is similar to that in force in many American industrial concerns, has been well supported by the workmen and several thousands of them are to-day stockholders in the company.
Turning now from industrial to mercantile establishements, the plan adopted by Lariviere Incorporated, Montreal, a wholesale hardware firm, merits attention. The president of the company, Mr. F. C. Lariviere, has been a close student of profit sharing for many years and is a firm believer in its justice and efficacy. His firm have established what they designate, “The Savings Counting House of the Staff.” Any employee who desires to do so, may deposit his savings with the company, receiving six per cent, per annum on his money. When he has one hundred dollars to his credit, he is entitled to participate in the company’s profit sharing system, receiving each year his proportionate share of the profits on the same basis as the capital stock. If he so desires, he can, on making application and receiving the approbation of the management, have his money applied to the purchase of stock in the company pany, before his right to share in the and, when he becomes a shareholder, he is accorded all the rights of regular shareholders. This plan possesses commendable features. For one thing it compels a man to .acquire a stake in the cornprofits is recognized and for another, it gives everyone a chance to participate, dependent on their ability to save..
In the case of the firm’s salesmen, Lariviere Incorporated have a supplementary system of profit sharing in force, which would'appear to increase the efficiency of the sales’ staff. From the gross
profits of each salesman is deducted the total cost of doing business. This includes the salaries of help, office and managing staff, interest on capital, bad debts, donations, depreciation on stock, rent and other general expenses, and such difference as may be found between the results of cost and selling as figured in the firm’s books and the results of the year’s business as established by the inventory. It does not include the salaries of the selling staff. Of the net profits thus determined, the salesman is entitled to from 33 1-3 per cent, to 50 per cent.
The general plan of Lariviere Incorporated is also to be found in operation in the departmental store of Stanley Mills & Company of Hamilton. This company, in 1903, set apart one thousand shares of stock, which was offered to employees for purchase. At first the number of shares taken by the employees was small, but the following year an Employees’ Savings Department was started, where sums of 10 cents per week and upward were re-' ceived and interest at six per cent, per annum was allowed. As soon as the balance to anyone’s credit reached $25, no further deposits were received, but that person had the privilege of exchanging the money for one share of preferred stock of the company bearing eight per cent, interest. Then, saving might be resumed until a second $25 was secured. In this way some of the employees of the company have secured quite a large holding of stock and recently two or three of the largest stockholders among them were placed on the directorate. Altogether forty per cent, of the employees of Stanley Mills & Company own stock in the company and the management regard the plan as highly successful.
Another plan is that of the W. F. Hatheway Company, of St John, New Brunswick, wholesale grocers, which they have had in force for the past twenty years. The warehouse employees get the usual wages of the city, ranging from $7 to $11 a week according to the kind of work. Traveling salesmen receive from $100 to $120 per month. At the end of the year, all the employees are given a percentage on the net profits for the year, pro rata to the wages they receive. For example if the firm divides $20,000, then all those who are earning
in the neighborhood of $500 a year would get about % per cent. ; those who are earning about $1,000 would get 1 per cent, and those earning $1,600 or $1,800 would get about 2 per cent.
Most of the employees leave this money in the business on interest. In fact it is the understood agreement that they will do this, unless they have to withdraw it for some special purpose, such as an investment in land, the payment of an insurance premium, or when they are leaving the employ of the company. In emgencies the fund comes in useful, as when a teamster lost his horse and was immediately able to buy a new one by drawing out the money he had on deposit in the business. In this way profit sharing is combined in a sense with insurance and the company gets a good name for kindly treatment of its employees.
Another retail establishment which recently started a species of profit sharing plan is Smallman & Ingram of London, Ontario. On the incorporation of the business two years ago, a selected list of the older employees of the company were given an opportunity to subscribe for small amounts of stock, which they were enabled to pay for on easy terms. It was also arranged that they could secure further allotments of stock by using the dividends on the shares already purchased for the purpose. The management have found that by having a number of their employees with a financial interest in the company, a much stronger interest in the successful conduct of the business was secured.
It is scarcely necessary to add that there are in force in Canada numerous bonus schemes which partake in a sense of the general idea of profit sharing. Many retail stores make such allowances to their salespeople ; wholesale houses do it for their travelers and the banks make a practice of supplementing the salaries of their clerks by the same means. Strictly speaking these schemes are not what should be called profit sharing plans.
PLANS IN UNITED STATES.
In conclusion it may not be out of place to refer briefly to a few of the plans in force in the United States, some features of which are different from anything noted in Canada. The N. O. Nelson Mfg. Co, of St. Louis, began in 1886
to divide the net profits of the business, less 7 per cent, interest on actual capital invested; in equal proportions 'between the wage earners and the stockholders, giving to each employee his proportion according to the amount of wages paid him for the year. In 1889, however, it was deemed wiser to adopt a plan whereby, instead of paying employees their share in cash, they would be paid in stock. All employees became thereby involuntary shareholders. On their stock they now receive six per cent., while on their wages they receive their proportion of the net profits in the shape of new stock or interest-bearing credits for fractional amounts urlder $50. In this way more than one-half of the capital stock of the company has become the property of employees and' customers, for in 1900 the latter were also taken into partnership.
The John B. Stetson Co., Philadelphia, ployees and customers, for in 1905 the distributed stock in much the same way as the Nelson Co., but they made this exception. The stock was not transferred to the beneficiaries until the expiration of fifteen years, being held in the meantime by five trustees. The object of this provision was to prevent an employee from disposing of his stock and to ensure him a steady income so long as he was in the company’s employ. As it worked out, it took about six years for the dividends, less the interest charges, to amount to the par value of the stock.
The Simmons Hardware Co. of St. Louis adopted the plan of selling to their salesmen stock on credit, taking the stock as collateral security for their notes. By a system; of profit sharing, the notes were paid in a reasonably short time and the stock became the absolute property of the employees.
The Keystone Driller Co., of Beaver Palls, Pa., base their system on a combined savings bank and profit sharing plan, on which they pay interest at six per cent, per annum. At the expiry of six months, the money on deposit becomes profit sharing if the depositor so desires, participating on an exact equality with any other capital invested in the company and being represented by a profit sharing certificate. The certificate may be exchanged for regular corporation stock later on.