Profiteering

Extent of Profit-Sharing.

Profit-sharing has never reached considerable proportions in the United States. Of so plans set up before 1896 only 12 remained in operation in 1896. The United States Bureau of Labor Statistics found only 6o "true" profit-sharing plans in 1916; i.e. covering rank and file employees as contrasted with "limited" plans which apply only to "principal employees." There were probably not over 8o to 90 true profit sharing plans in the United States in 1930 and some of those were discontinued during the depression years which followed. Seventy years' experience yielded a net growth of hardly more than one plan per year. The National Industrial Conference Board report on Practical Experience with Profit-Sharing (192o), which cov ered 41 true profit-sharing plans indicated two general conclu sions: That profit-sharing is still in the experimental stage and may have more merit than its history indicates and that it has been successful thus far only in the hands of a minority of em ployers, men with social vision and unusual interest in policies of such a kind, and with workers of considerable intelligence and who have confidence in their employer.

The latest figures on the extent of profit-sharing in the United States are given in C. C. Balderston's Pro fit-Sharing f or if age Earn ers, 1937, which showed that 193 plans were known to have been initiated in the United States and Canada and 679 in Great Brit ain and Northern Ireland. Sixty-seven of these American and 266 of the British plans were in active operation in 1937. In a Na tional Industrial Conference Board study published in 1928, which reported results of inquiries of 4,655 establishments in many industries, the percentages of profit-sharing establishments varied from 1.9% in the rubber industry to 12.7% in the case of mercantile establishments. Public utilities and the chemical in dustry ranked second and third, with 9.4% and 7.3%, respec tively, of the companies investigated participating in plans of profit-sharing. Only six of the plans included in the survey began before 1916. The National Industrial Conference Board reached three conclusions in its report on profit-sharing: (I) From experience with profit-sharing in the past and the plans now in operation, profit-sharing has been successful for limited periods.

(2) Judging from the long list of abandoned plans and the com paratively small number that have endured more than a few years, the effectiveness of profit-sharing in surviving the many vicissitudes of an industrial enterprise is decidedly uncertain.

(3) In the light of the high percentage of abandonment due to dissatisfaction among the workers, it is reasonable to conclude that wise and efficient management plays a very important part in the success of profit-sharing plans.

Analysis of Profit-Sharing Plans.

Profit-sharing plans in troduced as an incentive for the employee to remain in the service of the company and to increase the loyalty and efficiency of the wage-earner almost always require a minimum period of employ ment as a pre-requisite for participation in the sharing of profits.

In only 7 of the 41 cases included in the conference board's 1920 report were the workers permitted to share in the profits immedi ately after employment. The period of service specified ranged from three months to four years, with one year as the usual eligibility requirement.

Sharing of profits has been found to be most successful where a large proportion of workers are allowed to participate. In most cases after a certain period of employment no discrimination is made between employees on the basis of their efficiency or satis factory service. The Barnett National Bank and the Oneida Com munity, Ltd., include all of their employees in the distribution of profits, although the share is increased in proportion to years of service.

The Hammermill Paper Company and the Charles Warner Company share their profits only with a limited number of their employees.

In a few instances employees share the losses of lean years, the most noteworthy example of this policy being the plan of the A. W. Burritt Company of Bridgeport, Conn., which was adopted in 190o and abandoned in 1922. Under that plan o% of the weekly wage of each employee electing to participate was held until the close of the current fiscal year. If no profits were earned, this fund was divided between the company and the participating employees on the basis of the ratio between capital stock and the annual pay roll of participants in the same way that the profits were distributed.

The payment of the profit-sharing bonus may be made in cash, stock or certificates which bear interest, or a combination of any two of these. Except where the payment is in cash the profit sharing system is in effect a thrift or savings plan.

Some companies make a partial cash payment with a deferred share later in order to hold the employee after the period of dis tribution. Most plants make awards once a year, near the Christ mas season.

Limited Profit-Sharing Plans.

In addition to profit-sharing plans of the general type, a number of establishments have plans limited to their principal employees and intended primarily to increase administrative efficiency. This policy has been adopted by the Dennison Manufacturing Company which also maintains a modified profit-sharing system for the wage-earners. The limited plan provides for the issue of industrial partnership stock solely to the principal employees in amounts based on total yearly profits after a guaranteed return to capital. This stock carries voting power provided that the dividends on first preferred stock have been paid, but the stock can be held only as long as its owner remains with the company.