PROFIT SHARING, a method by which wage-earners receive a share of the profits of an industry in addition to wages. Strictly speak ing, profit sharing implies that the bonus shall be given to workmen individually; but benefits and insurance, social and educational funds maintained out of the profits of a business are modified forms of profit sharing. Many sys tems of profit sharing also provide for the em ployees obtaining share in the capital stock on special terms, thus becoming part owners of the industry. Profit sharing differs from co-op eration (q.v.), in that it is not democratic; both the initiative in establishing a system of profit sharing and the control of the industry rests with the employer. It is regarded, however, as a step toward co-operation. The International Congress on profit sharing in 1889 defined profit sharing as ((an agreement freely en tered into by which the employed receives a share of profits determined in advance? The arguments advanced in favor of profit sharing are: (1) Its justice; inasmuch as labor is equally necessary with capital to the welfare and success of an industry, it should justly receive a part of the profits; (2) its practical effect; it tends to interest employees in their work, to increase their efficiency and their care of property. There are two lines of opposition to profit sharing: (1) From the em ployers, who claim that it is untist that labor should share in the profits, when it does not share in the loss or risk o the business; and that profit sharing does not necessarily result in increased efficiency; and (2) from the work men who claim that their freedom is restricted, especially as ,in many instances a long term of employment and sometimes restriction of labor organization are involved in a profit-sharing system ; and that they obtain no compensating in the management or control of the in dustry. Profit sharing has been successful in many industries, especially where the labor is skilled and wages large in proportion to total, cost of production • on the other hand, many attempts to establish a profit-sharing system have failed, owing sometimes to industrial de pression, sometimes to a trial too short to give fair results and sometimes to change in manage ment. In the United States between 1889 and 1896, 50 firms had made trial of profit sharing; , in the latter year, only 12 continued it perma nently and five had abandoned it temporarily; in 1900, there were 23 firms with a system of profit sharing, 12 of which had adopted it within the year 1899-1900. In 1916 there were in, operation in the United States 60 industrial and mercantile establishments with profit-shar ing plans.
France formerly outranked other nations in the number and importance of successful profit sharing enterprises. Among the more import ant ones are Maison Leclaire (1842) (painter), the Godin Familistere at Guise and the Bon Marche (q.v.). France can still claim to have been the leader in the establishment of profit sharing. In numbers, however, it is now out ranked by Great Britain. In 1913 there were 141 profit-sharing plans in existence in the latter country, against about 115 in France in 1912. Other countries having' establishments with profit-sharing plans of one type or another are Germany, Holland, Switzerland,. Italy, etc. Among the most important profit-sharing es tablishments of the United States are the Nel son Manufacturing Company of Saint Louis, Mo., the Eastman Kodak Company of Ro chester, N. Y., the Underwood Typewriter Com., parry of New York City, the Ward Baking Company of New York City and Sears, Roe-' buck and Company of Chicago, Ill. The Nel son Company established its system in 1886, which, besides the direct sharing in profits by the employees, provides for the payment of sickness and accident benefits by the company as a part of the costs of the business; the em ployees are also encouraged to buy stock in the company. In 1896 an agreement was made by which the employees of the cabinet-making shop were to gradually purchase and take the man agement of that department; by 1902 they had sole control. The Proctor and 'Gamble Com pany introduced profit-sharing in 1887; the ar rangement was that the employees • should re ceive a share in the net profits in the propor tion that wages bore to the whole cost of pro duction. The fact that the employees were
largely unskilled labor with low wages and re ceived the new arrangement with indifference made the management of the system particularly difficult. An improvement was made by classi fying the employees into four groups in regaru to interest in work, excellence of work and care of machigery and tools; the best in ac cordance with this classification received double the regular dividend, the second group, includ ing the greater number of the employees, the regular dividend, the third group one half the dividend, and the fourth none at all. Since then various other changes have been made so that this concern cannot be any longer called a true profit-sharing establishment. In 1903, the United States Steel Corporation adopted direct profit sharing for its more responsible em ployees and a system whereby any of its em ployees may acquire stock on easy terms and as long as they remain in the employ of the com pany, may receive a bonus of $5 a year extra for each share after the first five years. Many other important industrial concerns in the United States have introduced modified or limited profit-sharing plans, among them be ing the Ford Motor Company, the Studebaker Corporation, etc. The most exhaustive study of profit-sharing in the United States was pub lished by the United States Department of Labor, Bureau of Labor Statistics, Bulletin No. 208, Miscellaneous Series No. 13 (Washington 1916). It also contains a very full bibliography of the very extensive literature on the subject. Consult Adams, H. B., ed., 'History of Co operation in the United States> (in Johns Hop kins University Studies in Historical and Politi cal Science, Vol. VI, Baltimore 1888) ; Adams, T. S. and Sumner, H. L., 'Labor Problems> (New York 1905) ; Ayes, E., 'Co-operative Industry> (London 1907) ; Bolunert, V. K., 'Die Gewinnbeteiligung> (Dresden 1903) ; Brandt, H., and Ertragslohn' (Dresden 1907) ; Burritt, A. W., and others, 'Profit Sharing> (New York 1918) ; Bushill, T. W., 'Profit Sharing and the Labour Question' (London 1893) ; Duhamel, M., 'Participation aux benefices et participation au capital> (Lille 1912); Eliot, C. W., and others, 'Profit Sharing and Scientific Management> (Boston 1914) ; Fay, C. R., 'Co-partnership and Indus try> (Cambridge 1913) ; George, W. L., 'La bour and Housing at Port Sunlight> (London 1909) ; Giddings, F. H., 'Profit Sharing> (in 17th Annual Report of the Massachusetts Bureau of Statistics, Boston 1886) •, Gide, C., 'L'Actionnariat ouvrier> (Paris 1910) ; Gilman, N. P., 'A Dividend to Labor> (Boston 1899) ; id., Sharing between Employer and Em ployee> (New York 1896) ; Granter, J., 'Les Actions de travail> (Paris 1910); Great Britain, Board of Trade, Department of Labour Statis tics, 'Profit sharing and Labour Co-Partner ship Abroad> (Parliamentary Papers, Cd. 7283, London 1914); id., 'Profit sharing and Labour Co-Partnership in the United Kingdom> (Par liamentary Papers, Cd. 6496, London 1912) ; Lloyd, H. D., 'Labor Co-Partnership> (New York 1898) ; National Civic Federation Welfare Department, 'Profit Sharing by American Em ployers> (New York 1916) ; Payer, Andre, 'La Participation aux (Paris 1911); Pease, E. R. 'Profit Sharing and Co-Partner ship' (in Fabian Tracts, No. 170, London 1913) ; Peters, J. P., ed., 'Labor and Capital> (New York 1902) ; Price, L. L., 'Co-Operation and Co-Partnership> (London 1914); Robert, C. 'Leclaire, Biographic d'un home utile' (Paris 1878) ; Schloss. D. F., 'Methods of In dustrial Remuneration> (London 1907) ; Smith, J. C., 'Money and Profit Sharing> (London 1908) ; Taussig, F. W., 'Principles of Eco nomics> (Vol. II, p. 303, New York 1915); lor, S., 'Profit Sharing between Capital and Labour> (London 1884) ; Tolman, W. H., 'Social Engineering> (New York 1909); Trom bert, A., 'La Participation aux benefices, guide pratique' (Paris 1912) ; Vanlaer, M., 'La Par ticipation aux benefices) (Paris 1898); Wax weiler, E., 'La Participation aux Benefices) (Paris 1898) ; Williams, A., 'Co-Partnership and Profit Sharing> (New York 1913); Id., '28 Years of Co-Partnership at Guise> (London 1908).