THE GOVERNMENT: To Share or Not to Share?

Albert Gallatin was Secretary of the Treasury under Jefferson and Madison; he was also “the father of American ethnology” and originator of the world’s first systematic plan of profit-sharing, introduced in his Pennsylvania glass works in 1794. His idea was so simple in theory that it became a catchword of capitalism but it is so complex in practice that few companies have tried it. Last week a Senate committee started to find out why this is so and what, if anything, should be done about it. At least it should provide a neat display of benign capitalism as an antidote to a possible Monopoly pogrom.

Idea for the investigation came from Republican Senator Arthur Vandenberg. The Senate agreed to the extent of $30,000, put Democratic Senator Clyde L. Herring of Iowa in charge.

The committee knew of only 167 U. S. profit-sharing plans, but after a summer of study, it now believes there are as many as 700. First profit-sharer to appear last week was President Richard R. Deupree of Procter & Gamble Co. (Ivory Soap). As he took the stand the survey’s director set the tenor for the meeting by remarking: “This is not an inquisition, Mr. Deupree. We are glad to have you come to help us.”

Surprising fact is, the vast majority of profit-sharing plans have been suggested by owners and managers, not by employes. Every labor leader since Samuel Gompers has been flat-footedly opposed to profit-sharing except under special circumstances. Management generally thinks of it from one of four angles—promotion of employe security, improvement of employe-owner relations, solution of social problems, or as an incentive to increase production. Labor leaders dislike it because it makes unionization more difficult; causes particular companies to deviate from standard union wage scales; represents deferred compensation which workers would rather have weekly; and, finally, opens the way to loss-sharing.

Fitting themselves into this jigsaw puzzle of conflicting theories has led the sponsors of profit-sharing into dozens of applications: cash bonus plans, stock purchase plans, semi-retirement plans, etc. Procter & Gamble’s is the best known in the U. S., with 50 years of success behind it. Its employes kitty in 5% of their wages. The company matches this with a contribution of 5% of the worker’s wage for the first two years, increases this to a maximum of 15% by the time the worker has served 15 years. The fund is used to purchase stock over a period of six years, after which the employe draws cash dividends. President Deupree said the plan has reduced his company’s labor turnover almost to .5%. Key to its success, said he, was keeping profit-sharing from becoming a substitute for higher wages; P. & G. wages per hour have risen 50% since 1929.

Genial General Robert E. Wood explained Sears, Roebuck & Co.’s similar plan. Its employe fund now holds $42,600,000 worth of securities, all Sears, Roebuck stock, making the employe fund the largest single interest in the company.

A somewhat different setup was reported by Treasurer Marion B. Folsom of Eastman Kodak Co., which has paid a “wage dividend” every year since 1912, excepting 1934, the amounts varying with common stock dividends.

P. & G., Sears and Eastman are all examples of steadily profitable companies. And before there can be profit-sharing there must, of course, be profits. This automatically rules out much of U. S. industry (in a sample year like 1935, while 164,000 U. S. firms reported profits. 312,000 reported deficits). One reason for the high mortality rate of profit-sharing when tried by concerns of less stability than P. & G., Sears and Eastman is sudden losses. Senator Herring himself can offer painful testimony on this point. He once decided to let his employes buy stock in his automobile dealer concern at prices below the market. Many did. Presently the price of the stock fell, giving all the “profit-sharers” a neat loss.

To guard against such an eventuality, though it has never had to face it. Westinghouse Electric & Manufacturing Co. has a loss-sharing plan which was put on the Senate record by Vice President William G. Marshall. Westinghouse boosts wages 1% for every $60,000 in excess of monthly earnings averaging $600,000 for the previous three months, cuts them 1% for every $60,000 below this par. But cuts are only in hours worked, not in hourly wage rate, and do not apply to the first $125 of a man’s salary.

This was a fitting prelude for A. F. of L. President William Green, who rose to present Labor’s familiar case against profit-sharing unless it had a share in working out the particular plan and was not forced to “accept blindly management’s decision on what constitutes profits. . . .” Spouted Laborman Green: “The right of Labor to the fruits of its toil has been obscured by the complexities flowing from the corporative form of financing. …”

What the Government might do to spur adoption of profit-sharing produced considerable disagreement. General Wood thought that concessions in social security levies might do the trick. President Walter D. Fuller of Curtis Publishing Co. came out for incentive taxation—i.e., offering outright tax concessions to companies that share profits. Eastman’s Folsom condemned incentive taxation, said taxes should be for revenue only. Ivory’s Deupree held that profit-sharing should not be dictated.

This gave Senator Vandenberg his chance. Cracked he: “In other words, a socially minded employer is more important than a socially minded statute?”

“Exactly,” said Mr. Deupree.