PROFIT SHARING AND COÍPERATION
A. PROFIT SHARING
110. THE NATURE OF PROFIT SHARING.—The essence of profit sharing is that the workmen in a given enterprise receive, in addition to their regular wages, a share in the profits which would ordinarily go entirely to the entrepreneur. The share going to the employees varies with the establishment, but generally from one quarter to three quarters of the profits are divided among them.
Distribution is by various methods. The workmen may receive their share in cash at the end of the year. Sometimes the money is placed in a provident fund for the workmen as a body; in other cases it is deposited in savings banks to the account of the individual workmen. In still other cases the workman's share is invested in the business for him, the workman thereafter receiving dividends on this invested capital.
In every case, however, the division of profits among the individual laborers is on the basis of the wages received, that is to say, the higher the regular wage received by a workman, the larger will be his share of the profits set aside for distribution. Generally, too, only workmen who are steadily employed are allowed to share in the distribution of profits.
111. LIMITS OF PROFIT SHARING.—Profit sharing was once considered a remedy for many of our industrial troubles, but it is now generally conceded that the plan is decidedly limited in scope. Profit sharing increases the income of the workmen involved, but for this very reason it is often bitterly opposed by the trade unions. The unions fear, of course, that the plan will make the workmen interested chiefly in the employees of their particular establishment, rather than in the workmen in the trade as a whole. The trade unions also maintain that profit sharing is often administered in a patronizing manner, which is offensive to the self-respect of the workmen.
To a large extent, the spread of profit sharing depends upon the development of altruism among employers. But unfortunately altruistic employers are rare, and the majority of entrepreneurs will not adopt the profit-sharing plan unless it promises to result in some distinct advantage to themselves. This attitude explains, in part, the failure of many profit-sharing experiments. Employers have sometimes tried out profit sharing in the hope that it would prevent strikes and other labor troubles. In some cases this expectation has been realized; in many other cases serious labor troubles have continued. This continuance of labor troubles has rendered profit sharing less attractive to certain types of employers.
In certain cases employers have experimented with profit sharing in the hope that it would stimulate efficiency and economy on the part of the workmen. Sometimes the immediate effect of the adoption of the plan has been to make the workmen more efficient and more interested in their tasks, but after the novelty of the scheme has worn off they have generally fallen back into their former pace. In justice to the workmen, it should be noted here that in most enterprises the conditions of the market and the employer's managerial ability have more influence upon profits than have the personal efforts of individual workmen. Where workmen realize this, they tend to lose faith in their ability to influence the share accruing to them under the profit-sharing plan.
A last important reason why profit sharing is limited in scope is that in many hazardous enterprises, such as mining, agriculture, fishing, or building construction, the refusal and inability of the workmen to share in possible losses prevent the adoption of the plan. A mining corporation, for example, may make large profits one year, and lose heavily the second year. Profit sharing is here inadvisable, if not impossible. The distribution among the workmen of a large share of the profits accruing at the end of the first year might so deplete the financial reserves of the entrepreneur that he would be unable to meet the losses of the second year.