XII. PROFIT-SHARING AND CO-OPERATION.
Among the reforms suggested for remedying some of the evils incident to the modern wage system those of profit-sharing and co-operation occupy a prominent place. The separation of the community into capitalists and laborers, classes different in conditions and ideals, constitutes a menace to the peace and progress of industrial society. The wage system moreover is thought by many to have broken down the former intimate relation of employer and worker, and some scheme is needed to correlate their interests again and to bind them together. To secure this result profit-sharing is advocated. As defined by the International Co-operative Congress in 1897 this is “the agreement, freely entered into, by which the employe receives a share, fixed in advance, of the profits.” It is not a change from the present wage system, but simply a modification of that system according to which the laborer receives a share in the profits in addition to his wages. The purpose is to identify the interests of the employes with those of their employer and thus to give him some of the same motives for energy, care, and thrift in the conduct of the business. Three principal methods of profit-sharing may be mentioned, though the variations are manifold. The favorite method in England and the United
States is the payment of a cash bonus at the end of a fixed period, as a year. A second plan, which is the rule in France, is a deferred participation by means of a savings bank deposit, provident fund, or annuity, for the purpose of providing for old age and disability. The third plan, which has recently grown in favor in this country, is the payment in shares of stock of the company.
The economic theory of profit-sharing is that by inducing greater care and diligence on the part of the employe he will himself create the fund from which he is paid. It is claimed by its advocates that it increases both the quantity and the quality of the product and that it promotes greater care of implements and materials, thus reducing the cost at the same time that it increases the output. The classic example of this is the case of the original profit-sharing scheme, the Maison Leclaire, in Paris; the result of the first six years’ experiment was a dividend on wages of $3,753 a year, derived entirely from the increased economy and care of the workers. In some cases, however, the object of the employers is to secure immunity from strikes and other labor disturbances and a greater permanence of the labor force; and participation in profits is conditioned on the men abstaining from joining a trade union, or on uninterrupted service. In these cases the deferred participation plan is used. The advantages claimed for the system are not merely the increase in product already spoken of and the greatest efficiency of the worker, but also the improvement in his material and moral standards, and the promotion of industrial peace by lessening discontent and friction. The main basis for the system, since it is economic and not philanthropic in its nature, must of course be the increase in production brought about by its adoption.
More weighty, however, appear the objections against profit-sharing, which seem to have had sufficient force to cause the failure of a number of ventures in this direction.
In the first place, the relation between the increased effort of a single workman and the success of a general business is so remote, especially in our complicated modern industry, that it is unlikely to act as a very powerful stimulus. But even if it should, the savings thus effected might be swept away by the poor business management of the employer. “It is quite possible that the workman who, in the hope of earning ‘bonus to labor,’ has done work 10 per cent in excess of the normal standard, may, even under a liberal scheme, find that, instead of receiving an addition to his normal wages of, say, 7 per cent, the bad management of his employer has reduced his bonus to so low a level that he has to be content with a supplement equivalent to only 2 per cent on his wages, or that, as has been the case in a large proportion of the schemes ... no bonus whatever is forthcoming.”[34] It is undesirable to make the earnings of the laborer dependent in any way upon the fluctuations of business or the ability of the employer. The ordinary wage system has at least the merit that the reward of the laborer is made dependent only on his own efforts. The lot of the modern worker is too unstable and employment too unsteady to add a new element of uncertainty in wages. If the laborer has really earned the premium, say labor leaders, why not add it to his wages instead of adopting this roundabout method. The sliding scale, or a system of premiums or bonus payments for increased output, would be better than profit-sharing, and is rapidly spreading.
This leads to the second objection, which is that profit-sharing paralyzes the efforts of the laborers to better their own conditions through trade unions, strikes or other methods. The trade union attitude was vigorously stated by President Gompers of the American Federation of Labor in his testimony before the Industrial Commission[35]:
“There have been few, if any, of these concerns which have been even comparatively fair to their employes.... They made the work harder, longer hours, and when the employes of other concerns in the same line of trade were enjoying increased wages, shorter hours of labor, and other improvements, tending to the material progress of the worker, the employes of the concern where so-called profit-sharing was the system at the end of the year found themselves receiving lower wages for harder work than were those who were not under that beneficent system.” As long as the system is viewed with suspicion by the laborer or used as a weapon in industrial bargaining by employers, the plan is foredoomed to failure. But even were it managed in the proper spirit, it is after all applicable to only a comparatively few industries, those, namely, in which labor makes up the largest part of the cost of production. In most modern industries capital plays such an important role as compared with labor that the field for this plan is comparatively limited.
In the actual practice of profit-sharing there have been many interesting experiments, and not a few failures. It may be said to date from 1842, when M. Leclaire, a Parisian painter and house decorator, introduced it into his business, and has since spread over France and England; it has met with little success in the rest of Europe. In the United States the movement has also been more recent and of smaller proportions. The reason for this is suggested by President Hadley as follows[36]: “Where the laborers under the old wage system are not working up to a high standard of efficiency, there is more chance for the success of profit-sharing. This seems to be the reason why it works better on the Continent than in England, and better in England than in America.” It was estimated in 1900 that there had been in the entire world some 500 experiments in profit-sharing,
of which about 400 were still in existence: a more conservative estimate would place the latter number at about 300.