Businessmen Get a New Religion

IN U.S. industry, there are no more fervent evangelists than the growing number of businessmen who believe that profit-sharing is the answer to the problems of productivity, morale and retirement. Forty years ago, no more than 60 American companies shared profits with their employees. Last week some 8,000 profit-sharing plans were on file with the Bureau of Internal Revenue. Each month 200 more are pouring in for approval. Among the recent converts: Chicago's Bell & Howell camera company; Manhattan's ad agency, Batten, Barton, Durstine & Osborne; the National City Bank. A fortnight ago, Eastman Kodak, one of the early profit-sharers, declared a "wage dividend" of $28.5 million for its 53,000 employees, an average bonus for each employee of more than $500 for the year.

How much does profit-sharing actually accomplish? Last month, at their annual convention in Chicago, members of the Council of Profit Sharing Industries got an answer that shocked them from Joel Goldblatt, president of Chicago's Goldblatt Bros, department store. Goldblatt, whose company has kicked in more than $3,000,000 in profit-sharing since 1942, made clear that sharing profits is no panacea. Said he: "Ideally, profit-sharing should give employees the sense that they are the ones responsible for the success or failure of any business. But in a large company with many diversified jobs, they are too far away from the end results of their work ... As an incentive builder, profit-sharing works best when a company or industry is in its period of growth."

Even such an ardent evangelist as Sears, Roebuck's Chairman Theodore Houser, whose company is noted for its huge profit-sharing payoffs, admits that the plan will work no wonders "in a business where a major part of the cost of the product is represented by the cost of raw materials." Furthermore, says Houser, profit-sharing "is not the first step in building a program of sound employee relations, but the last step [after a company] can find nothing else to do."

Despite such reservations, few companies have reported disappointment with existing plans. The Profit-Sharing Research Foundation recently surveyed 300 companies with plans, found that 77% considered them "successful" or "very successful," only 1% considered them a failure. Through such a plan last year, American Velvet Co. was able to add 24% to its employees' union wages while other textile companies were laying people off. Employees of the Midwest's E. G. Shinner & Co. meat market chain (33 stores) made so much out of profit-sharing that they bought the company. Even when profits turn into losses, the plan pays off. Says Chairman Hugh Comer of Alabama's money-losing Avondale Mills: "Our employees know we are in the red and are really putting the pressure on to improve things."

While profit-sharing is not a new idea (the first U.S. plan was installed in 1794 by Jefferson's Treasury Secretary Albert Gallatin at his Pennsylvania glass plant), it was long opposed by labor leaders as a speed-up substitute for fair wages. Not until World War II, when profit-sharing offered a means of fattening employees' pocketbooks at a time when wages were frozen, did the plans start to spread fast.

Companies award anywhere from 5% to more than 50% of their profits before taxes. Most profit-sharers believe that a minimum of 10% should be paid out. In general, there are two types of programs: 1) the cash-payment plan, under which employees are paid a fixed percentage of profits at regular intervals; and 2) the deferred-payment program, under which shared profits are paid into a fund that is invested toward employee retirement.

Most employers agree that for boosting incentive, cash-payment programs are the best. None has been more spectacularly successful than the plan of Cleveland's Lincoln Electric Co. (electrical welding equipment). Each year President James F. Lincoln hands out to his 1,100 employees, on a merit basis, all profits after a 6% return on capital; in recent years the payments have equaled or bettered wages (average payoff last year: $5,000).

Recently, the profit-sharers have switched their emphasis to deferred-payment programs, which now account for more than half the plans in effect. Reason: companies have found that profit-sharing funds, wisely invested, help pay for employees' pensions. Thanks to profit-sharing, some employees of Chicago's DeLuxe Check Printers can expect to get pensions that exceed their final annual pay.

For all its monetary rewards, many of profit-sharing's evangelists think that a plan's most important contribution is less materialistic. Said a Senate report, often quoted as the profit-sharing bible: "It carries the spirit of capitalism to mass citizenship [and] invites an intimate, mutual understanding of the common interest which employer and employee must have."

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