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The New Outlook on the Sharing of Rewards in Industry
DURING recent months I have been present at several meetings where representatives of organized labour have asked that profit and loss accounts should not only be produced to the workers but that they should be fully explained. Although I have had -experience in accountancy, I am not in the least surprised that trade union representatives, confronted even with the most lucid works of professional aqe9unt4nts.; ho,e-fotoict, themselves completely fogged byllId.:***Kof figul4.arid rnffitteriously titled items. :This-,:inyStitieation is by no means a thing in which trade Union representatives have a monopoly. I have found even qualified accountants with doubtsabout the precise meaning of some item!. which have been presented by other and equally well-qualified accountants. As it takes years of study and practice to become an accountant, those of us who are less fully qualified must be willing to take the word,ot the professional man as to the honesty and fairness of the various terms and items which at times are apt to be deceptive in their simplicity. . But I .have.even heard the professionalaccountartt , described as , a " boss's man," and doubt thereby thrown upon his expfanatiOns: -Somewhere we must introduce the element of trust. between master and man. Otherivise the industrial • world will be-' come nothing more nor less than an agitators' paradise.
Only a few years before the war the employee in most industries was paid what his master thought fit to give him, and if he thought . the employer was making inordi
nate profits, the only thing he could do was to find another or start -up in businets for-himself. The latter course was taken by many road transport employees, with varying degrees of success.
With the new outlook on the manner of distributing the rewards which industry offers to its participants, there are many on both sides of the fence who are attracted to profit-sharing, but before considering some poSsible variations of this plan, i would like to look at the chairman's statement which was circulated with the recently issued accounts of Leyland Motors, Ltd. Here, the fact is stressed that the demand of the unions for an all-round increase of i 1 on engineering basic rates, to be raised from reserves or current profits without increase in 'selling prices, is founded on a series of Misconceptions regarding the making-up of company accounts and the basic facts relating to them.
asters and M
Reserves NotIdle Money
In this connection the Leyland report says: "To regard reserves as a hoard of money lying idle from which demands for increased wakes could be met is fantastic. The profits out of which reserves have been created have been re-invested in the company, and are represented not by money lying idle but by additional assets used in the business."
Obviously, apart from greater effort by the individual, the only way in which more pay can be awarded is by a reduction in taxation of. by some means procuring greater output for a given-number of people. If the Leyland organization had agreed to the engineers' demand the cost would have been about 000,000 a year, or over five times the sum actually received by the
ordinary stockholders. Only by turning assets into money—that is, by selling them and so weakening the A34 company—could reserves be made to meet the demand mentioned.
Some time ago attention was called in "The Commercial Motor" to the possibilities of profit-sharing schemes, and I believe that there is much to be said for them. In " 150 Years of the House of Dutton," which describes something of the history and activities of Dutton's Blackburn Brewery, Ltd., the author says "there can be little doubt that 150 years ago profitsharing ... on these termswould have been regarded as revolutionary and impossible To-day, it seems to reflect the spirit of the times and has caused no regret to those responsible for its introduction.", • This scheme was introduced at Dutton's in 1941, and applies to all employees :who have five years' service and whose salary or wage does not exceed £500 a year. The total amount paid to the 'employee in 12 months, exclusive of overtime or other special payments, is regarded as his' or her shareholding, and interest is paid on it at the same rate as that paid to the ordinary stock holders on the same date as the final dividend is distributed. Employees participating in the.:plan receive roughly a week's Wage for every 2 per cent. paid in dividends to the ordinary shareholder.
In a number of undertak ings there are already bonus schemes, following no publicly announced plan, under which certain sums are paid to. employees, usually on the joint basis of seniority of position. and length of service. A better system is for a decision to be taken at the beginning of the year that a certain percentage of the profits will be ' distributed among the workpeople. Obviously, this is an inducement to team work.
Sometimes the decision as to the percentage of profit to be allocated is not made until the end of the year. In my opinion, that method offers far less inducement for the individual to show industry and initiative in any endeavour to build up the necessary surplus on the year's working.
Discouraging Labour Turnover The previous reference to this subject in "The Commercial MOtor " in an editorial published on May 16, 1947, gave as an instance another system in which the dividend depends on length of service. This arrangement helps to check tendency towards frequent labour turnover. The first DC .of the actual trading profit in each year is assessed as covering reserves, renewals, interest and similar expenses. After these outgoings have been covered, a third of the remainder is set aside for distribution to the staff according to a points scheme. One point is given for each 5s. of the weekly wage or salary, plus 'one for the first three years of service and one for each three years, or part of three years, afterwards. The sum for distribution is divided by the total number.of points existing in the business, thus giving a unit value, and calculation of the dividend for each employee is merely a matter of multiplying the unit value by the. number' of points to which the individual is entitled. .
I am told that in these circumstances the shareholders' dividends have not decreased and that the scheme has brought about better team work throughout the organization. This example is one which could be copied to the mutual benefit of employer and employee.