More US firms are turning to profit sharing
With greater productivity seen as the key to solving many of the problems of inflation, more companies are turning to profit sharing. This incentive system, says Rodger D. Mulhollen, a top official of the Profit Sharing Council of America (PSCA), works to increase the employee's interest in the company's growth and in its success. Mr. Mulhollen is vice-president, corporate personnel, for Johnson Wax of Racine, Wis. His company, like others in the council, offers employees a share in its success.
Some 33,000 new companies offered employees the opportunity to share in profits in 1978, the latest year for definitive figures. According to Mr. Mulhollen, some 1.375 million employees are covered under new plans adopted in 1978. There are 7.350 million employees covered under all plans and 50,000 cash profit sharing plans in existence as of Dec. 31, 1978. These paid shared profits in cash to employees as soon as they were declared.
There also are deferred profit sharing plans, which invest the shared monies and pay them either at retirement or at other times. There were 242,000 plans like this at the end of 1978. Other plans involve contributions by the employees plus the shared profits in investment funds and pension plans combined with profit sharing, notes Mr. Mulhollen.
Some of the plans are designed to give the employee a "vested" interest in the profits. That is, they give the employee a full right to benefit even if he leaves the company.
"Profit-sharing plans," says Mr. Mulhollen, "make employees more aware that the company's success depends on them. It involves them in the company activity and results often in greater productivity.
There are some 1,400 companies in the PSCA. More than half of the companies have fewer than 100 employees and one-third have fewer than 50, Mr. Mulhollen told this newspaper. "Then there are the big ones like Sears, Roebuck & Co. with 300,000; Harris Bank of Chicago, which has shared profits since 1912; and Johnson Wax, since 1917."
The profit-sharing concept began in France when a house painter began sharing monies with his employees in 1842. In this country Procter & Gamble has the longest continuous plan, which started in 1887.
The PSCA is dedicated to helping companies cope more effectively with the financial needs of employees now and in the future, Mr. Mulhollen explained. Among the council's many accomplishments was its active role in the enactment of the Employee Retirement Income Security Act (ERISA) in 1974, a major bill concerning employee benefits.
PSCA thinks of profit sharing as a frame of mind contributing to improved employee morale. "The key to growing, healthy profits, our members believe, is a bond between the employee's thinking and his company's," continued Mr. Mulhollen. "Profit sharing promotes enlightened self-interest. And when an employee's self-interest becomes parallel with the objectives of management, when employees become profit conscious, friction eases, production spurts, costs drop and profits rise."
Dr. Bion Howard of Northwestern University has conducted two comparative studies of profit sharing and non-profit sharing companies, the latter from 1958 to 1977. In general, he found, profit sharing companies surpassed the nonprofit shares in level of performance.
Mr. Mulhollen likes to tell of the Malia International organization of Honolulu, Hawaii, makers of Hawaiian sportswear. Founded after World War II the company didn't get things together until the 1960s when there were good profits to share.
Then, after setting up the plan to reward those who had made everything possible, they had to find new quarters. They decided to buy a bowling alley for this and the profit-sharing trust was set up and invested in the real estate. The property was worth 2 1/2 times what they paid for it in less than five years. Some 60 percent of the profit-sharing funds are invested in land, 30 percent in equities and 10 percent is available for loans to employees. The workers each earn from $7,000 to $8,000 annually in their profit-sharing trust.
When Paul Bougenaux was appointed managing director of Hotel Plaza Athenee in Paris, the hotel was beset with labor and financial problems, Mr. Mulhollen recounted. Though Mr. Bougenaux had worked his way up to the position to concierge and was a union member who actually had marched against management prior to this appointment, he adopted a new management system, the cornerstone of which was profit sharing.
As a result the hotel became very profitable and a model employer with no significant management-labor strife. The company's owned and operated laundry also experienced a turnaround in profits and employee relations as a result of the profit-sharing program and other communications.
PSCA emphasizes that profit sharing won't solve management problems, but it can help good management to do better.
Mr. Mulhollen reported a resurgence of interest in profit sharing in Western Europe and Britain. Some months back Les Echos, a French business newspaper, sponsored a forum in which American profit shares such as Fisher-Price Toys, Hallmark Cards, Johnson Wax, and American Velvet came to tell their success stories to French entrepreneurs.
Prime Minister Margaret Thatcher is reported to be studying profi t sharing as a way to improve British productivity.