II. Industrial Conciliation and Arbitration (continued 2)

The effect of the above arrangement being that after the payment of all cash dividends to common (and preferred) stock, and the setting aside of the said percentage to the contingent fund, the surplus earnings then remaining—representing the surplus assets of the company—would be capitalized in the form of deferred stock debentures and held in trust for the joint interests of the original owners (or their assigns) and the employees—it being especially provided that should the company at any time or times prefer to pay the amount of surplus earnings in cash directly to the stockholders and the holders of the debenture books instead of issuing the deferred stock debentures therefor, it shall have the right and option of so doing.

Each year the amount of the deferred stock debentures to be issued to the trustee as wages shall be calculated as above outlined, and the percentage thereof in which each individual employee is interested shall be determined by the proportion that his wages for the year shall bear to the whole salary list for that period. This amount then shall be set down in his debenture book, and upon this sum he will be entitled to receive through the trustee (when earned) dividends not exceeding 6 per cent per annum, non-cumulatively and subject to certain limitations set forth in and made a part of his debenture book as hereinafter particularly set forth. The fees of the trustee for the above and all other services to be charged to the general expense account of the concern. The said trustee 71shall be entitled to full statements of the condition of the company at any time, and at all times shall have access to the general books of the concern.

A debenture book shall be issued to each employee, and shall contain a full statement of the conditions upon which the same is issued, and shall be signed by each of the respective holders thereof in evidence of his understanding thereof and agreement thereto. Each debenture book shall be numbered, and the age, nationality, sex, etc., of the employee shall be stated therein. It shall provide among other things:

(a) That no employee shall be entitled to participate in these extra wages until he shall have been for one year in the continuous employ of the company.

(b) That the debenture book may be redeemed by the company at its option, at any time upon the payment of the total principal sum or sums therein set forth.

(c) That nothing therein contained shall in any way limit the power of the management in the control of the business, and that their authority to employ and discharge any employee shall not be limited in any way whatsoever, but shall be left entirely to the discretion of the board of directors and that under no circumstances shall the issuance of said debenture book entitle the holder thereof to any voice in the management of the business.

(d) That in case of losses in the business in any year or years, the impairment thereby caused shall be made up either (first) out of subsequent profits, or (second) out of the contingent fund, or both, and all accumulated dividends upon the common and preferred stock shall have been paid in full before the holder of the debenture book shall be entitled to any dividends.

(e) That the individual named in the debenture book shall, after all impairments have been made good and all dividends on the common and preferred stock due and in default, as above set forth, have been paid, be entitled to receive, through the said trustee, dividends, when earned, at a rate not exceeding 6 per cent upon the total of the amounts therein set forth, but in no sense shall the dividends upon the debenture book be cumulative.

(f) That said debenture book shall not be redeemable during the life of the employee named except at the option of the company.

(g) That in case of the death of the holder thereof, the same shall form a part of his estate and shall be convertible into cash 72at its par value within thirty days, upon application to the company, and the same shall be paid for out of and held by the contingent fund when the balance in said fund will so permit, otherwise to be paid for out of the general funds of the company and held in the treasury.

(h) That said debenture book shall not be transferable without the consent of the company.

(i) That it shall be especially understood and agreed that all calculations of profits and losses of the business shall be left entirely to the discretion and best judgment of the board of directors, and that their decision upon these and all matters touching the question of depreciation of plant, amounts charged to profit and loss, valuations and inventories, and all other matters affecting the business and policy of the company, shall be final, and from whose decision there shall be no right of appeal.

(j) That the “net earnings” of the concern shall comprise the amount of the profits of the business after deducting all losses and charging off an agreed percentage in the valuation of the plant account for depreciation and any other items of doubtful value, at the discretion of the board.

(k) That in case the holder thereof shall make or attempt to make any assignment of all or any part of his interest as set forth in said debenture book, the same shall, at the option of the company, be immediately forfeited as liquidated damages for violation of this contract, and shall revert to and be held as a part of the said contingent fund.

(l) That these debenture books may be attached by the company for any indebtedness due to it, in any department, by the holder thereof.

(m) That the company reserves the right to issue for capital account preferred stock with cumulative dividends, which new issues shall in every particular outrank all issues of deferred stock debentures; it being provided, however (as above set forth), that the holders of these debenture books shall have the prior right to subscribe, pro rata, to fifty (50) per cent of any and all of said new issues of stock.

The amount to be set aside to the contingent fund shall be paid in cash, and may be invested in legal and marketable securities. This fund shall be held in the first place to make good to the company any excessive business losses that cannot be met out of 73the current profits of the concern. It will also purchase at par the debenture books of deceased employees; and any accumulation of income therein shall be used as a basis for sick benefits, etc., upon such a uniform plan as the amounts thereof will warrant, the disposition of the available income for that purpose to be placed as largely as practicable in the hands of the employees.

The proposition is that the above treatment of profits shall be continued annually from year to year, so that at the end of the second year of its operation—after the payment of the regular cash dividends upon the common (and preferred) stock out of that year’s net profits and the payment into the contingent fund—the dividend on the deferred stock debentures shall be declared and paid upon the amount thereof held by said trustee; and for the remainder of the surplus earnings for the second year another issue of deferred stock debentures shall be made to said trustee, one-half for the use of the common stockholders and the other half as extra wages to be held for the use of the employees, and that the amount thereof to which each employee is entitled to credit shall again be determined as above set forth, and shall be entered in the respective debenture books and added to the amounts of the previous similar credit, and so on from year to year, it being provided as above set forth, that in case the company could not make advantageous use of this increase of capital it shall have the option of disbursing the amount in cash direct to the employee and stockholders.

Could the masters manipulate the bookkeeping so as to fleece the employees of the percentage of profits to which they were actually entitled? The writer believes that this could not be, and for the following reasons:

(a) It will be seen that under the plan as suggested, whatever action the management might take regarding the valuation of the assets and calculation of the annual profits, its decision would bear equally upon the interests of the stockholders and of the employees.

(b) If the management is overly conservative and the actual surplus assets are thereby cut down, the stock dividend to the trustee, representing both the employees and the stockholders, would be for that year unduly diminished; but such action could make little or no difference in the final result, as the actual surplus assets would still be intact, and if not shown in one year would surely appear in another. So that beyond a delay in the division 74thereof those in control of the bookkeeping would be powerless to discriminate against the employees, and as already shown an unfair settlement would bear equally upon capital and labor. Then, too:

(c) There could be little or no object in such an attempt, as it is not intended that the surplus, whatever the amount may be, shall be withdrawn from the business and distributed, but that the whole of the same shall be retained in the business (so long as it can be used advantageously), and under the plan as outlined all of these surplus earnings shall be capitalized and subordinated to the original investment and thus acting practically as a guarantee fund to protect and secure the same; and, again,

(d) It is a part of the plan that all employees, from the lowest form of unskilled labor to the highest salaried official, shall be sharers in the dividend to wages. Under such an arrangement it would be practically impossible for the owners to equivocate or to treat the question unfairly.

It will be generally conceded that the universal publication of the assets and liabilities of all business enterprises would greatly simplify and proportionately stimulate trade. With the added security against losses that such a system would assure, a liberal extension of credits would be the natural and a safe outcome. It is more difficult, however, to meet the question as to what effect the publication of the earnings, debts and resources would have upon the credit and general business of a single concern when in direct competition with others in the same class which continued to hold to the system of secrecy. It is clearly impossible to make a conclusive statement concerning this question. Whether the publication of accounts by one concern would work to the advantage or disadvantage of its secretive competitors seems wholly problematical. So far as we can see, however, indications point with some confidence to the ultimate success of that concern which does not conceal that of which their creditors of a right should be informed.

Regarding the probable effect upon the general business of the concern, it seems reasonable to claim that the liberal and just treatment of the employees will surely appeal to the public at large and that the advantage gained through the profitable influence that such action will have upon the concern’s constituency, especially among the buying public, would largely overbalance any 75possible disadvantage that could come as a result of the exposition of figures regarding the condition of its affairs.

As to the effect on credit when the published earnings show a decrease in profits it is still difficult to do more than surmise, though if the liabilities of the enterprise are made up more and more each year in a growing percentage of subordinated income-debentures we believe the publication of decreased profits would not operate towards the impairment of its credit, and certainly not until the losses became so extensive as to imperil the solvency of the concern—in which latter case it seems clear to us that little can be justly said in support of the custom of concealment.

Would the plan of letting the employees generally become part owners of the concern place them in a position to give trouble to the management of the enterprise, and would they not soon demand, as stockholders, the right to a voice in the direction of its affairs and in the shaping of its policy? On the contrary, it is urged:

(a) That with the proper and timely guarding of the interests of the original investment through sufficient, clear and undeniable limitations upon the rights and powers carried with the issues of deferred stock, such issues could not be used to the detriment of vested interests, but rather:

(b) That such a pecuniary interest in the enlarged success of the business would act as a guarantee of loyalty to the management and as an incentive to the employees to further the legitimate business of the concern, and:

(c) That the employees with a money investment in the enterprise, if for no higher reason than the instinct of self-preservation, would realize the value and necessity for harmonious and sympathetic co-operation between the capital, brains and energy of the concern.

Would capital be benefited by the operation? We claim without reservation that it would—and for the following reasons:

(a) That the net profits of the business would be largely increased through the reduction of friction; the larger incentive of labor; the increase in the physical capacity of the workers to produce; the saving of useless waste; and through the absence of strikes and lock-outs; as in all of such increase in net profits the capital would be an equal sharer with its employees.

(b) That the true loyalty and support of all employees would 76greatly strengthen the security of the capital in the business and proportionately add to the real value of the investment.

(c) That where adverse legislation may be easy of accomplishment when it attacks the interests of one man or a small body of men, it would be quite a different matter where the interests of all employees are involved.

(d) That the surplus profits would not be paid out and distributed, but would be held in the business, subordinated to the claims of the original investment, and so very materially adding to the security thereof.

(e) That with a property interest in the business the tendency of the operatives to shift from one concern to another without real purpose would be reduced to the minimum, and that the consequent advantage to the management would result in a distinct gain in the stability of the business.

Would such a plan when perfected succeed? If it would increase the productivity of the workers, if it would tend to elevate character, to develop a greater loyalty to the concern and help to change an operative from an automaton into a man, if it would strengthen the security of vested interests and narrow the gulf between wealth and work, and finally, if it would be in the direction of righteousness and justice, it must finally succeed. It cannot be expected that at first the introduction of such a scheme would be received by the operatives with enthusiasm. It would only be through the medium of their more intelligent leaders that they could be assured of its benefits, and only after several years of successful operation could we expect it to receive the unqualified support of the workers. When, however, their capitalized extra wages show an accumulation and they begin to receive annual cash dividends upon the surplus earnings of previous years, we may be reasonably assured of a decided change of sentiment in its favor.

In the meanwhile the masters would do well in avoiding undue antagonism to labor organizations per se, so far as the large body of wage-earners is concerned, the benefits of profit-sharing are still to them unproven, while the trade union has in many ways demonstrated its usefulness in protecting the interests of its members. Whether it does more really to help the best interests of the worker than to hinder, may be an open question. However this may be, certain it is that the institution is strongly established in the mind of the workman as his strongest friend, his one means of expression 77and his only hope of material salvation. In its reverses as well as in its successes his heart will remain loyal to his union, until he shall have been furnished a substitute which has proven to him its larger usefulness.

In view of the increasing tendency to incorporate business, this paper has treated the question as it relates to organized capital. It is nevertheless clearly true that the same general situation obtains in the strictly partnership concerns and that the principles herein suggested could be the more readily applied in such cases, especially as the power to act is concentrated in the hands of a few individuals who have no one else to consult.

In such a case it is suggested, in place of the issue of the deferred stock debentures, that the surplus net earnings—after the payment of the agreed interest to capital, and the assignment in cash of the percentage to contingent fund—shall be credited to a “mutual reserve fund” which fund shall take the place of the proposed trustee in a stock company, and shall be entitled to receive dividends (or interest) upon the same terms and subject to the same limitations provided for the deferred stock debentures, and that said fund shall be held for the joint and equal benefit of capital and employees—the respective interests of the employees to be entered in a pass-book similar in terms to the debenture books herein particularly described.

The plan briefly outlined is offered as a suggestion. Doubtless every point made can be improved by modification or substitution. If it influences in a small degree more earnest thought on the part of those in whom the power is vested, towards the formation of a comprehensive plan looking to a more reasonable division of the product of all and a fuller acknowledgment of the humanity of man, its purpose will have been accomplished.

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