Profit-sharing was defined in a resolution of the Paris International Congress on Profit-sharing in 1889 as 'a voluntary agreement under which the employé receives a share, fixed beforehand, in the profits of a business.' It is argued and held to be proved by those in favour of the system, that profit-sharing advances the prosperity of an establishment by increasing the quantity of its product, by improving its quality, by promoting greater care of implements and economy of material, and lessens the risk of strikes, labour disputes, and the antagonism generally between capital and labour. Upwards of fifty British firms with 11,000 employés had by 1890 adopted some method of profit-sharing. Over eighty-one industrial establishments in France,
Alsace, and Switzerland are working on a somewhat similar principle. Upwards of twenty-nine firms in the United States have also tried the experiment. In some of the native banks at Shanghai, every employé down to the lowest coolie has a share in the annual division of profits. Profit-sharing has been tried by firms of painters and decorators; paper, cotton, and woollen factories, &c.; and the famous Bon Marché in Paris. The additional fund thus coming to the workman may be paid to him directly in cash, or it may be put to his credit with a view of securing him a share in the capital of the firm, or it may be a deferred benefit for sickness and old age. The management of the business, as a rule, still remains in the hands of the capitalists.
Thrgot in 1775 recognised a principle of profit-sharing, but Edme-Jean Leclaire (q. v.), a successful Parisian painter and decorator, was the first to carry it to a practical issue. He began by paying extra wages to his work-people, bonuses were then given to a few, a provident society was established which was succeeded by a distribution of profits. Leclaire by wonderful energy and capacity had risen to the front rank in his trade, and became a large employer of labour. For the benefit of his workmen he had established a mutual aid society in 1838, which he found to be 'a powerful means of moralisation and a living course in public law.' Having thus provided for the sick, as a master who had himself been a workman he remembered their hopeless condition when too old for work. He read everything he could lay his hands upon which tended to help him to improve the social condition of his workmen. M. Frégier in 1835, when making inquiries as to the condition of his workmen, suggested the participation of the workmen in the profits of the master as an expedient for doing away with the antagonism between capital and labour. There is evidence that M. Frégier did not afterwards believe in his own solution. Leclaire himself at first rejected it, and it was much later, he says, 'through cudgelling my brains, that in 1842 the thing appeared to me possible and one of the simplest to put into practice.' He had endeavoured gradually to educate his workmen up to the same point, and in January 1842 he pledged himself to this course. The men were still sceptical as to Leclaire's intentions, until an object-lesson in the shape of a bag containing £490 in coin was thrown on a table before them in February 1843. In the years 1842-47 an average of £750 was annually divided amongst eighty persons. The sum received was in proportion to annual earnings. In 1869 a deed was drawn up which stipulated that the net profits of the business should be divided into a certain fixed proportion between the managing partners, mutual aid society, and the regular workmen. Between 1842 and 1872 the mutual aid society and his workmen had received £44,000; down to 1882 the sum had reached £133,045. In 1870 the number who participated was 758, the dividend to workmen being £2465, or 14 per cent. on annual wages; in 1882 the sum of £9630 was divided amongst 998 persons. In 1884 the number was 824, the sum distributed being £9200, or about 24 per cent. on wages; in 1889 the amount was £9120. Five per cent. on the capital of 400,000 francs is, like the wages, deducted from the gross profits in order to find the net profits. Of the net profits 50 per cent. goes to labour in cash, 25 per cent. to management, and 25 per cent. to the provident society, which has now become half owner of the capital of the firm. The effect of all this on the workmen has been to make them sober, thrifty, and industrious. Other painters and decorators in Paris followed suit. When called a philanthropist, the founder said: 'I am simply a business man. I would rather gain 100,000 francs and give away 50,000 than gain 25,000 and keep the whole for myself.'
The Co-operative Paper Works, Angoulême, founded by M. Laroche-Joubert, adopted a system of profit-sharing in entire independence of Leclaire. The dividend is payable in cash; provision is made for the admission of workmen shareholders, and by 1890 one-fourth of the shares were in their hands. The workmen have no part in the management. In the years 1879-88 the sum distributed over and above wages was £44,880.
In Messrs Godin's iron-foundry, Guise, employing about 1600 hands, the workmen's share of profits accumulates towards the purchase of shares in the firm. The first method adopted was that of the bonus; then the system of benefit societies; and for many years payments in cash. In 1880 the sum paid in interest on workmen's capital was £9200, and in wages £75,000; the number of workmen participating was 550; in 1889 the number was 961. M. Godin said that 'ever since the system was established the workmen are interested in improving the output; they are quick at pointing out sources of loss and defect, and they exert themselves to make new suggestions.' Mr Lowry Whittle, in his report to the Board of Trade, says that out of a squalid, ignorant peasantry M. Godin has produced an industrial community with the discipline of a regiment and the commercial alertness of the market-place. Since 1881 M. Piat, of the iron-foundries at Paris and Soissons, has distributed a portion of net profits. In M. de Courcy's plan 5 per cent. of the profits are set aside every year to form a fund upon which every employé, after twelve months' service, has a claim in the proportion of his year's salary to the total amount of profits set aside.
But those who have tested any system of profit-sharing declare that it requires much time and pains to produce substantial results; and a difficulty in working the system is that profit-sharers are not unfrequently unwilling to share the losses of the concern. In France there was founded in 1878 a society for facilitating the practical study of the different kinds of profit-sharing, which issues a quarterly Bulletin de la Participation aux Bénéfices. Both on the Continent and in America there have been experiments made in co-operative farming, fishing, market-gardening, and co-operative workshops. Alfred Dolge, of Dolgeville, New York state, a Saxon by birth, the largest manufacturer of felt shoes and piano felt, &c., in the United States, has in operation a system of what he calls earning (not profit) sharing amongst his employés, which originated in the conviction that in the creation of wealth certain of the employés contribute a larger share than is represented by their wages, and are entitled to something more than the wages proper. These real earnings can be determined by book-keeping, irrespective of any market-rate of wages. He claims that it is the selfish interest of every employer, as a means of actual ultimate gain, to find out what the earnings of each of his workmen are. The main features of the Dolge scheme are: a pension scheme, insurance endowment, and various benevolences. (1) Under the pension scheme a workman over 21 years of age, and under 50, after ten years' service, in case of partial or total inability to work, is entitled to a pension at the rate of 50 per cent. of wages earned during the year preceding; rising to 100 per cent. after twenty-five years' service. The pension fund is paid from yearly contributions set aside by the firm on behalf of each workman, and in 1891 it was reported that it would soon be self-supporting. (2) Fifteen years of service entitles to three insurance policies of 1000 each: 75 policies of a value of 138,000 were existing in 1891. Over 20,000 had been paid in premiums by the firm. (3) The endowment money is the sum credited each year on account of more work done than has been paid for in wages; the endowment account begins after five years' service, and is payable at the age of 60 or at death. Mr Dolge, for the benefit of his work-people, has given a park of 400 acres, assisted in building houses, maintains a club-house and free library, and pays 5000 a year to the school society. Strikes and labour disputes are reported as unknown at his factorics.
In Great Britain any system of profit-sharing is not of such long standing as in France. The system adopted at the Whitwood Collieries of Messrs Briggs, Yorkshire, lasted beneficially from 1864 to 1875, when it ceased on account of the participation of the workmen in a strike against reduction of wages. During that time £34,000 had been distributed in percentage on wages. This percentage was paid when the net profits exceeded 10 per cent. on the capital embarked, one-half going to the work-people in proportion to earnings. Provision was also made for the work-people securing shares when the concern became a limited liability company.
The method of profit-sharing employed by many British firms may be gathered from the first rule which is generally adopted. 'From and after the 1st of September 18—the surplus (if any) of the clear profits of the business, beyond such definite sum as is for the time being reserved to the firm for their own benefit, shall be divided into two equal parts; one thereof to be distributed (not of legal right, but gratuitously) as a bonus to the employés in the manner defined by these rules, and the other to be retained by the firm.'
See Leroy-Beaulieu, Répartition des Richesses (1881); Hart's Maison Leclaire (1883); Taylor's Profit-sharing (1884); Wright's Profit-sharing (Boston, 1886); Böhmert's Participations aux Bénéfices (1888); Gilman's Profit-sharing (1889), which contains a full bibliography; Bushill's Profit-sharing Scheme, with list of British profit-sharing firms; Die gerechte Verteilung des Geschäftsvertrags (1891); Rawson's Profit-sharing Precedents (1891); articles by Schloss in Contemporary Review for 1890; The Just Distribution of Earnings, an account of Dolge's scheme (1890); the report to the Board of Trade by J. Lowry Whittle (1891); Bushill's Profit-sharing and the Labour Question (1892); and the articles CO-OPERATION, SOCIALISM.