From Inequality Media
US economy loses 20.5 million jobs in April.
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While millions of Americans have lost their jobs during this pandemic, America's billionaires have grown their wealth by more than $500 billion.
It's never been more clear: Profit-sharing needs to make a comeback.
The original idea for businesses to share profits with workers emerged from the tumultuous period when America shifted from farm to factory.
In December 1916, the Bureau of Labor Statistics issued a report on profit-sharing, suggesting it as a way to reduce the "frequent and often violent disputes" between employers and workers, thereby "fostering the development of a larger spirit of harmony and cooperation, and resulting, incidentally, in greater efficiency and larger gains."
That same year, Sears, Roebuck and Co., one of America's largest corporations, with 30,000 to 40,000 employees, announced a major experiment in profit-sharing. The company would contribute 5 percent of net earnings, without deduction of dividends to shareholders, into a profit-sharing fund. Employees who wished to participate would contribute 5 percent of their salaries. All would be invested in shares of Sears stock. The plan's purpose, according to The New York Times, was "to engender loyalty and harmony between employer and employee."
Sears's plan was admirably egalitarian. Distributions of shares were based on years of service, not rank, and the longest-serving workers received nearly $3 for every dollar they contributed.
By the 1950s, Sears workers owned a quarter of the company. By 1968, the typical Sears salesman could retire with a nest egg worth well over $1 million in today's dollars. Other companies that joined the profit-sharing movement included Procter & Gamble, Pillsbury, Kodak, S.C. Johnson, Hallmark Cards and U.S. Steel -- some because it seemed morally right, others because it seemed a means to higher productivity.
Profit-sharing did give workers an incentive to be more productive. It also reduced the need for layoffs during recessions, because payroll costs dropped as profits did. But it subjected workers to the risk that when profits were down, their paychecks would shrink. And if a company went bankrupt, they'd lose all their investments in it. The best profit-sharing plans came in the form of cash bonuses that employees could invest however they wished, on top of predictable base wages.
Profit-sharing fit perfectly with the evolution of the American corporation. By the 1950s, most employees of large companies had spent their entire working lives with the company. Companies and their employees were rooted in the same communities. C.E.O.s typically worked their way up, and once at the top rarely earned more than 20 times the average wage of their employees (now they're often paid more than 300 times more).
Some remnants of profit-sharing remain today. Both Steelcase Inc., an office-furniture maker in Grand Rapids, Mich., and the Lincoln Electric Company, a Cleveland-based manufacturer of welding equipment, tie major portions of annual wages to profits. Publix Super Markets, which operates in the Southeast, and W.L. Gore, the maker of Gore-Tex, are owned by employee stock ownership plans.
But since the 1980s, profit-sharing has almost disappeared from large corporations. That's largely because of a change in the American corporation that began with a wave of hostile takeovers and corporate restructurings in the 1980s.
Raiders like Carl Icahn, Ivan Boesky and Michael Milken targeted companies they thought could deliver higher returns if their costs were cut. Since payrolls were the highest cost, raiders set about firing workers, cutting pay, automating as many jobs as possible, fighting unions, moving jobs to states with lower labor costs and outsourcing jobs abroad. To prevent being taken over, C.E.O.s began doing the same.
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