Executive Guidance of Industrial Relations: An Analysis of the Experience of Twenty-Five Companies [Reprint 2016 ed.] 9781512814101

Table of contents :
PREFACE
CONTENTS
TABLES
CHARTS
INTRODUCTION
PART I. CASE STUDIES OF PIONEER PROGRAMS
PART II. INFERENCES
PART III. SUPPLEMENT
APPENDIX
BIBLIOGRAPHY
INDEX

Citation preview

E X E C U T I V E G U I D A N C E OF INDUSTRIAL RELATIONS A N A N A L Y S I S OF T H E EXPERIENCE TWENTY-FIVE

COMPANIES

BY

C. CANBY BALDERSTON Research Associate,

Industrial Research and Professor of Industry

Department

Wharton School of Finance and Commerce University of Pennsylvania

PHILADELPHIA UNIVERSITY OF PENNSYLVANIA PRESS

1935

OF

Copyright

1935

by the UNIVERSITY

OF PENNSYLVANIA

PRESS

P R I N T E D IN T H E U N I T E D STATES O F A M E R I C A

PREFACE One wonders who scans a preface, except the writer, printer, and proof-readers. Yet in this report, a foreword is necessary both to give the background of the study and to designate the numerous sponsors and sources of aid. The inception of the investigation was a competition in 1 9 3 1 , for which the prizes were provided by M r . B. C. Forbes, for company plans designed to produce the soundest worker-management relations. T h e first prize of $2,000 was awarded to the employees of the Leeds and Northrup Company and to its president, M r . Morris E . Leeds. The latter, in turn, donated his share to finance this more intensive study of the theories and experience of pioneers in personnel. His contribution was generously augmented by two agencies within the University of Pennsylvania, namely, the Industrial Research Department and the Faculty Research Committee. Consequently, this investigation was made possible through the collaboration of several sponsors, for whose combined help the writer feels profoundly grateful. T o the prize winners, the Leeds and Northrup, the Procter and Gamble, the General Electric, and the Westinghouse Electric and Manufacturing companies, were added twentyone others to round out the sample. Some of these had participated in the contest} others had not. These companies, well known for their industrial relations, were visited and were studied in the light of their competitive situations. That part of the report which is descriptive was prepared according to a uniform pattern. T o thus force the case studies into one mould seemed necessary for the convenience of readers, but the process occasionally did violence to the sequence of topics that would have been ideal for given firms. In preparing and checking the descriptions, the writer is heavily indebted to the company managements for their wholehearted and courteous cooperation. T

VI

PREFACE

For the inferences drawn from his analysis of the programs and of the forces in the industries that guide and limit executive decisions, the writer must assume entire responsibility. Yet like all who work in this field, he must bow in humble acknowledgement to older students of labor and of industrial relations. One's point of view is a motley of the concepts derived from others. The writer traces his own concepts to Professors Anne Bezanson, J. Douglas Brown, Henry Clay, John R. Commons, William M . Leiserson, Joseph H . Willits, and Leo Wolman; to Messrs. Henry S. Dennison, E . K. Hall, Morris E. Leeds, Sam Lewisohn, Donald Richberg, B. Seebohm Rowntree, Frederick W . Taylor, and Ordway Tead. But lest it be observed that he prefers to be wrong with Plato than right with Aristotle, he must hasten to acknowledge also the more technical contributions of such students as Professor Paul H . Douglas in the field of wages, and M r . Murray W . Latimer in that of pensions. In addition to these sources upon whom all students draw, a special debt is owed in this instance to those who have criticized the inferences and aided in shaping the form of the final report. Such critical help has an essential place in any study that appraises, however cautiously, arrangements involving human costs and values. Consequently, the writer has leaned heavily upon his friends, Drs. Anne Bezanson, Arthur Kulp, Gladys Palmer, Alfred H . Williams, and Joseph H . Willits of the University of Pennsylvania; Dr. J. Douglas Brown and the staff of the Industrial Relations Section of Princeton University; M r . E. S. Cowdrick (New Y o r k ) ; various members of the staff of Industrial Relations Counselors, and Mr. Chapin Hoskins, Managing Editor, Forbes. From Professor Waldo E. Fisher, he received pertinent suggestions. Miss Frances M . Kelley assisted throughout the study and, with Miss Miriam Hussey, was of invaluable help in the preparation of the manuscript, and in that most thankless of tasks, the reading of proof.

CONTENTS CHAPTER

PACE

Preface Introduction

v i

P A R T I — C A S E S T U D I E S OF P I O N E E R

PROGRAMS

T h e American Rolling M i l l Company T h e Baltimore and Ohio Railroad Company California and Hawaiian Sugar Refining Corporation, Ltd

33

T h e Columbia Conserve Company

39

Commonwealth Edison Company

50

' E . I. du Pont de Nemours and Company, Incorporated Eastman K o d a k Company T h e Edison Electric Illuminating Company of Boston

Hart, Schaffner and M a r x I l g Electric Ventilating Company

121

I r v i n g Trust Company

125

T h e Kohler Company

131

T h e Leeds and Northrup Company

141

R. H. M a c y and Company, Incorporated

155

T h e Procter and Gamble Company

164

T h e Rocky Mountain Fuel Company

171

T h e Samarkand Company

179

Standard Oil Company ( N e w J e r s e y )

I8J

Standard Oil Company of California

195

T h e Studebaker Corporation

199

PART

I

207

II—INFERENCES

Factors Underlying Personnel Decisions

221

A Selected Composite P r o g r a m

251

An Appraisal of Methods and Conflicting Concepts

287

PART

II

98 103

l/Westinghouse Electric and Manufacturing Company

III

80 86

T h e Goodyear T i r e and Rubber Company

I

58 66

w General Electric Company

II

9 20

III—SUPPLEMENT

Analysis of Industries Represented

329

Personnel Standards

373

nii

CONTENTS APPENDIX PACE

A

Excerpts from Employment Code Drafted Tentatively by a Committee of the T a y l o r Society in 1 9 3 1

409

B

Guiding Principles for Voluntary Unemployment Reserves

413

C

Guiding Principles f o r a Company Pension Plan

417

D

Personnel Administration Functions

419

E

Accident Rates in Industry

420

F

Check List

424

Bibliography

426

Index

431

TABLES PACE

TABLE

1 Percentage of Firms Reporting No Net Income in Worst Y e a r for Each Industry, 1 9 2 7 - 1 950 2 Selected Industries Classified According A g g r e g a t e Earnings, 1 9 1 9 - 1 9 2 8 )

to Profitability

216

(10-Year 227

3 Profitability of Industries, 1 9 2 9 - 1 9 3 3 (Selected Industries Grouped According to Profit Ratios of Sixty Industries)

228

4 Percentage of Value of Product Required for Wages and Materials, '93' 5 Approximate Ratios of Fixed Property to T o t a l Capital .

232 23 +

6 Degree of Seasonal Irregularity in Employment and Production

236

7 A g e of Cooperating Companies and T h e i r Industries

240

8 Rate of Growth of Certain Industries, 1 9 1 4 - 1 9 2 9

241

9 Ratios of Executive Salaries to T o t a l Assets and Net Income

246

1 0 Executive Salaries,

1932

248

1 1 Number of Employees and A v e r a g e Annual Earnings in the Rocky Mountain Fuel Company

284

1 2 Resources of Largest Banks and Trust Companies in the United States as of December 3 1 , 1 9 3 3

333

1 3 Hourly and Weekly Earnings of Clothing Workers

337

1 4 Seasonal Index of Department Store Employment 1 5 Index of Price of Electricity to Domestic Consumers

342 .

..

344

16 Percentage of Equipment Installed by General Electric and Westinghouse, 1 9 2 3 .

347

1 7 Production of Leading United States Oil Companies, 1 9 2 9 1 8 Percentages of Increase in Gasoline Consumption over the Y e a r Preceding, 1 9 1 8 - 1 9 3 0

352 353

1 9 Ratios of Railroad Net Income and Interest to Investment, and of Net Income to Equity, 1 9 0 0 - 1 9 3 0

355

20 Mileage of Leading Railroads in the United States, 1 9 3 0

357

21 Pneumatic T i r e Production of Six Plants as Compared with T o t a l Production of T i r e Industry, 1 9 2 2 - 1 9 3 1

359

22 T i r e Production Ranges between Peak and L o w Months, 1 9 2 3 - 1 9 3 1

360

23 A v e r a g e Monthly Earnings in Three Automobile T i r e Plants, 1 9 2 3 '93'

361

24 M a n - H o u r Production in Six Representative T i r e Plants, 1 9 2 2 - 1 9 3 1 25 Ingot Capacities of Principal Steel Companies in the United States

362 .

365

26 A v e r a g e Hourly E a r n i n g s in the Iron and Steel Industry by Department, 1 9 2 9

366

TABLES

X

PACE 27

F u n d e d D e b t p e r T o n of I n g o t C a p a c i t y , 1 9 2 9

367

28

P e r c e n t a g e of S t e e l S o l d b y I n d u s t r y , 1 9 3 0

368

2 9 A v e r a g e P e r s o n n e l Costs in L a r g e P l a n t s , 1 9 2 6

376

3 0 Costs of M e d i c a l Service b y I n d u s t r y

377

31

Costs of E m p l o y e e N e w s p a p e r s a n d M a g a z i n e s ,

1934

32

C o s t of E m p l o y e e A c t i v i t i e s in S m a l l P l a n t s , 1 9 2 7

379 380

33

A v e r a g e C o s t o f A l l P e r s o n n e l A c t i v i t i e s in S m a l l P l a n t s , 1 9 2 7

380

34 A n n u a l p e r C a p i t a Cost of P e r s o n n e l A c t i v i t i e s b y C o m p a n y , 1 9 3 1

381

35

383

P e r c e n t a g e s of the F o r c e w i t h L o n g S e r v i c e ( G e n e r a l S u r v e y )

3 6 P e r c e n t a g e s of

the F o r c e

with L o n g

Service

in C o o p e r a t i n g

Com-

panies 37

384

A v e r a g e A n n u a l L a b o r T u r n o v e r by Industry, 1 9 3 0 - 1 9 3 2

386

38 T o t a l A n n u a l L a b o r T u r n o v e r R a t e s of C o o p e r a t i n g C o m p a n i e s , 1

39

1920-

9 32

387

F a c t o r y E m p l o y m e n t : I n d i c e s of S e a s o n a l V a r i a t i o n b y I n d u s t r y

....

4 0 A n n u a l N u m b e r of Absences per T h o u s a n d on P a y r o l l 41

F r e q u e n c y o f D i s a b i l i t y of E i g h t o r M o r e b y T y p e of D i s a b i l i t y , 1 9 2 7 - 1 9 3 2

42

F r e q u e n c y of D i s a b i l i t y of

43

T y p i c a l F r e q u e n c y of D i s e a s e b y M o n t h s

by Industry,

388 393

C a l e n d a r D a y s , Classified

393

E i g h t or M o r e C a l e n d a r D a y s , Classified

1922-1928

394

4 4 V o l u m e of G r o u p L i f e I n s u r a n c e 1912-1932

394

in the U n i t e d States a n d

Canada, 396

45

A v e r a g e A m o u n t of G r o u p L i f e I n s u r a n c e p e r E m p l o y e e b y S i z e of Establishment

397

46

P e r c e n t a g e s of I n s u r a n c e H e l d u n d e r D i f f e r e n t F o r m s of G r o u p I n s u r a n c e b y Size o f E s t a b l i s h m e n t

398

47

N u m b e r of E m p l o y e e s Insured f o r Sickness and Accident, T o t a l W e e k l y A m o u n t of I n d e m n i t y a n d A v e r a g e W e e k l y A m o u n t p e r E m p l o y e e b y S i z e of E s t a b l i s h m e n t

Life

48 T y p i c a l D i v i d e n d R a t e s E a r n e d by C r e d i t U n i o n s 49 Purposes f o r W h i c h Loans Were Granted by Credit Unions 50 Percentage

Distribution

of

Personnel

Administration

Functions

403 in

189 Ohio Industrial Firms 51

399 402

419

I n d e x N u m b e r s of Accident F r e q u e n c y and Severity Rates, 1 9 2 6 - 1 9 3 2

420

52

F r e q u e n c y Rates of I n j u r i e s by I n d u s t r y ,

422

53

S e v e r i t y R a t e s of A c c i d e n t a l I n j u r i e s b y I n d u s t r y

1927-1932

423

CHARTS CHART

I II

PAGE

Organization Chart of R . H. M a c y & Co., Inc. Educational

Program—Westinghouse

Electric and Manufacturing

Company III

156

Hourly W a g e Rates in Philadelphia L a b o r Market

116 324

INTRODUCTION " P i o n e e r s and e x p l o r e r s , and 'the m a k e r s of r o a d s , ' a r e needed just as u r g e n t l y in the industrial sphere as in the opening up of n e w t r a c t s of fertile

country."1

T h e best in the relations between employer and employee is the focal point of this study. In it, we have attempted to describe and explain, partly by the case method, the nature of personnel management as it has evolved in companies willing to pioneer. Pioneers capture the imagination. T o a boy, the term brings up pictures of the dauntless Deerslayer, or of covered wagons on the prairie. T h e word smacks of adventure and exploration. A pioneer or employer in almost any field of endeavor commands attention and excites interest, but explorations in industrial relations have a significance to our time comparable to the opening up of new territory a century ago. Our economic problems loom large, and there is a famine of jobs. In fact, the dire extremity of many American workers and enterprises has led people to question, how far industry can take care of those who work for it. Such an emergency forces re-appraisals. I t challenges beliefs as to the proper relationships of industry to its owners and workers, and induces managers to deliberate as to how the repetition of mistakes and difficulties may be avoided. In short, it is a time when violent readjustment emphasizes the need for candid analysis. Changes, seemingly inevitable, sweep owners and workers alike into the maelstrom, and both groups do rigorous thinking under the pressure of emergency. Much of their thinking concerns only the immediate palliatives, like measures for relieving hunger and distress, and the resulting changes are dictated by force of circumstances rather than by considered judgment. 'Statement of British Quaker Employers, Survey,

1

November 23, 1 9 1 8 .

2

EXECUTIVE

GUIDANCE

There still remains the essential question: " W h a t policies have proved to be most effective?" Out of it has grown this investigation with its two-fold purpose: to make available case descriptions of how well-known companies conduct their relations with their workers; and to analyze certain of their experiments in the light of differences in philosophy and competitive situation. The contrasts in point of view are not academic, but arise from deep-seated conflicts of interest of which the employer vs. the employee, the individual vs. the group, the single business vs. the rest of industry represent but a few. And affecting them all are the race jealousies and trade rivalries that are visible in the complicated web of business relations. Morever, the appraisal of personnel policies demands an approach by way of reality. T o discuss industrial relations apart from the economic forces that affect them is one of our " p e t " follies. Books and articles describe in detail the arrangements used by John Jones and his company. That the Golden Rule is his guide and Service his motto is impressed upon us. H e may even write and print a creed to govern his dealings with his associates and workers, and his personnel program, at least on paper, may be impeccable. But John Jones is not entirely his own master in dealing with his employees. H e too has a "boss"—competition, usually harsh enough, but at times an inexorable tyrant demanding that he choose between his announced personnel polices and the survival of his business. T h e human relations that John Jones desires are turned and twisted by economic forces, and are attained only as the general management, aided by foresight, skill, and luck, is able to adjust itself to them. Thus a personnel program becomes understandable only as it is interpreted in the light of competitive and economic influences. But it is one thing to deplore the lack of objective analysis, and quite another to remedy it. This is true especially in the field of human relationships for in it the variables are numerous, uncontrollable, and only partially measurable. Therefore quantitative analysis alone is misleading. Merely to count the

INTRODUCTION

3

cafeterias, the credit unions, and the group insurance plans, and to make " s u r v e y s " without qualitative analysis, adds to our bookshelves but not to our understanding. Neither is it possible to prove that given policies or methods " p a y , " because clearcut comparison is usually impossible. Except crudely, we cannot measure what a company actually does against what it might have done. Profits are a joint result of diverse influences, and an attempt to trace profitability or the Jack of it to a single phase of management would be fatuous and inconclusive. T h i s appraisal, then, will be primarily qualitative, supported, however, by the essential data that portray the economic limits within which a management must operate. Moreover, it is confined to personnel management alone, and the inclusion of a given company does not necessarily imply success in all other phases of management, nor carefulness of the interests of consumers and suppliers. Since our purpose is to focus attention upon progress in personnel management only, we have not felt deterred from including firms that may take advantage of semi-monopolistic powers. In short, lack of scruple as to trade practices and the discharge of external social responsibilities (however one defines this elusive concept) is not taken into account. W e do not wish to imply, however, that our cooperating companies pursue the famous precept of David H a r u m to " D o unto the other fellow the way he's like to do unto you—an' do it fust." W e merely wish to make it clear that this study is confined to those phases of management that affect employees alone. I n choosing our sample of " p i o n e e r " companies, we have not used objective tests, but have selected twenty-five American firms that are well known for their industrial relations. T h e companies chosen are outstanding either for their experimental efforts, or for their development of well-balanced programs. T h e writer has interviewed the executives of the cooperating firms, and where possible, has talked with employees. Each of the case descriptions has been checked for accuracy by one or more appropriate executives. As will be seen from

EXECUTIVE

4

GUIDANCE

the f o l l o w i n g analysis of the s a m p l e selected for s t u d y , some a t t e n t i o n h a s b e e n p a i d t o t h e d i s t r i b u t i o n of t h e

firms

by

l o c a l i t y , i n d u s t r y , a n d s i z e . W i t h r e s p e c t t o t h e l a s t of t h e s e , t h e s a m p l e is d e f i n i t e l y b i a s e d , f o r t w o - t h i r d s o f t h e c h o s e n companies are a m o n g the two h u n d r e d largest

corporations

in t h e U n i t e d S t a t e s . 2 N A T U R E OF T H E S A M P L E S T U D I E D

Company American Rolling Mill Baltimore and Ohio Railroad Bell Telephone of Pennsylvania California and Hawaiian Sugar Refining Columbia Conserve Commonwealth Edison E. I. du Pont de Nemours Eastman Kodak Edison Electric Illuminating of Boston General Electric Goodyear Tire and Rubber Hart, Schaffner and Marx

Ilg Electric Ventilating Irving Trust Kohler Leeds and Northnip R. H. Macy Peoples Gas Light and Coke Procter and Gamble Rocky Mountain Fuel Samarkand Standard Oil (New Jersey) Standard Oil of California Studebaker Westinghouse Electric and Manufacturing

Classification By

Industry

Automobile i Banking I Canning (vegetables) I Chemicals, explosives, and photographic goods 2 Clothing, men's i Coal mining (bituminous) i Department store i Electric light and power z Electrical equipment . . . . .4 Ice cream 1 Oil 2 Railroad 1 Rubber 1 Soap . . 1 Steel . 1 Sugar refining (cane) 1 Telephone 1 Miscellaneous 2

By Region New England Middle Atlantic South Atlantic North Central Mountain . Pacific By Size

1 9 1 1o 1 3

Under 250 employees . . 250- 1,000 employees 1,000- 5,000 employees 5,000-10,000 employees 10,000 or more employees

' Berle, Adolph A., J r . , and Means, Gardiner C., The Modern and Private Proferty, pages 19-24.

3 2 4 7 9

Corf

oration

INTRODUCTION

5

I n picking out pioneer contributions, we have paid no attention to precedence in time, but rather to the policies and techniques that appear to us to be unusually sound and progressive. O u r criteria may be epitomized as the ability of a given device to meet the requirements of both employees and management for as long a period as there is need. F o r instance, certain kinds of training are required only during a period of labor scarcity, whereas a pension fund should outlast all who have claims upon it. T h a t any such appraisal is subject to the personal whims of the investigator is admitted. T h a t our criteria are little more than variants of the haggard words, " e f f e c t i v e " and " a d a p t a b l e " is admitted also. Y e t our purpose, which is to assemble examples of advanced industrial relations, seems to be served better by empirical methods than by sole reliance upon the more objective standards presented in Part I I I . M o r e o v e r , the reader has a right to be forewarned as to bias that may affect conclusions, however impartial the investigator may strive to be. F o r instance, the writer subscribes whole-heartedly to the general principles of collective bargaining, but he believes that in practice the success or failure of joint dealing is conditioned by the personalities on both sides. O n a still more fundamental point, he does not subscribe to the popular doctrine that complete unity between " l a b o r and capital" is likely. O n some questions their interests are identical, on others, divergent or conflicting—a situation that is inherent in our economic mechanism. W h e n the life of an enterprise is at stake, its management will, in our present competitive economy, take every step possible to insure its continuance. I n brief, therefore, our point of view toward industrial relations is that, within the limits imposed by uncontrollable economic forces, each decision affecting people should be based primarily on what is fair to the parties involved. It is our conviction that a business executive is in the position of a trustee who has obligations to his employees, his creditors or owners, and his customers. T h e nice balancing of responsibility inherent in this situation requires ethical sen-

6

EXECUTIVE

GUIDANCE

sitíveness of a high order. T h e proper discharge of this trusteeship can be effected only if it is combined with adequate management technique and practical skill in applying it. A trustee has obligations to discharge the trust placed by others in his integrity which are not limited by the legal penalties attaching to his failure. Business transactions are so intricate that he must, if he is to discharge his obligation to the full, assume responsibilities which involve no compulsion other than his sense of what is right. Social justice is broader than mere legality. Before a reader begins a book, he has the right to ask what kind of a mental meal is to be set before him. T h e menu for this one is as follows: Case studies of twenty-five pioneer programs Factors underlying personnel decisions A selected composite program An appraisal of methods and conflicting concepts Analysis of industries represented Personnel standards

These chapters do not attempt to provide a solution for the entire register of social ills, but merely a portrayal of the nature and effects of certain developments in employer-employee relations. The latter vitally affect the ability of a firm to discharge its obligations to those who depend upon it for a job (i.e., for a living, and a chance to work). T o call them "obligations" begs the question, of course, but it is becoming increasingly clear that if industry does not take care of its own, the consequences will be fraught with disturbing and alarming incidents for owners and workers alike. Consequently, industry needs a clear vision of its problems. Moreover, believers in the possibilities of capitalism as a means of sustaining life without an inordinate sacrifice of individual liberty and happiness must realize that one of the large areas calling for improvement is the relationship between workers and their employers. It is within this general area that this study falls.

PART I CASE STUDIES O F P I O N E E R

PROGRAMS

CASE STUDIES OF PIONEER PROGRAMS T H E AMERICAN ROLLING M I L L MIDDLETOWN,

COMPANY1

OHIO

T h e program of the American R o l l i n g M i l l Company is distinguished not for any outstanding characteristic but for its unity. T h e product of thirty years of consistent development, it has reached the adult stage of balance and integration in which outmoded specialties have been abandoned. Place of the Personal Sei-vice Department

in the

Organization

T h e name of the department which devotes itself to human relations is distinctive. " P e r s o n a l " carries a subtle implication, yet one does not gather that the spirit behind the activities is paternalistic. T h e function delegated to it is to keep the company's workers effective and healthy, and to provide for the ready interchange of opinions between men and management. Its objectives are stated more f u l l y in " A r m c o Policies," which have been formally adopted by the board of directors —policies calculated to guide each supervisor in his decisions and actions. T h e y reflect the ideals and ideas of M r . George M . Verity, president for three decades following the formation of the company in 1899, and of his associates. Certain of these policies are as follows: F a i r a n d , as f a r as possible, g e n e r o u s c o m p e n s a t i o n f o r s e r v ices r e n d e r e d . I t is A r m c o ' s w a g e p o l i c y t o p a y f o r e v e r y class of s e r v i c e a s t a n d a r d of c o m p e n s a t i o n as h i g h as is c u r r e n t in c o m p e t i t i v e i n d u s t r i e s . I t is A r m c o ' s a m b i t i o n t o d e v e l o p a n o r g a n i z a t i o n of s u c h spirit a n d l o y a l t y a n d e f f i c i e n c y t h a t it w i l l be ' P r o d u c t s : h i g h - g r a d e iron and steel sheets f o r automobile bodies, furniture, etc.; railroad car wheels and spiral welded pipe. N u m b e r of employees: 1 9 3 1 — 8 , 7 0 0 . Location of m a j o r plants: M i d d l e t o w n and Zanesville, O . ; Butler, P a . ; Kansas C i t y , M o . ; A s h l a n d , K y . T h e c o m p a n y also operates a coal mine at Nellis, W . V a . 9

EXECUTIVE

10

GUIDANCE

possible for individual members to earn and receive better compensation than if performing a similar service in other fields of effort. A r m c o believes that good working conditions in the fullest sense of the word are absolutely essential to industrial efficiency and progress. Opportunity for advancement is the ladder on which the individual hopes to reach his ultimate goal—his heart's ambition. W i t h o u t such a ladder, there can be no such hope, life is a failure. I t is Armco's policy to develop understudies, properly trained, and to promote from within its ranks wherever possible. Incentives are the great mainspring of accomplishment. O r ganized industry can provide many sound incentives. A r m c o believes in the development and application of every sound incentive possible.

The execution of these policies is the responsibility both of the line executives and of the Personal Service Department. One of the qualities Armco insists upon in the selection of its works managers is an understanding of human beings, and several ranking executives have been trained in the field of personnel administration before being assigned to manufacturing responsibilities. Each plant has its own Personal Service Department, its size being governed by the size of the plant and by the character of the operation. It is headed by a plant supervisor of Personal Service who serves as an assistant to the works manager, and is usually made up of the following units. Employment Personal records

Medical

T h e selection and placement of men. An accurate record of the history of every man for review in determining his future as well as to provide accurate statistics. Preventive medicine and industrial surgery.

Safety and training T o provide the right man, fully trained and instructed, and guided by the proper viewpoint for any given task. Mutual interest T o help with personal difficulties—legal, financial, and domestic—by impartial advice and assistance.

The personnel activities throughout the company are coordinated by the director of Personal Service, who reports to the president and general manager.

AMERICAN

ROLLING

MILL

COMPANY

11

Methods of Counteracting Irregular Production and Employment. W h e n technological changes occur, an attempt is made to place the men affected on satisfactory jobs, either in other American R o l l i n g M i l l plants or with some other company. If this is impossible, then each man is paid a readjustment wage, which consists of half-pay for as many months as he has years of service, the maximum of which is six. T h e minimum readjustment wage is $50.00 per month. F o r example, the man with six years of service and monthly earnings of $200.00 would receive $100.00 per month for six months. Should he accept a job within any of the plants of the company and decide within 30 days that he does not desire to continue in it, he would still be eligible for his dismissal wage. For instance, when the E l y r i a plant was closed at the end of 1929, all the employees had to be retired, but each one received a dismissal wage to "tide him over." It has also been used for two larger groups.

Financial Provisions to Enhance Employee Security W h i l e Armco has no formal pension plan, each case of superannuation is carefully reviewed by the works manager of the division, the vice president in charge of operations, the director of Personal Service, and the general manager. L e n g t h of service, past performance, and the needs of the prospective pensioner are factors considered in deciding the amount to be granted. T h e managements of the various plants use different means to encourage employee thrift. F o r example, a credit union has been organized at the Ashland plant, and still another mill has its own bank located at the main entrance. T h e building belongs to the company, but the bank is operated by a financial institution. T h e cashier is permitted to visit men on the j o b and to solicit savings accounts, for which deposits are deducted from wages. Group insurance is provided for every Armco employee who has been in the continuous service of the company for three months or more, in an amount approximately equal to

12

EXECUTIVE

GUIDANCE

his or her annual earnings, the minimum insurance being $ 1 , 0 0 0 , and the maximum, $10,000. T h e gross premium for the total amount of insurance is paid by the company monthly, but each employee insured shares the cost by contributing through payroll deductions at the rate of five cents for each $ 1 0 0 of insurance (except in cases where the insurance is for $ 1 , 0 0 0 only). Under the policy now in force, some 7,200 employees are insured for about $12,000,000 (figures as of August 1 9 3 2 ) . Since this policy is quite typical of that found in many large companies, the evolution in the use of group insurance is worth recording. M r . Charles R . Hook, President and General Manager, states that in January 1 9 1 7 , the board of directors of the company appropriated a sum sufficient to purchase life insurance for every Armco employee who had been in its service for one year or more. T h e amount represented one year's wage or salary (not to exceed $ 1 , 2 0 0 ) . In 1 9 2 0 , a clause was added to the policy making it possible for an insured employee who becomes totally and permanently disabled before reaching the age of 60 to be paid the f u l l amount of his insurance. So much satisfaction and confidence resulted from this insurance that in 1 9 2 5 , the amount was increased by the adoption of a plan combining free and contributory insurance. T h e free insurance was provided entirely by the company and the cost of the contributory insurance was shared. In 1 9 3 2 , the plan was changed with a reduction in the company contribution and also in the length of service required for eligibility. T h e latter was reduced from twelve months to three. Through the Armco Association, to which all employees belong and contribute, an additional death benefit of $ 2 5 0 is provided, together with health insurance. When the employee becomes ill, or is injured outside the plant, he receives the sum of $9.00 per week, but does not become eligible to draw health insurance until he has been incapacitated for seven days. H e must present a certificate, properly signed by his physician regarding the nature of the illness.

AMERICAN Wage

ROLLING

MILL COMPANY

13

Payment

I t is said to be Armco's wage policy to pay for every class of service a standard compensation as high as is current in competitive industries. T h e method of grading the occupations to maintain uniformity among the several plants is sufficiently unusual to merit a detailed explanation. One of its unique characteristics is the effort to make rates of similar jobs in different parts of the country uniform. Much of the following description of the job rating is taken from the company announcement at the time the plan was announced. I n order to provide for a fair relationship among the wages paid on jobs in the several plants of the company, a two years' study was made of the effects of the existing wage and incentive arrangements upon employee earnings in the various plants. T h e results, announced late in 1931, represent a caref u l analytical approach to the problem. Previous to this date, the company had treated its rate-setting problem in the usual way. Although the results had been reasonably satisfactory as long as the concern had one plant only, the addition of new units created rate-setting problems so complex as to lead to inconsistencies and lack of uniformity. Prior to this analysis, the management had watched, in the customary fashion, the labor market (i.e., the " g o i n g " rates paid to typical jobs in the industry). However, the difficulties of comparing jobs in different companies were often so great as to render the results almost valueless for all but a few well standardized jobs. T h e problem was made more intricate by the fact that some Armco processes were unique. In spite of these difficulties, numerous comparisons were made with other steel companies. T h e one outstanding fact evidenced by these outside studies was that the wages for several types of labor within any district where the steel industry was concentrated varied so widely as to lead to the conclusion that the " g o ing" rate for any given type of labor could not be defined except within very wide limits. It was then necessary to determine the relationship that

14

EXECUTIVE

GUIDANCE

each j o b bore to all others in the company, irrespective of the nature of w o r k ; and to reflect this relationship in rate of pay for each one. T h e successful accomplishment of both these tasks demanded the formulation and acceptance of certain fundamental principles. 1 . T h a t all jobs, irrespective of the kind of w o r k p e r f o r m e d , m a y be grouped into d i f f e r e n t levels of value, or zones, d e p e n d i n g upon the a m o u n t of skill required for their successful p e r f o r m ance. 2. T h a t there is a logical relationship between these d i f f e r ent zones of w o r k f r o m the highest level to the l o w e s t . 3 . T h a t all jobs in the same z o n e should receive the same basic rate of pay w i t h i n the organization, in return for w h i c h the c o m pany w o u l d expect a n o r m a l a m o u n t of effective w o r k . 4 . T h a t any effective expenditure of e f f o r t over that required to m a k e up a n o r m a l day's w o r k should be compensated for by an incentive w a g e , separate f r o m the zone rate but proportionate t o it. 5. T h a t the best classification of the jobs, a c c o r d i n g to their relative merit or requirements, is made by those m e n most familiar with all the jobs in a department. 6 . T h a t these raters w i l l secure better results by a blanket appraisal of all the factors of skill differentiating one j o b f r o m another than by an arbitrary scoring or point-rating system e m b o d y i n g a predetermined and therefore limited series of skill factors. 7 . T h a t , in spite of the fact that there are wide variations in the w a g e s paid for a given type of w o r k w i t h i n a g i v e n locality, any rate for that type of w o r k in any c o m m u n i t y should have a definite relation to all other rates in that c o m m u n i t y . 8. T h a t b e t w e e n those communities in w h i c h A r m c o has l o cated its plants, no differential in w a g e s is justified on the basis that, by actual study, there w a s no d i f f e r e n c e in l i v i n g costs, but that w h e n such a differential should become apparent, and of seemingly p e r m a n e n t duration, the differential in w a g e s f o u n d t o be necessary should be u n i f o r m l y applicable to all the z o n e rates of that plant.

T h e formulation of these principles permitted certain terms to be defined as f o l l o w s : A base, or zone, rate is one which will attract and h o l d with reasonable turnover the w i l l i n g services of men h a v i n g the requisite skill to produce the quality of product desired,

AMERICAN

ROLLING

MILL

COMPANY

15

without regard to extra-compensation paid as an incentive. As the term is employed by Armco, the skill requirement of a job includes all the elements of the job other than effort, because the individual effort is compensated for by incentives. Hence, skill embodies the supervision received, the authority or supervision exercised, responsibilities other than supervisory—especially the responsibility for materials and equipment—-manual dexterity, physical type, hazards involved, unpleasant working conditions, the requirements of education, previous experience, and training on the job. Each plant was then asked to establish what it considered an equitable relationship of its own jobs to each other in terms of the skill requirements of each and without any reference to the existing amounts earned on those jobs. T o have a starting point and some idea of relative levels that would later become firmly established as the classification progressed, two jobs were selected for their extreme differences in total skill requirements; one was placed near the bottom of the space provided for the tabulation of jobs and the other was placed near the top. Each plant accomplished its zoning of jobs independently of the other and with reference only to the principles outlined. It is significant to note that one plant established 18 zonesj a second, 1 7 zones; a third, 16 zones; and a fourth, 50 zones including common labor. Tentatively, the list of 18 zones was selected as a standard, because this plant had listed a greater number of different jobs than any other and included every degree of skill which it was thought possible to find in any of the plants. It seemed reasonable also because three plants working independently had arrived at approximately the same number of zone levels. T h e next problem was to determine the proper relation of base rates to the incentives paid. T h e uniform wage-incentive program, which was under way in all the plants for the first time in the history of the company, provided for incentives on all jobs to which incentives were applicable. 2 T o have 1 T h e forms of incentives used in this company are managerial profit sharing ( f o r executives), and the Bedeaux premium system for manual workers.

16

EXECUTIVE

GUIDANCE

taken the average of all existing earnings in a given zone as the base rate would have meant duplication when incentives were finally introduced. It was decided that the amount of such additional earnings would have to be taken out of the zone average to produce the desired base rate. It was assumed, since no exact statistical analysis was possible, that the zone values arrived at by averaging the total daily earnings of all jobs included on the average a 10 per cent additional payment, which was not a basic wage. In other words, the zone average was n o as compared to the base rate taken as IOO. T h e zone average was therefore divided by 110 and a tentative base rate found. T h e last step was to establish a consistent job nomenclature. Therefore, a uniform procedure for naming jobs was put into effect covering over 3,OOO jobs whose proper relationships had been established by men whose opinions were deemed the most competent. Consequently, the base rates finally set were felt by the management to represent the proper compensation for the skill required for the successful performance of each job. Su-p-ply and Maintenance of an Effective Labor

Force

Carefulness in the selection of employees by the employment department and precision in their placement have both been emphasized. In the selection of engineering graduates, for example, use has been made of undergraduate representatives on several university campuses. These outstanding students have proven to be capable advisers as to the selection of others from these schools. Still more unique is the use made of the annual personnel audit as a means of making consideration for promotion systematic and of carrying out the policy of promotion from within. T h e management believes that without an orderly, systematic method of watching individual progress, an organization encounters the evils of stagnation, and that promotion from within is a basic factor in creating a group of alert, interested workers. Consequently, a personnel audit

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ROLLING

MILL

COMPANY

17

covering everyone from laborer to works manager has been made each year since 1920. T h e personnel men in every plant visit each foreman and discuss with him the flaws and good points of each of his employees. Wherever possible, two appraisals of each worker are secured, one from the foreman and one from an executive of higher rank. That part of the appraisal which relates to the supervisory organization and to those who are available for promotion to its ranks, is assembled in a book at headquarters. Moreover, the progress of every supervisor in every plant is checked monthly. Such an audit reveals many good men who are ready for better jobs; it also points out men who are "slipping" as well as those who are apparently misfits. This latter class presents an opportunity for the alert personnel man to assist in making those delicate human adjustments which are so important both to the individual and to the company. A worthwhile by-product is the light thrown upon the quality of the supervision in each department. Promotion from within is naturally dependent upon the training of key men and employees of special promise—ordinarily a group of about nine hundred. In its evolution, the training program of this corporation has passed through the stage of emphasizing general education to the discussion of current factory problems as revealed by cost data. It is also of interest that the safety and training departments have been consolidated. T h e objectives of the program are as follows: 1. Training the supervisory group in management. 2. Training the worker in job technique. T h e supervisory course ( " T h e Foreman-Manager Training Course") follows a five-year program. T h e work of the first year dealt with the major topic of "Waste Elimination"; that of the second year, " P r i m e Y i e l d " ; that of the third year, " P r i m e Output per H o u r . " T h e program of each year is divided into six major phases, and a month is devoted to the study of each, with one week being spent upon its effect on the cost sheet. " L a b o r , " "materials and supplies," "machinery and equipment," "accidents and illness," "auxiliary service

18

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GUIDANCE

items such as electricity, water, oil, etc." and "space" are typical of these topics. Confidential data on costs and processes, together with the fundamental economics of the industry, are presented to the foremen. This is intended to take the mystery out of the business and to develop a managerial viewpoint. Moreover, the emphasis upon the cost sheet as a reflector of the results of the application of what is learned makes the program practical rather than academic. The aim is not mere training of a routine nature, but the development of capable, interested managers who are familiar with every phase of the business and who are capable understudies for their superiors. Each division manager has the responsibility for the training of his own group. Naturally, he delegates it to the general superintendent, who in turn places his share of it on each of the department superintendents. Thus the man in charge of each major operation is actually the trainer of his group, and no outside instructors are employed. Each month the works manager calls a meeting of all the supervisory group and advisory committee men under his jurisdiction for a discussion of the month's work. The general superintendent then calls together his department superintendents to analyze the outlines in order to bring out the departmental problems and possible corrective measures. The department superintendent next calls in his foremen for real, detailed training on company activities. Part of the supervisor's responsibility as a teacher is to work out for his own department the application of the outlines, which are prepared at the general offices and forwarded to each plant. The last step is the job training of the worker by the foreman. Typical operations are selected and, when possible, the foreman holds his classes in the mill alongside the equipment that the men operate. There he discusses with them the design, cost of operation, and proper operation and maintenance of equipment, as well as the hazards of the job, materials, and supplies, and the defects in the product. In addition to the intensive training program, the company has a safety program and recreational facilities that are ex-

AMERICAN

ROLLING

MILL

COMPANY

19

ceptional. T h e latter include parks, golf courses, and athletic fields. T h e trend in the athletic activities has been to replace professional teams with sports in which the employees themselves participate. A s to safety, the management believes that the development of an excellent job technique is the best method of preventing accidents; that permanent results can be secured only when men know how to do every operation properly; and that the safety inspector, the book of safety rules, and the appeal to men's emotions are productive, at best, of results that are only temporary. T h e four large plants are equipped with medical departments. Joint

Relations

T h e A r m c o Advisory Committees are representative of the employees of all departments in each plant. Members are elected by secret ballot to serve a one-year term. T h e department committee is the smallest unit in the plan; the assembly of all the advisory committees in a plant constitutes the " W o r k s Advisory Committee." In all, there are about 50 committees in the various plants with a membership of approximately 150. These committees, though having no executive functions, may be asked to advise the plant or general management on matters pertaining to working conditions, operations, wages, and allied problems, and to disseminate information to those whom they represent. Likewise, they are asked to bring to the management's attention any instance where the mutual interests of both parties have not been served as outlined in " A r m c o Policies." If any committee member feels that he has not received a satisfactory answer to his question, he is privileged to take up the problem with the general manager. 3 * F r o m this parent a r r a n g e m e n t , several variations e v o l v e d in the f o l l o w i n g manner. A f t e r the adoption o f the N a t i o n a l Industrial R e c o v e r y A c t , the comp a n y asked the employees f o r an expression of their opinion c o n c e r n i n g the e m p l o y e e representation o u t l i n e d above. A secret vote revealed that in t w o of the divisions the employees w e r e satisfied, whereas in the others some revision was desired. Suggestions secured t h r o u g h the e m p l o y e e representatives w e r e published in newspaper f o r m f o r the entire o r g a n i z a t i o n , and in each separate division the plan w a s then revised by the m a n a g e m e n t and the employee representatives. A f t e r a trial period of a f e w months, these revised plans w e r e f o r m a l l y adopted b y secret b a l l o t .

T H E B A L T I M O R E AND O H I O R A I L R O A D C O M P A N Y 1 BALTIMORE, "The

MARYLAND

w e l f a r e of the Baltimore and O h i o Railroad and its

employees is dependent on the service w h i c h the railroad renders the public. I m p r o v e m e n t s in this service a n d economy in operating and maintenance expenses are greatly promoted by willing cooperation between the railroad m a n a g e m e n t and the voluntary organization of its e m p l o y e e s . " ( E x t r a c t from 1 9 2 3 U n i o n - M a n a g e m e n t Agreement)

It is a misconception to think of the Baltimore and Ohio plan as representing mere collective bargaining, for it reaches into an area quite different from that covered by the customary trade-union agreement. Its intent is to supplement such an agreement by cooperation between management and workers in improving the business, which after all occupies the role of the golden goose for both interested parties. More specifically, it is a planned arrangement whereby representatives elected by the various crafts meet with those appointed by the management to consider suggestions for improving methods and equipment, thereby improving the service rendered to customers and reducing the costs of operation. It is sometimes said that the Baltimore and Ohio plan grew out of the great railroad strike of 1922. This is not the case. Before the strike was called, the idea had been presented to President Willard by President W . H . Johnston of the International Association of Machinists and M r . Otto S. Beyer, J r . , a consulting engineer. T h e fact that the dispute was nation-wide caused the Baltimore and Ohio to be involved with the other roads, and it was necessary to place the sug1

Number of employees: 1 9 2 9 — 7 4 , 5 0 5 ; 1 9 3 3 — 4 1 , 6 6 2 . Main office: Baltimore. Miles of track: 5,200. Some of the principal cities served: New Y o r k (Jersey City) j Philadelphia; Baltimore; Charleston ( W . V a . ) ; Columbus ( O . ) ; Chicago; Indianapolis. 20

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RAILROAD

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CO.

gestion temporarily on the shelf. U p o n the termination of the strike, the proposition was renewed by the crafts, perhaps because they had lost prestige and bargaining power. In any event, the program was started in the most difficult spot in the whole system, the G l e n w o o d Shops in Pittsburgh. T h i s was truly a test of fire because, as President W i l l a r d said, " I f cooperation could succeed there, it w o u l d succeed any place." 2 A l t h o u g h the shop had new physical equipment, it was inefficient because of religious and racial antagonism and dissension created by a group of discontented workers. T h e trouble was increased by the fact that, according to the terms of the strike settlement, men brought in during the strike were to be retained. T o the returning strikers, these men were "scabs," and nuts, bolts, and rivets were " s h i e d " across the shop in their direction. W h e n the experiment began in this shop early in 1923, only the principle of union-management cooperation had been agreed upon, and it was understood that the cooperative relationship was to g r o w naturally instead of being superimposed as a preconceived system. Its evolution has been described by M r . Beyer. " W e set to work. N i g h t l y in their lodge rooms the men discussed and agreed upon matters which needed to be remedied. T h e number of small tools was insufficient and many were defective. A man had to wait a long time to get a wrench, tap, or reamer; or had to hunt up some other man who already had drawn this tool from the tool room and borrow it from him. A t the suggestion of the shop committee, this situation was remedied by delegating several competent mechanics to go over the small tools, discard the defective ones, repair those which could be salvaged, and requisition new ones, so that the shop would be f u l l y equipped. T h e boiler makers complained that their particular small tools were kept too far away from their work, necessitating running back and forth which could have been avoided and was tire' Wood, L. A.,

Union-Management

Cooperation

on the Railroads,

p. 87.

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EXECUTIVE

GUIDANCE

some and time consuming. By mutual consent, this was remedied by building a special boilermakers' tool room, located near their place of employment. . . ."* The success of the venture in the toughest spot on the road led to the extension of the arrangement, early in 1924, to forty-five shops of the road.4 In the words of President Willard, "First of all, the plan itself contemplates a full and sympathetic understanding between the management and the men concerning the problems confronting them in the Baltimore and Ohio service. I believe that only with such an understanding is it possible to have a satisfactory relationship based upon mutual trust and confidence. " T h e Cooperative Committees that have been formed between the managing officers and the men employed chiefly but not alone in the shop-crafts, are simply one of the agencies made use of in giving effect to the policy above outlined." 5 In the original agreement appears the statement, " I t is understood that these meetings are not for the purpose of discussing or adjusting grievances." The latter, together with wages, are left to collective bargaining between the road and the several crafts. In practice, however, many of the improvements suggested deal with equipment and the physical conditions of the shop, and are therefore not unlike many socalled grievances dealt with. The existence of written agreements governing wages, working conditions, and the prompt and orderly adjustment of disputes are considered by M r . Beyer to be prerequisites for union-management cooperation to prevent the committees from being encumbered with matters involving conflicts of interest. In addition, he believes that union-management cooperation cannot succeed unless the management recognizes the standard unions as the properly accredited agents of the employees, and accepts these unions * Beyer, Otto S., J r . , "Experiences with Cooperation between Labor and Management in the Railway Industry," Wertheim Lectures on Industrial Relations, 1918, page 1 1 . 'About 38 operating in 1934.. " F r o m speech at Garrett, Indiana, October 1924.

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as "helpful, necessary, and constructive in the conduct of the railroad industry."® Place of the Personnel De-partment in the Organization T h e personnel activities of the road are naturally affected by the fact that so many matters involving the employees are settled by agreement with the unions. However, the superintendent of the relief department supervises the financial provisions that have been established for the protection of employees (both the relief department activities and the "pension feature"), and an assistant supervisor of shops is responsible for keeping the union-management committees in motion. The former reports to the senior vice president, and the latter to the chief of motive power and equipment. Methods of Counteracting ployment

Irregular

Production

and

Em-

One of the primary objectives of the Baltimore and Ohio plan as stated in the agreement was to help stabilize employment. Periodic layoffs had become chronic, and it was felt by both the management and the union leaders that the efforts to reduce expenses would not endure if shop operation were not made less erratic. Consequently, it was agreed that cars and locomotives previously sent to outside plants for reconditioning were to be done in the company's own shops. This step gave added assurance to the workers of the management's sincerity and willingness to do everything possible to keep them at work. However, with the decrease in freight volume that accompanied the depression of the 1930's, it was necessary to lay off a large percentage of the force. Following the tradition of basing layoffs upon service, younger men were furloughed if they could not be transferred. Wherever possible, the latter policy was followed, and consequently as one walks through the main offices, one sees elevator opera* Bulletin

of the Taylor

Society, February 1 9 1 6 , page 7.

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EXECUTIVE

GUIDANCE

tors and others who have been transferred to their present work from duties far different. Financial Provisions to Enhance Employee

Security

Chief among the forms of financial protection that this railroad has provided is the "pension feature," first inaugurated in 1884, and revised in 1926. 7 It is under the jurisdiction of the pension committee, consisting of five officers of the company and the president, ex officio. This committee has the power to determine the eligibility of employees to receive pensions, to fix the amount, and to authorize their payment. Two classes of employees are eligible; first, those employees of 65 years of age who have had at least ten consecutive years of service and who are shown by medical examination to be disqualified for further service 5 and second, those employees who have served the company for 35 years and who are not less than 65 years of age. T h e amount of pension equals one per cent of the average monthly compensation for the ten years preceding retirement multiplied by the actual years of continuous service. The minimum amount is $25 per month and the maximum 50 per cent of the average monthly compensation on which the pension is based. Starting J u l y 1 , 1932, pension allowances became subject to a flat reduction of 10 per cent. The relief department has two chief divisions: the "relief feature" and the "savings feature." Membership in the former is voluntary for all employees of the company who are under forty-five years of age and who are passed by the medical examiner. Assisting in its management are an advisory committee of thirteen elected members, and the chief operating officer of the road, ex officio, and in addition an operating committee of six members, three of whom are elected and three appointed by the president. The former deals with grievances and complaints relating to the relief work, and the latter has charge of its actual operation. * T h o s e placed on the pension roll prior to this date were given pension allowances (that is, increased amounts) in conformity with the 1 9 1 6 plan.

BALTIMORE

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Members are divided into two general classes: those operating trains or rolling stock and those not so engaged. Both classes are further subdivided into five groups according to their monthly pay, and their contributions are adjusted accordingly. F o r employees engaged in operating trains, the latter range from $ 1 . 0 0 to $5.00 a month; and for all others, from $0.75 to $ 3 . 7 5 . T h e beneficiaries are usually the wife or wife and children of a deceased member. Unmarried members may designate other relatives or persons not related, upon the approval of the superintendent. In general, membership is ended by the cessation of employment, but those leaving the service may retain membership for natural death benefits. T h e benefits provided cover sickness and natural death. F u l l benefits are also paid for a period not exceeding fifty-two weeks to those totally disabled by injury in the discharge of duty, and at half these rates as long as disability continues. Provided a member of a department has been continuously in the service for one year prior to disability, the same schedule of benefits applies to those totally disabled from sickness (less the first seven days). Benefits for deaths arising from accidental injuries incurred in the course of duty range from $ 5 0 0 upward; and those from any other cause, from $ 2 5 0 upward. In the case of accidental injuries, provision is made for paying surgical fees and the cost of artificial limbs, etc. T h e "savings feature" provides some 260 depositories for the receipt of funds by members or their wives. ( T h e accounts may be joint, if so desired.) Deposits may be made in sums of not less than $ 1 . 0 0 nor more than $ 1 0 0 . 0 0 in any one day unless otherwise authorized. T h e company guarantees the principal and the payment of four per cent annually. In practice, it has proven possible to pay more. F o r the forty years preceding 1 9 3 2 , the rate was maintained at not less than five per cent. Interest is computed semi-annually at the rate of four per cent per annum on sums that have been on deposit for at least three months, and at the end of any fiscal year the committee may award an additional dividend from the earnings of the "savings feature." T h e savings under this plan are deposited with the company, and are used by it for

26

EXECUTIVE

GUIDANCE

employee loans of not less than $ 1 0 0 . Interest is charged at the rate of six per cent annually. In granting loans, preference is given to applicants with long service and to those who desire to acquire or improve a home. T h e savings committee seeks assurance from the superintendent that the money will be used to acquire or free f r o m debt a home within one mile of the railroad (except in cities), and that the amount of the loan does not exceed three-fourths of the market value of the property offered as security. N o loans are paid direct to the borrower, but are used by the superintendent to purchase the desired property or to discharge liens upon it. Borrowers must, if possible, take life insurance in the "relief feature" to an amount equal to his indebtedness, but not to exceed $5,000. T h e borrower must pay taxes, interest, etc., with promptness, and reduce the principal by regular payments.

Wage Payment T h e Baltimore and Ohio abandoned piecework in December 1 9 1 8 . In order to keep labor costs from rising after its abandonment, President W i l l a r d and his associates developed the so-called " s p o t " system for the repair of freight cars. T h i s system merely borrows subdivision of labor and other principles of mass production in industry. It consists of worker units, headed by a foreman and assistant-foreman, which are subdivided into gangs, each of which is allocated to a spot. T o aid its identification, each spot is painted a different color. In the case of freight cars, a worker unit consists of forty-eight workmen and two supervisors distributed among six gangs or spots. It is made up of twenty-six carmen, thirteen helpers, five apprentices, one air-brake repairman, one laborer, and the half-time of a painter and his helper and a blacksmith and his helper. T h e car is stripped on the first spot, and is moved step by step until the repair work is completed on the sixth spot. Such a unit has a definitely scheduled output, as for example, fifteen cars per week. This system is also used to a limited extent in the repair of locomotives and passenger cars. It is more applicable to freight cars, how-

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CO.

27

ever, because of the volume, for they outnumber passenger cars about forty-two to one. Not only does the Baltimore and Ohio now rely on day work exclusively, but the management and union leaders agreed in 1926 to remove all clocks. T h e substitute of placing the responsibility for lateness upon the employees and their foreman has worked satisfactorily, and in addition, has saved the company the $0.08 per man per day that it formerly paid for "punching the clock." Supply and Maintenance of an Effective Labor Force Because of the large number of men placed on furlough during the depression and the fact that these men are given preference as opportunities arise, new men have not been hired recently. As a result, the apprentice training program has been abandoned. However, the training program formerly in use represented the product of experience, and is worthy of attention. T h e company found that its old scheme of training apprentices in shop schools by the classroom method was not satisfactory, and abandoned it in 1 9 2 2 . Among the drawbacks were the lack of coordinated effort among the eleven schools, and the fact that at the smaller shops the training was less well-rounded than in the larger ones. Moreover, since no grades were recorded, the average apprentices did not take their work seriously, and consequently only the more ambitious of them were really benefited. This plan was revised in 1 9 2 5 to provide for centralized control in the offices of the chief of motive power in Baltimore. It attempted to furnish a balanced course in both the practical and the technical aspects of training. It was decided to provide a substantial groundwork of mathematics and drawing. In addition, the assignment of apprentices to different classes of work during their three or four years of service was embodied in the working agreement with each craft. 8 T h e " Rule N o . 38 made proficiency in the technical work compulsory. T h e crafts desired rigid standards in order to protect their craftsmanship. It was therefore specified that apprentices who showed no aptitude should be dropped f r o m service, and that helper apprentices who were deficient should be "set back to helping-."

28

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apprentice received his technical instruction by lessons sent to him through the mail, which he studied outside of working hours. H e was required by the agreement to receive a passing grade on two lessons a month in order to keep up to schedule. This was no mere correspondence course, however, because the apprentices had traveling instructors, and at some points resident instructors, to assist them. L i k e other railroads, the Baltimore and Ohio has worked for many years to reduce its casualty rate. Its ratio of casualties to man-hours worked is now about one-eighth as large as in 1 9 1 6 . Its present record approximately equals the average for the railroads of the United States. Joint Relations T h e joint relations on the Baltimore and Ohio take two forms: collective bargaining of the usual type and unionmanagement for which the Baltimore and Ohio plan is a model. It is not quite true perhaps to speak of the collective bargaining on this road as being of the usual type because the point of view of President Willard and the faith of the employees and their leaders in his integrity lend to it a certain distinctiveness. H i s philosophy is not difficult to state, for it is centered in an assumption and a question. T h e assumption is that the company wants to be fair and will be fair if it can; the question is, " W h a t is f a i r ? " From the point of view of the management, the latter might be restated in the more specific question: " W h a t do I think that I would want if I were in the position of an employee?" "Certainly, one thing," says President Willard, "is the right to join a union," a right that he himself exercised at the age of twenty-two when he was driving a locomotive. Perhaps in joining, he was merely asserting his Yankee reaction to the intimation from the superintendent that he must not join. A n example of the practical working of this philosophy is the policy followed in settling the 1 9 2 2 strike. T h e officers of the road felt that they did not want to take back about sieventy-five of the worst "trouble makers." A f t e r the union

BALTIMORE

AND OHIO RAILROAD

CO.

29

leaders had acceded to this point, President W i l l a r d remarked that the road was going to take them back anyhow, for in a strike people lose their heads as in war time. Such an incident gives evidence of the fact that he is not only an unusual leader of men, but that he has a gift for dealing with union situations. T h e agreement growing out of collective bargaining contains a definite procedure for the a d j u s t m e n t of wages and grievances. If a worker desires to appeal f r o m an executive's decision, a written joint statement is drawn up containing the facts of the dispute that are agreed upon, the points of disagreement, and the ruling of the official whose decision is in question. I n case rules or wages are involved in the dispute, the statement is sent to the special executive designated by the company to handle grievances; but if it involves discipline, it passes first through the hands of the superintendent in whose area the difficulty started. Emphasis is placed therefore upon the settlement of disagreements as quickly and as close to their origin as possible. 9 Before delineating the mechanics of the Baltimore and Ohio plan, it is important to point out that the essence of the whole arrangement is a state of mind on the part of both management and employees. President W i l l a r d has remarked that it "is little if anything more than an earnest determination on the part of each to deal honestly, fairly, and sympathetically with the other, at the same time making use of such agencies or methods as seem most likely to secure the results mutually desired. W h e n I speak of sympathetic understanding or relationship, I do not use the word sympathetic in any maudlin sense, but rather as indicating a m u tual desire to maintain a relationship based upon a friendly understanding." I n order to understand the technique of union-management cooperation, it is essential to know the basis on which it rests, for its machinery is built upon the shopmen's unions. T h e officers of the unions of these seven crafts must have first "See Gemmill, Paul F . , Present-Day

Labor Relations,

p. 258.

30

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GUIDANCE

belonged to one of the local railroad lodges which means that he must have been trained as a railroader. T h e men who must participate in the committee discussions are therefore men of experience in the technical problems of the industry rather than outsiders. H a d these seven crafts (machinists, boilermakers, blacksmiths, sheet metal workers, carmen, electricians, and firemen and oilers) not been organized and accustomed to dealing with each other and with the management, it would have been difficult to initiate the cooperative committees. It so happened, however, that each lodge had its own shop committee to look after its interests locally, and which became the nucleus of the program for union-management cooperation. Consequently, the same men represent the workers both in the administration of the working agreement and at the cooperative meetings. 10 It is said that the worker representatives now feel much more at home in the discussions than was the case at the outset. Professor L . A . Wood reports finding during his interviews with the men a feeling that there was no point in "washing u p " for the meetings since they were held at the shop. 11 It was decided at the outset to hold meetings at each shop semi-monthly and either just before or after the lunch hour. Recently, the meetings have been held monthly, but it is expected to return to the semi-monthly schedule. T h e average attendance per meeting has been ten men, and the time consumed, 1 . 4 hours. Copies of the minutes of the preceding meeting are given to committeemen before they assemble. T h e procedure in the meeting proper is for the chairman (one of the selected representatives) to read any communications received, next to take up items of business settled since the previous meetings, and then those still pending. T h e chairman " In addition to these regular local meetings, the agreement provides f o r quarterly meetings of what is known as the joint system cooperative committee, which is comprised of the staff of the chief of motive power and equipment and the executive board of System Federation No. 30. Its function is to review the recommendations of the several local committees. M r . Beyer has a l w a y s emphasized the importance of having ideas debated in local lodge meetings also, but this practice has not become as general as was anticipated. u Wood, L . A . , of. cit., page 1 0 8 .

BALTIMORE

AND OHIO RAILROAD

CO.

31

is responsible for keeping track of the progress made by each suggestion until it is finally disposed of, at which time it is dropped from the minutes. T h e chairman finally asks each representative in turn if he has new suggestions to offer. Ideas are brought forward both by the management and the men, but those from workers are by far the more numerous. T h e quantity and quality of the ideas depend somewhat upon the capacity of the chairman. It is customary for the latter to let the discussion run its course unless it becomes too acrimonious, because it is the function of debate to refine the suggestions and to eliminate those that are impracticable. It has been an infallible rule to bar items that pertain to the working agreements as well as those relating to safety. F o r the latter, special meetings are provided. T h e beneficiaries and originators of suggestions brought forward are indicated roughly by classification made by the local committees themselves covering a period of some six months. Of 294 typical suggestions, 3 5 ( 1 2 per cent) were considered primarily beneficial to employees, 148 ( 5 0 per cent) to management, and 1 1 1 (38 per cent) to both. About 1 0 per cent of them were submitted by management representatives, and the remainder by the employees. T h e records of the joint cooperative committees, kept at the main office, show that the percentage of suggestions dropped is relatively small. During the period March 4, 1 9 2 4 to December 6, 1 9 3 3 , 26,669 suggestions were received and discussed in 8,054 meetings. Of these suggestions, 85.8 per cent were adopted; and of the remainder, 2,643 were dropped as impractical, 934 postponed because the expense was considered unjustifiable, and 2 1 4 were still under consideration. T h e viewpoint of M r . Beyer toward union-management cooperation, undoubtedly reflects the attitude of the unions. In his Wertheim Lecture of 1928 he comments that " I t goes beyond the mere peaceful settlement of wage questions and the orderly adjustment of grievances. It includes more than the protective relationship, often really nothing more than an armed truce, which frequently prevails under the con-

32

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ventional f o r m of collective bargaining. I maintain then that industrial relations are on a better basis when the employees, individually and collectively, are quite definitely stimulated to help the management in the solution of its problems, and the employers take a similar attitude toward the labor force, each striving to improve the conduct of their industry and willing to share the gains which result." A s long ago as 1924, President W i l l a r d commented favorably upon the benefits derived by the management f r o m the Baltimore and O h i o plan. " I t emphasizes to each man the importance of the work which he himself is doing, and the responsibility which goes with his j o b or position, and which rests upon him personally to do good work, to do honest and dependable work, not just because it is really his duty as an honest man to g i v e good work in return for good wages paid in good money, but because, realizing the responsibility which he shares with the management for the safe and proper operation of the railroad, he wants to do good w o r k . " In brief, the Baltimore and O h i o plan offers not only pensions and insurance and other features of personnel management, but also collective bargaining and union-management cooperation.

C A L I F O R N I A AND H A W A I I A N SUGAR CORPORATION, CROCKETT,

LTD.

REFINING

1

CALIFORNIA

In C . & H . Sugar Refining, the gap between personnel objectives and actual realization appears to be exceptionally narrow. F o r example, it has a fine record for stability of emp l o y m e n t , thanks to close management control and coordination. N a t u r a l l y , this attainment has been facilitated by the fact that the annual consumption of sugar is fairly stable, and that the labor cost is relatively small.

Place of the Personnel Department in the Organization W h e n the company began operations in 1906, the industrial relations department consisted of an employment clerk only. L a t e r , the responsibility for plant safety was given to this department, and a safety inspector was added. H e and the e m p l o y m e n t clerk took care of the "first aid." G r a d u a l l y , the functions of the department expanded to include the f o l l o w i n g activities: 1.

E m p l o y m e n t and personnel

2.

Safety

3.

H e a l t h and sanitation

4.

T r a i n i n g and education

5.

Housing and community

6.

Public relations a n d publicity

7.

R e c o r d s and research

activities

T h e s e activities have been established to care for what the management believes to be the primary interests of the workman. T h e s e interests include the amount of his annual wage, security of e m p l o y m e n t , insurance against loss of earnings f r o m sickness or disability, freedom f r o m arbitrary discharge, and housing that is good and reasonably cheap. " N u m b e r of employees: 1 9 3 1 — 1 , 5 5 8 (88 per cent men; 12 per cent w o m e n ) . Location of plant: Crockett, C a l i f . ; Executive offices: San Francisco, Calif. The company is owned cooperatively by twenty-one Hawaiian planters. 33

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GUIDANCE

T h e industrial relations (or personnel) department, as now constituted, is in charge of a manager who reports direct to the plant manager. H e is not responsible, however, for the personnel activities in the sales and accounting divisions in which about ten per cent of the employees are employed. Methods of Counteracting Irregular ployment2

Production and

Em-

T h e planning of the amount to be melted is the secret of the stable employment in this refinery. A s the sugar business is seasonal on account of the summer peak in consumption, many managements would merely let the rate of production conform to the seasonal demand. This corporation, however, produces sugar evenly throughout the year, and stores any excess, pending the receipt of orders. If cared for properly, sugar can be stored indefinitely. Regularization was accomplished through the following steps: the development of methods, space, and equipment for storage; the leveling of the rate at which raw sugar was delivered to the refinery; and the forecasting of probable demand for each grade sold. Much as the management desires regularity in the receipt of incoming " r a w s , " it must not accumulate too large a quantity because of the added expense for piling, for delivery to the melt, and for extra insurance and interest. " T h e plant management considers a reserve of raws of about 25,000 tons, or ten days' supply, as the maximum desired. This balance, when backed up by regular arrivals of raws, has been found sufficient to operate the refinery without interruption." 3 1

Considering the youthfulness of the company and the.fact that its workers are largely unskilled, the percentage of long-service employees is fairly high. The average length of service is seven and one-half years; a third of the force have been employed over ten years; and thirteen per cent over fifteen years. * The extent to which the stabilization of refinery operations was increased is shown by the fact that the total deviations of the percentage of each month's melt to the monthly average for the year declined from 242 per cent in 1923 to 180 per cent in 1 9 2 5 , and 114. per cent in 1 9 2 7 . The advantage of stable operation at maximum rate is shown by the following figures of Dr. Boris Emmett. T o increase production 1 1 per cent, 22 per cent, and 33 per cent requires increases in the wage expenditure of only 1 per cent, 7 per cent, and 8 per cent respectively. (See The California and Hawaiian Sugar Refining Corf oration.)

CALIFORNIA

AND HAWAIIAN

SUGAR

35

T h e planning of operations is so precise that when it became necessary to spread work, the management could post on a bulletin board a schedule for six months in advance, indicating the days when each employee would work and when he would be " o f f . " In spreading work, the management decided to forego the savings that might be effected through the ruthless layoff of a portion of the force. T h e problem was how to spread work without raising production costs unduly. It was solved by dividing the burden equally between the company and the workers: the former's costs were raised by an amount equal to the sacrifice of workers' earnings.

Financial Provisions to Enhance Em-ployee Security W h e n the company was first started, employees incapacitated by injury, illness, or old age were cared for informally. About 1 9 1 4 , it formed a mutual benefit association, from which emerged in 1 9 2 4 the employees' mutual benefit association. T h e protective plans were revised once more in December 1 9 3 3 , to provide, through an insurance company, for death and retirement annuities; and through the aforementioned mutual benefit association, for sickness and disability benefits. Each employee's equity in the old plan was transferred to the new one, and the company assumed the burden of paying the differences between these equities and the entire accrued liability under the new plan. T h e company contributes 50 per cent of the total contributions received by the benefit association, all of the cost of the group life insurance excepting $ 0 . 3 0 per month per $ 1 , 0 0 0 , and the entire cost of the supplementary benefits and of the retirement annuity. If the employees join the retirement plan, they contribute, for the purchase of an additional retirement annuity, a given percentage of their salaries regardless of their sex or salary. T h e percentage of salary contributed by an employee remains constant throughout employment, but varies with the age at which he enters the plan. 4 * Each employee who enters the plan contributes a percentage of his salary, depending upon his insurable age at entrance. If 30 years of age, he would contribute 3.0 per cent; if 40, 4.2 per cent; if 4 5 , 5.3 per cent; if j o , 7.0 per cent; if 5 j or over, 1 0 . 5 per cent.

36

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GUIDANCE

In the case of a man entering at age 30 / the company would buy a pension of $ 5 0 per month, and che additional amount provided by a worker with a monthly salary of $ 1 0 0 would be $ 2 1 . 6 9 . T h e total monthly pension would, in this case, equal $ 7 1 . 6 9 , or 7 1 . 7 per cent of his salary. I f , however, his monthly salary were $ 3 0 0 , the amount provided by him would be $ 6 5 . 0 7 , which, added to the service annuity bought by the company, would equal $ 1 1 5 . 0 7 . In this case, the percentage of pension to salary is only 38.4, reflecting the idea that the percentage of salary required for necessities decreases as the salary increases. 5 If a worker dies before the normal retirement age, (65 for men and 60 for women), his beneficiary receives, in addition to the group insurance, all that he has contributed toward his retirement annuity with interest compounded annually at three and one-half per cent. If employment is terminated for any reason whatever before the normal retirement age, the employee has the option of taking in cash all that he has contributed plus interest at 3^2 per cent; or he may leave his cash value with the insurance company and receive at the normal age of retirement the income purchaseable thereby; or he may continue to make payments direct to the insurance company and receive the additional income provided by the contributions made after his separation from the company. If the employee whose service is terminated has been a member of the retirement plan for 1 5 years, he will, in addition, receive a paid-up annuity contract providing for the payment of the annuities purchased for him by the corporation. H i s income from this contract starts, of course, at the normal age of retirement. * E a c h d o l l a r per month p a i d by a male e m p l o y e e f r o m his e n t r y into the p l a n to the n o r m a l r e t i r i n g a g e , yields a m o n t h l y pension of $ 7 . 2 3 if he enters at a g e 3 0 ; $ 4 . 1 0 if he enters at 4 0 ; $ 1 . 9 9 if he enters at 5 0 ; a n d $ 0 . 5 6 if he enters at a g e 60. T h e service a n n u i t y purchased a n n u a l l y b y the c o m p a n y f o r each of its employees varies w i t h their a g e . It ranges f r o m $ 0 . 5 0 a month f o r e m p l o y e e s a g e d 3 0 to $ 2 . 0 0 per month f o r those 5 5 y e a r s o r o l d e r . A t the a g e of retirement, one of three options m a y be selected: ( 1 ) m a x i m u m pension ceasing at d e a t h ; ( 2 ) w i d o w ' s pension p r o v i d i n g reduced income w h i l e both husband a n d w i f e are a l i v e and upon the death of either, a l i f e income t w o thirds as l a r g e to the s u r v i v o r ; ( 3 ) reduced income with the p a y m e n t to the estate of a n y balance between total income received at death a n d total contributions w i t h interest to date of retirement.

CALIFORNIA

AND HAWAIIAN

SUGAR

37

A t the initiation of the new plan, all employees between 3 0 and 64 years of age were eligible, but later entrants must have one year of service and be less than 54 years of age. At the option of the corporation, a member may be retired before or after his normal age. I n the former case, his pension is reduced, and in the second, it is enlarged. T h e employees' benefit association has two chief purposes: first, to provide benefits for non-industrial disabilities equivalent to two-thirds of the normal earning capacity of the member j and second, to provide benefits for industrial accidents to make up the differences between the State compensation and two-thirds of the normal earnings of the disabled employee. In addition to cash benefits, allowances are made for medical, hospital, and surgical care.® Group insurance is provided for all employees with six months or more of service. T h e amount of insurance for those whose ages are under 50 equals $ 1 , 0 0 0 plus the annual salary of the employee up to a maximum amount of $ 1 0 , 0 0 0 . T h e unusual feature of the group insurance scheme is the arrangement to reduce the cost by lessening the coverage when the most urgent need for insurance has passed. T h e family of a male employee dying at age 55 would receive 70 per cent of the normal amount; at 60, 45 per cent; and at 64 or over, but 25 per cent. T h e cost of group insurance to the insured employees is at the rate of $ 0 . 3 0 per month per $ 1 , 0 0 0 . As already mentioned, the corporation pays the balance.

Wage Payment T h e company does not use financial incentives because it * T h e n u m b e r of absentees per w o r k i n g d a y has f a l l e n f r o m an a v e r a g e of fifty-three in 1 9 2 8 to t w e n t y - t w o in 1 9 3 2 , f o r w h i c h credit is g i v e n to the introduction of a p l a n t physician. T w o - t h i r d s of actual a v e r a g e e a r n i n g s a r e paid to disabled m e m b e r s f o r a p e r i o d of a y e a r . N o benefits are paid f o r the first three d a y s of d i s a b i l i t y , except to m o n t h l y employees. A member w h o receives the m a x i m u m benefit is not entitled to f u r t h e r benefits in the succeeding t w e l v e months, unless he has returned to w o r k a n d has been continuously e m p l o y e d f o r one f u l l m o n t h b e f o r e the disability occurs. A hospital benefit up to $ 1 5 0 in a n y one y e a r is p a i d in the case of hospital internment. O p e r a t i o n expenses a r e p a i d to the m a x i m u m a g g r e g a t e a m o u n t of $ 7 5 in a n y one y e a r , f o r one or m o r e operations, in accordance w i t h a special schedule.

38

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GUIDANCE

believes that straight salaries are best adapted to its work. T h e wages paid are said to be higher than those paid for similar work in the region, especially "when the fact is considered that the cost of living is somewhat less in Crockett—a town of 5,000—than in the larger cities and towns of the San Francisco Bay Region." 7 F o r overtime work, the company pays "time-and-a-half," which in the case of monthly employees is credited to an overtime allowance account. T h e y are given an equivalent amount of "time o f f . " Since California does not allow women to be employed for more than eight hours per day, the overtime rules apply to men only. Some years ago the positions were graded, and a standard rate structure was adopted. This study revealed positions common to many departments. These typical positions were classified first, and then a standard classification was adopted for all employees. T h e rate structure provides for the payment of starting salaries to new employees during a probationary period of sixty days, after which they move up to the minimum rate of Grade I. F r o m that level, the rate gradually increases to the maximum of Grade IV. Whenever employees are promoted from one position to another, they are not paid the rate of their new position until after the expiration of a probationary period. Supply and Maintenance of an Effective Labor Force T h e employment department is responsible for the initial selection of employees. Applicants are required to pass a physical examination. Regardless of their technical education or prior experience, new employees are usually placed in the packing department at the outset. Although this policy may not be attractive to graduates of technical or business schools, it has the advantage of assuring employees of long service that the corporation does not give preference to new men in advanced positions, and gives an opportunity for appraisal. T h e management desires to make promotions according to capability and adaptability, rather than length of service. ' Emmett, Boris, of. cit., p. $5.

T H E COLUMBIA CONSERVE INDIANAPOLIS,

COMPANY1

INDIANA

T o many readers, this tale of trouble w i l l confirm their idea that self-government by workers cannot succeed. O t h e r s w i l l marvel that the management has the courage to reveal the " i n s i d e " story of its affairs so that others may draw their own conclusions f r o m the course of events w h e n the fate of the enterprise was in the balance. Y e t it is to this end that C o l u m bia Conserve converted itself into an experiment station. T h e Columbia Conserve C o m p a n y represents an experiment in self-government in a small cannery w h e r e the e m ployees own 63 per cent of the common stock, and w h e r e self-government has been extended to cover all aspects of management. It includes the financial, sales, and production policies; the products to be made, the machines to be b o u g h t ; the hours to be w o r k e d ; the wages to be paid; and the discipline of fellow-workers. T h e council of employee-owners (to which every employee belongs automatically) has exercised legislative, executive, and judicial p o w e r s — p o w e r s that now appear to have been extended too widely. It is the only case known to us in which all discipline and management policies have been l e f t to a council of workers. It is an attempt sponsored and led by an idealist to try out a new type of social arrangement in an enterprise engaged in severe competition. It is our f e e l i n g that the experiment succeeded, although the company almost died. F r o m the experimentation, certain conclusions may now be drawn. O n e is that worker participation in management can be applied to a wider range of subjects than generally considered feasible, but that employees cannot safely be given f u l l responsibility f o r discipline, nor ' P r o d u c t : canned soup, tomato juice, pork and beans, catsup. Number of employees: 1 9 3 2 — 1 3 8 . 39

40

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GUIDANCE

be permitted to interfere with the administration of activities with which they are unfamiliar. Moreover, the experiment indicates rather clearly that the more democratic the conduct of affairs, the more serious is factional strife created by differences in background and objectives. In this case, the disruption of the group is in part traceable to business adversity, and in part to a small group of iconoclasts who had joined the organization. T h a t these men were smooth talkers and lovers of controversy is apparent in the following narrative of the private crisis which this company experienced in 1 9 3 2 - 1 9 3 3 . The Crisis T h e experiment had continued for fifteen years before the crisis began. Suddenly the enterprise became desperately sick from financial trouble and internal dissension. Its sales f e l l off and its working capital was exhausted. T h e principal creditor, to whom the company was in debt some $ 1 2 0 , 0 0 0 , threatened to place the company in receivership. Only the salesmanship of its president, M r . William P. Hapgood, whose generosity, together with that of his brothers Norman and Hutchins, had made the experiment possible, convinced the creditor that its vitality warranted his further confidence. That this confidence was well placed is shown by the fact that at the end of the year ( 1 9 3 3 ) , the loan had been reduced to $55,000. But this happy result came only after the serious internal strife had subsided. T h e turmoil began in 1 9 3 2 after the council had voted a 50 per cent reduction in salaries to finance the tomato pack of that year. T h e reduction of incomes made the group susceptible to the arguments of the iconoclasts. Of these, the minister had been brought into the company by the president to help with sales promotion by making speeches. T h e tradeunionists, sponsored by the president's son, M r . Powers H a p good, had formerly been active in the fight to dethrone M r . J o h n L . Lewis as head of the United Mine Workers. These individuals were steeped in the philosophy that there is an inevitable conflict between the employer and employee and

COLUMBIA

CONSERVE

COMPANY

41

that the latter can progress only at the expense of capital. T h e y introduced class consciousness into a scene where for seventeen years the emphasis had been upon community of interest in a common p r o j e c t — a project in which the workers now own 63 per cent of the common stock and therefore control the board of directors. T h e differences in the point of view of these individuals, reinforced by others w h o had felt drawn to participate in the experiment, but who were merely talkers not doers, led to interminable debate. T h e trade-unionists not only organized opposition in the sales department against its head, M r . W . P . H a p g o o d , but built up a faction in the factory that was antagonistic to the entire administrative group. T h e issue was joined over an expenditure for publicity to which the president (and sales head) had committed the company. N e v e r before had Council interfered in such details, nor rejected any plan put forward by the administrative group, though there had been plenty of criticism and discussion. M r . W . P. H a p g o o d offered his resignation f r o m the sales department, and indicated that if it did not solve the situation he w o u l d resign f r o m the company. A t about that time, the company's attorney advised the board of directors that, under the laws of Indiana, it was responsible to the stockholders and creditors, and had not the power to delegate the direction of the enterprise to Council (a power which had been assumed to exist). Thenceforth events and crises succeeded each other in nerve-wracking succession. T h e principal happenings were as f o l l o w s : J a n u a r y 4, 1 9 3 3 — M r . N o r m a n H a p g o o d m o v e d in C o u n c i l that either M r . W i l l i a m P . H a p g o o d or the leaders of the opposition be discharged by it. B y his m o t i o n , he w a s t r y i n g to force C o u n c i l to clarify the situation by choosing between his brother ( t h e president) and the eleven chief dissenters. H e felt that C o u n c i l itself should take decisive action. M r . W i l l i a m P . H a p g o o d left the r o o m d u r i n g the debate but returned later t o request an attempt to find an alternative solution, because he did not wish to force the issue in the absence of his son P o w e r s ( w h o w a s a l i g n e d with the dis-

42

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GUIDANCE

senters), nor appear to be seeking the role of martyr. J a n u a r y 3 0 , 1 9 3 3 — A f t e r waiting almost four weeks for C o u n cil to discharge the dissenters, the board of directors discharged them itself. T h i s action, however, did not put an end to the controversy. I n fact, it intensified it. T h e discharged men held meetings of their faction, and even attended the meetings of Council. M r . W i l l i a m P . Hapgood withdrew f r o m the latter, partly on this account and partly because of the intense strain of the administrative load. 2 F e b r u a r y 3 , 1 9 3 3 — M r . P o w e r s Hapgood told his father of a speech he planned to give in Council placing all blame on the "administration," i.e., M r . William P . Hapgood and his supporters. T h e latter told him if such a speech were made, adjustment of difficulties would be impossible, and begged him to take position of a conciliator, not a judge. H o w e v e r , M r . P o w e r s Hapgood made a condemnatory speech going much further than he had planned, and then told Council of his father's proposal for an outside committee. His father had left the room and did not know that the proposal had been made until next morning when he went to the plant and found the administrative staff under the impression that he had given up the fight. A s a result, one of the most important executives was packing his things. F e b r u a r y 1 0 , 1 9 3 3 — A t this juncture entered the Committee of F o u r , Professors J e r o m e Davis and Paul Douglas, D r . Sherwood E d d y , and M r . J a m e s M y e r s , w h o were asked to mediate or settle the dispute. T h e s e four came to the plant, together with representatives of the principal creditor. February 2 6 , 1 9 3 3 — T h e committee proposed an agreement which was accepted, under which the board of directors would have control over sales, production, and finance; salaries were to be increased if the chief creditor thought wise; Messrs. T e a r n e y , Brophy, and D o n o v a n , dissenting leaders, were to ' H i s reasons are presented in the f o l l o w i n g letter. " I h a v e d e v o t e d seventeen y e a r s of m y l i f e to an attempt to help f o r m a relationship b e t w e e n w o r k e r s , technicians, stockholders, a n d the p u b l i c w h i c h w o u l d be instructive a n d helpf u l . It is quite evident to me f r o m the occurrences of the past f e w w e e k s that our p l a n of g i v i n g each e m p l o y e e , regardless of education and e x p e r i e n c e , an equal vote in the decisions of C o u n c i l has broken d o w n c o m p l e t e l y . D u e to the condition a p p r o a c h i n g c i v i l w a r w h i c h has p r e v a i l e d a m o n g us, discussions in C o u n c i l h a v e degenerated into misrepresentation, falsehoods, v i t u p e r a t i o n a n d even threats to 'raise h e l l . ' O u r madness had g o n e even f a r t h e r a n d an o f f e r of $ 1 1 , 0 0 0 w a s made b y a C o u n c i l m e m b e r if C o u n c i l w o u l d accept a p l a n proposed b y h i m . T h e business is in such serious condition that f r o m n o w on I shall devote m y strength p r i n c i p a l l y to sales w o r k . "

COLUMBIA

CONSERVE

COMPANY

be reinstated on condition that they a g r e e d t o a " c o m m o n loyalty t o the policies of C o l u m b i a C o n s e r v e " ; discharges w e r e t o be a v o i d e d except those that the board m i g h t discharge for insubordination d u r i n g w o r k i n g hours. T h e s e discharges w e r e s u b j e c t to r e v i e w by D r . W i l l i a m M . Leiserson. I n addition, the C o m m i t t e e promised to w o r k for a revision of the capital s t r u c t u r e . T h e w o r d i n g of the a g r e e m e n t led t o serious misu n d e r s t a n d i n g b e t w e e n the m a n a g e m e n t and the C o m m i t t e e of F o u r . T h e f o r m e r thought that C o u n c i l retained the right to discharge and w a s astonished w h e n the committee later took the position that the cases of the unionists, Messrs. B r o p h y and D o n o v a n , ( w h o had been discharged by the C o u n c i l ) w e r e s u b j e c t t o r e v i e w by the impartial arbitrator. M r . W i l l i a m P . H a p g o o d ' s later v i e w c o n c e r n i n g recourse to outsiders w a s that it " w a s the greatest mistake of our entire e x p e r i m e n t . " I t set up m a c h i n e r y like that used in disputes b e t w e e n trade-unionists and o w n e r s and w a s therefore c o n t r a r y to the chief objective of the enterprise (i.e., t o create a unified g r o u p of w o r k e r - o w n e r s ) . T h i s v i e w is likewise held by his brother, M r . N o r m a n H a p g o o d . A p r i l 1 0 , 1 9 3 3 — I n a short time, M r . H a p g o o d w r o t e the C o m mittee, asking it to relieve the directors f r o m their part of the a g r e e m e n t . H e w e n t to N e w Y o r k and s a w M r . M y e r s and P r o f e s s o r D o u g l a s , w h o replied that they could not accede to the request unless a g r e e d to by all of the original signers. T h a t same day they w e r e i n f o r m e d by the chief creditor that he c o n t e m p l a t e d a receivership, but a f t e r an appeal f r o m M r . W i l l i a m P . H a p g o o d that the c o m p a n y could regain its business health once it stilled its internal dissention, the creditor a g r e e d not t o place the c o m p a n y in receivership. M a y 8, 1 9 3 3 — M r . H a p g o o d w r o t e to C o u n c i l that since no progress had been m a d e t o w a r d r e g a i n i n g h a r m o n y , it must either consider his resignation or the release of the dissenters on the g r o u n d s that Messrs. B r o p h y and D o n o v a n differed so g r e a t l y w i t h respect to the chief objectives of the c o m p a n y t h a t " w e c a n n o t and should not w o r k t o g e t h e r . " Messrs. B r o p h y and D o n o v a n w e r e thereupon discharged by C o u n c i l . M a y 1 5 , 1 9 3 3 — T h e C o m m i t t e e of F o u r , h a v i n g been appealed t o by M e s s r s . B r o p h y and D o n o v a n , i n f o r m e d C o u n c i l that the discharges w e r e not in accordance w i t h the a g r e e m e n t , a n d the m e n w e r e entitled to a r e v i e w of their cases by P r o fessor L e i s e r s o n . I n a special m e e t i n g of C o u n c i l , the motion w a s m a d e to cancel the a g r e e m e n t and ask for w i t h d r a w a l

43

44

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GUIDANCE

of the C o m m i t t e e . T h e motion carried by a vote of 5 8 to I , w i t h 3 not v o t i n g . "

Thus ended the civil war, but in a manner unsatisfactory to the Committee, which has since attacked the use of what it terms autocratic methods. Nor has it minced words, as will be seen from the quotation that follows. It is interesting to note that the opinion expressed as to the direction from which improvements in our social order must come are diametrically opposed to the philosophy of M r . William P. Hapgood, who does not believe in the wholesale approach. " T h e board of directors, the council, especially after resignations and discharges of leaders, the reported threat of financial pressure by company's chief creditors, the threat of resignation of M r . Hapgood unless Messrs. Brophy and Donovan were discharged—these and other methods which were used, seemed to the committee utterly undemocratic, often lacking in candor, and not in keeping with the spirit of the business and the avowed principles upon which it was supposed to have been run. W e cannot refrain from commenting that the recent history of the Columbia Conserve Company furnishes further strong evidence that the injustices of capitalistic industry will not be corrected nor a new social order built by a f e w employers handing down certain privileges to the workers in individual concerns, but rather that justice and a cooperative order must be won by organization of the workers on an industry-wide and national scale." This report 4 gave rise to vigorous editorial comment during December, 1 9 3 3 , in The World Tomorrow and The, Christian Century. T h e latter stated that " F e w more melancholy documents have appeared in recent years than the report on conditions in the Columbia Conserve Company. What democracy there may once have been in the management of " A s of December 3 1 , 1 9 3 3 — T h e debt to the principal creditor had been reduced from $ 1 2 1 , 0 0 0 to $ 5 5 , 0 0 0 and the net profit for the four months ending November 30 was $49,000. Although the workers' incomes were 55 per cent of the peak figures, the single workers were getting as much as, and the married ones, 50 per cent more than the N R A minimum requirements. 4 Published December 2 3 , 1 9 3 3 , in the Information Service of the Federal Council of the Churches of Christ of America.

COLUMBIA

CONSERVE

COMPANY

45

the Columbia Conserve Company has largely seeped out, so that the company now represents only a family corporation being conducted with rather more autocracy and less social responsibility than many a 'soulless' corporation, making no claims to industrial pioneering." T o which one of the owner-workers, M r . I. L . Botts, replied: " . . . it will be readily seen that our cardinal sin was not that we were undemocratic or that our actions regarding certain fellow members were unjustified, but rather that we refused to accept the dictates of the Committee of Four. " T h e charge that our conduct has been 'utterly undemocratic' is scarcely proven by the fact that when at the Council meeting of M a y 8, 1 9 3 3 , our alleged autocrat, M r . W i l liam P . H a p g o o d , offered his resignation and then left the room, we moved, without a dissenting vote to refuse to accept it, and that after a committee of six of our group had written to the Committee of Four asking them to release us from the agreement and were refused, we passed a resolution to cancel it." So these liberal magazines, which for years had been stout friends of the "experiment," turned against it to provide the finale of this industrial drama. B y a curious coincidence, the social disturbance was originally precipitated by a minister who had been taken into the company to help with publicity. H e had not only refused to take orders from M r . Hapgood, but had attacked in an intemperate manner the financial relations between the company and Messrs. William and N o r man Hapgood. T h e fact that he apparently knew too little about business to distinguish between debtor and creditor relationships did not deter him from leading a most vitriolic and scurrilous attack. Its effect on his associates would doubtless have been negligible had not the group been under severe strain from reduction in earnings. 5 4 T h e f a i t h f u l reproduction in the C o u n c i l minutes of such outbreaks is the result of M r . H a p g o o d ' s doctrine that this e d u c a t i o n a l e x p e r i m e n t requires absolute f r a n k n e s s and openness. It g i v e s them a tone of realism that makes them u n i q u e , f o r they reveal the s t r u g g l e s of i n d i v i d u a l s and g r o u p s as an u n v a r n i s h e d tale that is f a r f r o m d r a b .

46

EXECUTIVE

GUIDANCE

T h u s ended an episode revealing certain limitations in one type of industrial democracy. A s M r . Hapgood remarked in a letter, " W e went altogether too far in our experiment in complete employee control, in my opinion. I do not know of any attempt made in the past to place one group of people in legislative, executive, and judicial control. Council has failed completely in recent years with regard to judicial control and more recently has exercised for the first time its prerogative with regard to administrative control, which started on a program which if continued would have inevitably wrecked the business." In his revised description of the "experiment," he states that " o n account of the experience of 1 9 3 2 and 1 9 3 3 , I have come to the conclusion that there is probably one responsibility which cannot safely be left to the decision of all the workers in Council, namely, the responsibility for discipline." H e comments also, " I am convinced that technical problems of all kinds must be handled by one or a very few individuals. I am entirely in favor of acquainting the rank and file with these problems for the purpose of educating them in business management and thereby developing new technicians from the ranks, but the final decision in cases of disagreements about technical matters must remain with those technicians who are most competent to handle them."

Place of Personnel Management in the Organization In describing the place held by personnel management in the organization, it is necessary to re-emphasize the fact that throughout the seventeen years during which the present type of management has been tried, M r . William P . H a p g o o d has been the inspiration for, and the moving spirit behind, most of the steps taken. Moreover, the industrial relations work is not an adjunct of an operating organization interested in profits and other material aspects of life, but dominates the control over operations. T h e whole management program is part and parcel of its industrial relations program. A s M r . Powers Hapgood, son of the president, has phrased it, " O u r

COLUMBIA

CONSERVE

COMPANY

47

democratic plan of management is far more important than the material conditions at our plant. W e have here a complete industrial democracy. I don't use that term in the sense that certain large corporations use it who have a so-called 'employee representation' plan, giving the employees a voice but no power in the management of the business. W e feel that a voice without power does not amount to much. In our company the workers control every policy of the business. T h e supreme authority of this company is the Council, which consists of every man and woman at the plant, regardless of length of service. "Council decides every policy of the business by majority vote. It sets the salaries of all employees, from the president to the manual workers. T h e department heads, foremen and forewomen, the superintendent, the general manager, the president, all the executives of the business are elected by Council, which means that they are elected by the rank and file of the workers in the plant. At any time when the workers become dissatisfied with any of their leaders, all they have to do is to call for a new election, and that person becomes an executive who receives the majority vote of the workers. "Council decides all the production policies of the business, such as the number of hours we will work, the kind of products we will make, whether or not we will introduce a new machine. I t is Council which decides the sales policies of the business and elects the salesmen. Council also decides the financial policies of the business." Methods

of Counteracting

Irregularities

of

Employment

Regularity of employment in this concern is inseparably connected with the method of compensation, namely, salaries. Consequently this section is at once a discussion of regularizar o n and of methods of payment. Since the regularity of employee earnings features the accomplishments of this social experiment, it is worth while to quote M r . W i l l i a m P . H a p good's description of how the problem was first called to his attention. " A l t h o u g h it was not I who brought before the

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GUIDANCE

Committee the matter of regularity of employment, I believed that the manual worker had as much right to his j o b as I had to mine. Since then I have come to understand that the success of self-government in industry rests upon the foundation of permanent employment. W e cannot teach the worker the technique of business administration without safeguarding his future. W e must free his mind of the fear of arbitrary discharge. While that spectre hangs over him he can rarely be induced to accept a responsibility which will be of no use to him if he is discharged. " I n the Committee in 1 9 1 7 , one of the factory workers asked me why it was that only a few of our employees were paid by the week and retained by the year, irrespective of the activities of the business, while almost all the workers, including himself, were paid by the hour and retained only as long as their time could be f u l l y occupied. H e asked me if wage workers were less affected by their insecurity than I would be in the same predicament." As a result, it was decided to place as many as possible on a salary basis with the understanding that they would be retained by the year except in cases of bad behavior. E x cept during peak production, 95 per cent of the force is now on salary. From September 1 to October 10 of each year, however, tomato soup is packed for the ensuing year. This seasonal peak necessitates some additional wage workers. Even during the depression, the policy has been followed of retaining every salaried employee however inefficient, though it has meant severe reduction in the pay of all. Passing now to the method of setting individual salaries, we find the unusual decision to base them upon individual needs. T h e rank-and-file workers have been classified into four groups and a salary determined for each group without distinction as to sex. Above the rank and file each case has been dealt with individually, all decisions being made by Council. A married man receives a salary 50 per cent higher than a single man, and $2.00 per week additional for each

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CONSERVE

COMPANY

49

child. E x t r a pay for children, however, is limited to $6.00 per week.

Other Financial Provisions to Enhance Em-ployee Security In addition to the emphasis placed upon permanency of employment, the company has provided pensions for those unable to work, no matter at what age they become incapacitated. One of the pensioners is only 27 years old. T h e amount given varies with the individual's need, rather than with his salary or position in the company. Since no pension fund has been accumulated, the pensions are charged to current operating expense. In contrast to this rather ordinary treatment of the pension problem is that accorded the medical care. Instead of caring for employees only, the company also provides medical attention for their families. T h o u g h a heavy expense (the highest per employee in this study), the management feels that the benefits derived by the employee group from this medical care represent one of the most worthwhile results of the whole experiment.

Summary Because the scope of Council's discussions has been without limit, and the experiment has had a life of seventeen years and has been tested in a severe crisis, it is useful for analysis. It provides outsiders with an example of the bounds beyond which the sharing of management with employees has proved unworkable, a result important even to those who are skeptical as to the ability of ordinary "run-of-mine" human beings to grapple with the technical problems of management and to discipline themselves in emergencies.

COMMONWEALTH

EDISON

CHICAGO,

COMPANY1

ILLINOIS

Commonwealth Edison is the original Insull property, the special pride of M r . Samuel Insull. One inevitably speculates as to why this arch-promoter and buccaneer should have interested himself in better relations with his employees; and, with his cold and impersonal manner, have been able to win their confidence. Perhaps it was his long record of successes which, until the hard days of 1932, made it appear that his decisions were infallible. Or, it may have been his desire to "do w e l l " by his employees as a group. For one reason or another, be it pride or the consciousness that up-to-date personnel developments are "good business" in a concern in which public relations are important, Mr. Insull quickly adopted the new developments in personnel technique.2 Consequently, the concern has had long experience with such devices as suggestion systems, salary administration, and employee representation. Place of the Industrial Relations Department in the Organization T h e industrial relations department directs the employment and training divisions and the employee representation, but in this company the line executives take an especially active part in personnel activities. One evidence of this fact is that seven line executives, together with two members of the industrial relations department, comprise the salary ad1 Product: electrical service (light, power, and supplies). Territory served: Chicago. Number of employees: March 1 9 2 7 — 9 , 6 3 7 , of whom 1,125 were women; July 1 9 3 0 — 1 1 , 2 6 3 , whom 1,166 were women; August 1 9 3 2 — 8 , o o o , of whom 800 were women. ' As an example of this tendency to anticipate the general adoption of personnel devices that are now commonplace, the employees' publication, The Edison Round Table, completed in April 1934 a quarter century of uninterrupted publication.

50

COMMONWEALTH

EDISON

COMPANY

51

ministration committee, called the Employees Committee. Since 1908, the latter has exercised control over all payroll recommendations initiated by the departments. Its control extends over additions, removals, transfers, promotions, increases in pay, wage incentive plans, hours of work, working conditions, overtime compensation, and vacation allowances. Financial Provisions to Enhance Employee

Security3

Various financial plans have been inaugurated to aid employees by the paying of death benefits to designated dependents by giving them protection when suffering from sickness or accidents; by assisting in the construction or purchase of a home; by providing for the accumulation of money through their own initiative and the company's appropriations; and by the paying of annuities upon retirement. During the period 1 9 2 0 - 1 9 3 1 , the families of 3 6 1 deceased members received death benefits, and the benefits paid to employees absent because of illness and accidents exceeded two million dollars. 4 This cooperative benefit plan is administered by the Commonwealth Edison Mutual Benefit Association. Although membership is voluntary, it is almost universal since the company benefits to non-subscribers are less than to subscribers. F o r instance, the association pays death benefits of 50 per cent " T h a t the force is per cent of the force result may be credited used domestically, and

usually stable is indicated by the fact that, in 1930, 4$ had been with the company ten years or more. Such a to the steadiness of the sale of electricity, especially that to a modern personnel p r o g r a m .

Years of Service 45 40 3j 30 2j 20 Ij 10 5

or or or or or or or or or

over over over over over over over over over

Number of Employees 3

16

Ji

142

353

703 976 1,566

Per Cent of T o t a l 0.08 0.46 1.47 4.10 I 0.19 20.29 28.16

45-19 70.26 2,435 T h i s part of the statement is based largely upon a description of the program written by M r . William A. D u r g i n , M a n a g e r of Industrial Relations. 4

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GUIDANCE

of the preceding year's salary up to a maximum payment of $ 1 , 5 0 0 , and the company supplements it with payments ranging from 1 0 per cent to 100 per cent, depending on the length of membership in the association. Since the association uses separate premium rates for various sections of the company depending upon sex and the nature of the work, there is an effort on the part of each group to keep its sickness and accident record as low as possible in order to reduce the premiums. In addition to the association's benefits, the company provides f u l l pay to every employee during his first week of illness. Following that period, he is given sequentially decreasing percentages of his pay for a period which may reach a maximum of two years. T h e company sponsors two group life insurance plans which are carried under general policies by a private insurance company. T h e first, called "Christmas insurance," is the outgrowth of the practice of many years' standing of presenting each employee with a Christmas gift. Its entire cost is borne by the company, and is in addition to and independent of all other benefits. T h e amount of this insurance increases automatically as the employee's service lengthens, until it reaches a maximum of $ 1 , 5 0 0 for six years of service. E m ployees may apply for a like amount of additional group insurance for which the cost to the individual, because of the large group membership, is relatively low. In addition to a building and loan association, the company has maintained an employees' savings fund paying six per cent interest. Originally, this was a stock purchase arrangement. T h e service annuity plan was created in 1 9 1 2 to care for the time when retirement from work becomes necessary. The plan is non-contributory and non-contractual, and the company bears all expenses and assumes full responsibility for its management. It is an annuity retirement plan which provides a definite income for each employee upon reaching a specified age after the requisite years of continuous service. T h e annuity rate, whose maximum is $6,000 a year, is above the average granted by most companies. Employees may re-

COMMONWEALTH

EDISON

COMPANY

53

tire at the age of 60 if they have a minimum of 1 5 years of service. Moreover, at 65 years of age, those with 1 5 or more years of service are retired automatically unless the board of directors specifically permits their continuance in active service. Each month the company sets aside a sum in excess of the actuarial amount required to meet the annuity liability requirements and a reserve to cover variations from the actuarial estimate. These funds, as well as any excess of income over disbursements to annuitants are invested in mortgage bonds of domestic corporations. T h e investment of the fund is directed by five trustees, who are directors of the company, and the title to the securities is lodged in a permanent trust administered by them. This trust is irrevocable in so far as all retired employees are concerned and assures to them the payment of annuities due them. Wage

Payment

B y 1 9 1 2 , the company had developed so rapidly in size and specialization of work that the Employees Committee found it necessary to have additional facilities for more effective consideration of wage and salary matters. Consequently, a payroll schedules subcommittee, reporting to the employees' committee, was charged with the responsibility of establishing and maintaining what is still known as "the classified service book of positions." This book contains titles, brief definitions of duties and responsibilities, and schedules of pay for all positions in the company with minimum rates of $ 3 0 0 or less per month. Several j o b analysis surveys have been undertaken. T h e y are sponsored by the industrial relations department as well as the employees' and payroll schedules subcommittees because both derive benefits from them. Since it is the policy of the company to have the personnel work carried on as far as possible by the line organization, the latter has been utilized in making the job analyses even though the number of employees has increased from 3,000 to 10,000. T h e method used in the last comprehensive analysis, begun in 1 9 2 6 , was that of utilizing staff men of the industrial relations department and of the payroll schedules

54

EXECUTIVE

GUIDANCE

subcommittee for the purpose of informing the line organization as to the forms, methods, and procedures to be used in setting up the job specifications and in classifying, grading, and evaluating positions. T h e line organization, by use of the duty statement, supplied these staff men with the necessary data which were set up in standard form. This work, as well as subsequent work relative to the classifying, grading, and evaluating of the positions was carried on jointly by the staff men and the departmental supervisory forces. In this way uniform interpretation and application of the methods and procedures used and the j o b data obtained were assured. T o aid the line organization in effectively determining the relative importance and value of jobs, a numerical job rating scale was used. This scale was comprised of what is believed to be the fourteen principal factors contributing to the value of a position. Such factors, for example, dealt with variety and complexity of work, mental, physical, and educational requirements, supervisory or executive responsibility, and experience requirements. This job rating scale was applied by the departmental supervisory forces to the positions under their administration with the assistance and guidance of the staff men. Sup-ply and Maintenance of an Effective Labor

Force

Except in special cases, the company looks upon each new employee as a potential adjunct for the remainder of his working life, and so special safeguards to protect the interests of both employee and employer begin at the time the former files his original application. T h e centralized employment division makes an effort when it interviews an applicant to determine whether he is qualified for the position for which he is applying or would be better suited to some other position. T h e j o b specifications which are used to aid in selection and placement have been prepared with the cooperation of the department concerned. Using these, the central employment office makes the original selection of a properly qualified group from which the final selection is made by the head of the department in which the successful applicant is

COMMONWEALTH

EDISON COMPANY

55

to work. T h i s policy is followed to avoid later complication and to assure both the employee and his superior of their m u tual acceptability. T h e selected applicant is then given a complete physical examination by a company physician to determine whether he meets the general physical requirements of the company and the special requirements of his prospective position. Any employee may at his request and upon the approval of his department make application to the central office for transfer to a position in another division or department. A record is made of the request, and the transfer is negotiated in practically the same manner as that by which applicants are hired. Except for certain classes of common labor, e m ployees removed f r o m the payroll are sent to the central office for a final interview. This insures review by an unprejudiced staff, and in certain cases, results in a d j u s t m e n t or transfers to the mutual satisfaction of all parties. T h e educational program embraces three distinct fields: the first includes economics and other business courses interpreted in terms of the industry; the second deals with information relating to the company as a whole or of interest to large groups of its employees; the third includes instruction to aid specialized groups in their daily work. T h e fundamental policies that underlie the training and educational program are as follows: Wherever possible, the employees should be called upon to furnish the materials upon which they and future employees are to be trained. Specialists should be available to advise the line organization in the best course of training. Where training on the job cannot include a consideration of the basic theories behind the work, employees should be encouraged to study these in recognized educational institutions.

I n a number of the m a j o r operating departments, j o b training programs have been set up with complete and detailed manuals and procedures. T h e tools for this instruction include job descriptions, pictures, diagrams, outlines of processes, and safety precautions. Such programs are intended both to im-

56

EXECUTIVE

GUIDANCE

prove the training and to assure its uniformity by fixing responsibility and providing definite procedures. Responsibility rests with the operating department, aided as to the technical details of its administration by the company training specialists. F o r the men of supervisory or foreman grade, formal supervisory training has been instituted in a number of departments under the guidance of the department head. It covers not only the routine of supervisory work but also the personal relations of each with his people. Employees who have daily business dealings with customers and therefore a f fect the public relations of the enterprise are given the opportunity to discuss their problems in order to develop the best ways of satisfying the wishes of customers. This work is carried on in group meetings which are led by executives of the department, aided by specialists in training. Some 500 executives and sub-executives have participated in the training of supervisors and in 1 9 3 0 - 1 9 3 1 , a total of 1,862 regular employees enrolled in 32 courses for a total of over 34,000 student hours of classroom instruction. In addition, 1 , 2 5 1 employees attended lectures for a total of over 19,000 student hours. T h e company refunds tuition, with certain limitations, to any employee who completes in a recognized institution a course that will tend to improve his ability to do his work. A semi-annual physical examination of every company employee is required. T h e examination is brief, but it is thorough enough to uncover hundreds of minor troubles and occasionally major disturbances. T h e knowledge that such examination is made at regular intervals causes many employees to take health precautions they would otherwise ignore. Other than in exceptional cases, a physician's approval is required to release an employee from work, and if absent for seven days or more, the approval of the company physician must be given before the employee returns. Nurses visit all employees who have been sent home or who have remained at home because of illness or accident. Through the suggestion system, which is emphasized in this concern, employees may make known their ideas for im-

COMMONWEALTH

EDISON

COMPANY

57

proving the engineering or operating methods, the service to customers, or the working conditions. A l l suggestions are submitted without signature on a special form that bears a duplicate serial number identical with that on the attached coupon, which the suggestor retains. A suggestion is sent first to a central office, which refers it to a management subcommittee fitted to determine its merits. Its action, if approved by the directing group, is published in the house organ and posted on bulletin boards throughout the company. Upon the presentation of his coupon, the employee either learns why his suggestion was rejected, or secures whatever financial award has been authorized. T h e suggestions approved have varied from the handling of cable on the reel and the construction of visual manhole layouts to a permanent index for use in the company's customer-accounts organization. During the past six years, 1 2 , 5 0 0 suggestions have been received of which 2 , 1 0 0 have resulted in awards totaling $ 1 6 , 0 0 0 and estimated savings to the company of perhaps $ 1 4 0 , 0 0 0 per year. Joint

Relations

For about twelve years, the regular meetings of employee representatives and management have provided a means for discussing their mutual problems. Employees have the opportunity to present their suggestions direct to management, which in turn can explain its policies and practices. A series of departmental joint councils parallel the departments in the company, and a general joint council is composed of delegates from each of them. T h e councils are made up of employee representatives elected by the employees and an equal number of management representatives appointed by management. T h e manager of industrial relations of the company represents the president and serves as chairman without vote. The constitution of the employee representative council plan emphasizes the necessity of considering the mutual interests and the respective particular interests of the public, stockholders, management, and employees, and specifies various channels through which recommendations may pass.

E . I . DU P O N T DE N E M O U R S AND C O M P A N Y , WILMINGTON,

INCORPORATED1

DELAWARE

Being a far-flung organization, the du Pont company directs its industrial relations in a highly decentralized fashion. T h o u g h such a company may not be able to pay the same attention to its employees as individuals as can a smaller enterprise, du Pont's approach to the problem of providing satisfactory employee relations is significant because of its success in the face of diversified operating problems. T h e personnel administration of the plants of the du Pont Company and its subsidiaries is highly decentralized. T h i s policy is followed because of the wide diversity of this corporation's interests, f o r it owns lOO per cent of the stock of 1 3 subsidiary companies and from 25 to 1 0 0 per cent of the stock of 1 5 others. Although its control over personnel policies and methods is decentralized, the corporation provides through its service department staff advice to assist and guide the industrial relations activities throughout the several companies. T h e head of this department reports direct to the executive committee (which has the operating responsibility for the parent company). Since the service department of the parent company holds a purely staff relationship to the line executives of the operating units, the latter must be thoroughly convinced of the soundness of any suggestion prior to its adoption. Such a policy makes for close adaptation of plans to the needs of each subordinate company. Methods of Counteracting Irregular Production and ment

Employ-

One is struck by the influence that the nature of the du Pont products exerts upon stability of employment. In general, they ' P r o d u c t s of companies operated directly by parent company: explosives, organic chemicals, ammonia, fabrics, finishes, paints, heavy chemicals, and smokeless powder. Number of employees: December 1 9 2 9 — 3 8 , 9 0 0 ; October 1 9 3 1 — 3 2 , 7 0 0 1 December 1 9 3 2 — 2 8 , 7 0 0 ; December 1 9 3 3 — 4 1 , 6 7 7 . 58

DU

PONT

59

form the materials or supplies for other manufacturing companies ( " D u c o , " rayon, glycerin, ammonia, etc.), and scarcely any can be classed as capital goods. Consequently, the demand for many of them is fairly stable. However, to meet such irregularities as exist, the du Pont companies have made a systematic effort to spread work among their employees. T h e methods have varied according to the peculiar problems of each company (some shortening the hours per week, a few using a six-hour shift, etc.). T o "cushion" the blow to employees laid off as the result of the closing of plants or of major reorganizations, the company has paid dismissal wages on three different occasions. Financial Provisions to Enhance Em-ployee

Security

Jn spite of the flexibility of the du Pont personnel arrangements in the various constituent companies, the plans for employee security are fundamentally similar. These plans are as follows: Group life insurance plan Salary allotment insurance plan Employees' cooperative sickness and non-occupational accident insurance plan Savings plan Stock investment plan Benefit plan Pension plan Credit union

Each one, though fulfilling some definite purpose, supplements the others so that together they furnish a certain measure of systematic aid to employees in providing for their f u ture by financing in their entirety the benefit, pension, and group life insurance plans; by contributing to the employees' cooperative sickness and non-occupational accident insurance plan; and by facilitating the operation of the other plans. Participation in the cooperative plans is entirely optional, and benefits that may be gained from these plans are not considered in determining wage or salary rates. T h e group life insurance plan insures the lives of all employees after one year

EXECUTIVE

60

GUIDANCE

of continuous service. Employees with dependents or approved beneficiaries are insured for $ 7 0 0 with increases for additional service until a maximum of $ 1 , 5 0 0 is reached (for service of five years or more). This insurance policy also provides for payment in case of permanent total disability before the age of 60. Should an employee leave the company, he may continue an equivalent amount of standard insurance in effect without medical examination, but at the standard rate. T h e salary allotment insurance plan enables employees to secure adequate life insurance under unusually advantageous conditions. T h e insurance company issues standard, individual life insurance policies to employees at standard rates, regardless of occupation, and usually with only a simple form of medical examination. T h e insurance premiums are paid through monthly deductions from salaries or wages. T h e employees' cooperative sickness and non-occupational accident insurance plan offers employees insurance against loss from sickness and non-occupational accidents through a policy carried with an insurance company. T h e company contributes to the cost and furnishes the necessary clerical and administrative labor. T h e employees, in addition to paying their share of the cost, are required by the insurance company to maintain a participation of 75 per cent of all eligible employees. A l l employees with six months' service are eligible, and if an employee signs an application within 3 1 days after becoming eligible, no medical examination is required. Benefits are paid weekly, beginning the eighth day of disability and continuing for a maximum of 1 3 weeks and cover any illness whatever or any accident occuring away from work. T h e weekly benefit for which an employee may subscribe and the cost to him are determined by his annual earnings, viz.: Class A B C D E

Annual Earnings Under $900 $ 9 0 0 but under $ 1 2 0 0 $1200 but under $ 1 6 0 0 $ 1 6 0 0 but under $ 2 0 0 0 $ 2 0 0 0 and over

Weekly Benefit $

7.00 10.00 . 15.00 . . . . 20.00 . . . . 25.00

Monthly Cost to Employee $0.25 0.40 0.65 0.90 1.15

DU

PONT

61

T h e savings plan was adopted for two purposes: 1 . T o furnish employees with a safe and convenient method of accumulating a sum of money which w o u l d be readily available for emergencies. 2. T o assist them to start a f u n d to be used later on f a r permanent investment.

Any employee with six months' service to his credit whose earnings do not exceed $3,000 per year may subscribe to thrift certificates at any time and pay for them by payroll deductions. These thrift certificates are for $ 5 0 each, and bear interest at six per cent per annum, payable semi-annually. Upon the request of a subscriber, the company will redeem his certificates and refund his payments on account with interest. N o one may hold more than ten of these certificates, but amounts larger than those permitted in the savings plan may be invested in the stock investment plan. Since 1909, employees have been encouraged to invest in du Pont stock, and offerings have been made annually. 2 T h e security usually offered has been the six per cent cumulative debenture stock. An employee with one or more years' service to his credit and receiving less than $3,600 per year in salary or wages may subscribe under this plan to not more than 20 per cent of his annual salary or wage, but in no case to more than ten shares in one year. Payments may be made in cash or by payroll deductions over a period of one year. Interest at the rate of six per cent is allowed on the subscriber's balance until payment for the stock is completed, whereupon it is issued in his name and delivered to him. T o those who remain in the service and hold their stock, the company makes an extra payment of $3.00 per share per year for five years in addition to the regular six per cent dividend. T h e benefit plan furnishes assistance to employees of 1 5 or more years' service who, through illness or other nonoccupational causes, become temporarily incapacitated for periods in excess of 60 days. It also affords temporary aid to the depend' No offering of stock to employees was made in 1 9 3 3 because such action was considered inadvisable because of the Securities Act.

62

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ents of employees who lose their lives in the performance of their duty as well as compensation for employees injured at work in those states which do not have compensation laws. Administration of this plan is entrusted to the company's board of benefits and pensions, which determines whether or not the cases are eligible under the rules and the amount of the benefit. T h e pension plan was adopted by the company as a means of furnishing aid to those employees who become unable to work after long years of faithful service. T h e present requirements for a pension are physical or mental incapacity to perform the normal duties incident to continued employment by the company, together with at least 1 5 years of continuous service. T h e amount of a pension is determined by length of service and rate of pay. Since an employee cannot expect his pension to be sufficient to replace his loss in earning power, he is encouraged to make additional provision through saving or insurance to take care of himself and his family in his old age. This plan, like the benefit plan, is administered by the company's board of benefits and pensions. T h e first du Pont credit union was organized in September 1 9 3 2 and three additional ones have been organized recently ( 1 9 3 4 ) . T h e management feels that these have been doing exceptionally well and that they fill a definite need in supplying employees with credit facilities. T h e y are of the standard type and are directed by employees rather than by management.

Wage Payment It is estimated by the company that financial incentives are in use on perhaps 70 per cent of the jobs whose nature permits time standards to be set with sufficient accuracy to warrant the use of incentives. T h e most interesting feature of these incentive plans for the rank and file is that they are applied to operations for which standards of output are difficult to establish. Although these incentives for rank and file are of recent installation, du Pont was a pioneer in the use of incentive bonuses. In fact, the board of directors adopted a plan for extra com-

DU

PONT

63

pensation on February 3, 1 9 0 5 , which has since been amended several times. Bonuses consisting of common stock of the company, may be granted to employees who have contributed in an unusual degree to the success of the company by their inventions, ability, industry, and loyalty, and whom it is deemed desirable to have interested in the business as stockholders. Awards may be made under one or both of the following classes: 1. Class " A " bonus awards may be granted for conspicuous service of any nature. Such service may take the form of: a. A n invention or improvement which results in a profit or saving, or in a reduction of risk of personal injury or damage to the company's property. b. Unusually ingenious solution of a business or technical problem. c. Perseverance and persistency of a character that results in demonstrating a proposition (in some instances against either internal or external opposition) that results in an important saving or benefit to the company. d. A n accomplishment by an employee of a character f a r beyond what might be expected of one occupying his position.

2. Class " B " bonus awards may be granted to those who have contributed to the company's success by their ability, efficiency, and loyalty. Class " A " bonus awards are granted irrespective of the company's earnings, but class " B " bonus awards are made from that portion of the company's profits which are set aside in the class " B " bonus fund. T h e latter is accredited annually with an amount, determined by the finance committee, which shall not exceed seven and one-half per cent of the surplus net receipts from manufacturing operations which remain after deducting six per cent on the capital employed. Class " A " bonus awards are granted without regard to departmental lines or limitation as to length of service, each case being considered on its merits. Class " B " bonus awards, however, are granted only to employees who on January first of the year in which the awards are made have been in the continuous employ of the company for at least two years.

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EXECUTIVE

GUIDANCE

Joint Relations T h e employees representation plan, adopted in June 1 9 3 3 , operates through a works council at each works. T h e personnel of each council consists of employees elected to represent those in each department below the rank of foremen (not less than two nor more than ten in each council), together with an equal number of management representatives, and a non-voting secretary appointed by the management. Both employee and management representatives serve for one year. Each representative is assured that he is free to discharge his duties in an independent manner without fear that his individual relations with the company may be affected by any action taken by him in good faith in his representative capacity. T o assure each representative such independent action, the company gives him the right to take the question of an alleged personal discrimination against him on account of his action in his representative capacity to each of his ranking works executives in turn and then to the works council. T h e purposes of the plan, as outlined in the announcement to the employees are as follows: to promote cooperation between the company and its employees; to give the employees a voice in matters of mutual interest, including safety, sanitation, hours of work, wages, and other working conditions; to provide an orderly and expeditious procedure for the prevention and adjustment of differences; and to afford a means through which the management may furnish information of interest to employees regarding the company's affairs. Regular meetings are held bi-monthly, with special meetings upon the request of one-third of the elected representatives. Two-thirds of the elected and appointed representatives constitute a quorum, and it is provided that the management representatives eligible to vote at any meeting shall never exceed the number of employee representatives present. T h e records of the proceedings of each meeting are open to the inspection of representatives, and are frequently posted. T h e procedure for the disposition of grievances is as follows:

DU PONT

65

1 . A n y matter concerning one or more employees in a works division is first taken up with the foreman concerned by the employee or employees concerned. 2. If not adjusted, the matter is then presented by the employee and his division representative to the foreman. 3 . I f a satisfactory adjustment is not then obtained, the matter is presented by the employee and/or his division representative to each higher ranking executive in turn in the line organization until it reaches the head of the employee's works division. 4 . Failing satisfactory adjustment by the works division head, the division representative places the matter before the W o r k s Council. 5 . T h e W o r k s Council may call any employee before it to give information regarding any matter under consideration, or may appoint a special committee to investigate the matter, or may 4ecide on the matter immediately by a two-thirds vote of the representatives present and voting. 6. T h e W o r k s Council then reports its decision to the W o r k s M a n a g e r , w h o reports his findings and recommendations in writing to the W o r k s Council at its next regular or special meeting. 7. T h e W o r k s Council then reconsiders the matter, and if it is unable to agree with the W o r k s M a n a g e r by a two-thirds vote of the representatives present and voting, the matter is referred to the president of the company concerned. T h e president reports his findings and recommendations in writing to the W o r k s Council within thirty days. 8. T h e W o r k s Council again reconsiders the matter, and if it is unable to agree with the president by a two-thirds vote of the representatives present and voting, the matter is submitted to three arbitrators whose decision is binding upon all parties. I n 1 9 3 4 , steps w e r e taken to present to the w o r k s councils a revision that w o u l d restrict their m e m b e r s h i p to elected ployee

em-

m e m b e r s o n l y . T h i s revision w o u l d limit the contacts

of m a n a g e m e n t t o m e m b e r s h i p on joint investigation c o m m i t tees and to w o r k s council consultants. T h e latter, appointed b y the m a n a g e m e n t , w o u l d respond p r o m p t l y to a n y request f o r consultation w h e t h e r m a d e b y a single representative or b y the w o r k s council. U p o n request t h e y w o u l d attend w o r k s council m e e t i n g s to furnish information and to discuss m a t ters of material interest to e m p l o y e e s a n d c o m p a n y .

EASTMAN

KODAK

COMPANY1

ROCHESTER, N E W

YORK

T h e financial protection of its workers against the hazards of life distinguishes the industrial relations of Eastman Kodak. T h i s protection includes stabilization of employment and a pension that was the first to be entrusted to an insurance company by a large corporation. Its executive training program is also noteworthy. T o a significant degree, the arrangements of this firm with its workers, such as its " w a g e dividend," its pensions and insurances, reflect its unusual prosperity under the guidance of the late George Eastman, its founder. 2 Place of the Industrial ganization

Relations

Department

in the

Or-

In each of the Eastman factories, the personnel and employment activities are functionalized, and discrepancies in policy or procedure are harmonized by the manager of industrial relations at the main office. Certain activities, like foreman training, are directed centrally, but even in such cases, the responsibility for satisfactory personnel development and relationships is decentralized. It was one of M r . Eastman's organization beliefs that the responsibility for operating any plant should be definite and not endangered by allowing two individuals to become responsible for the same activities. Consequently, the manager of each factory is the coordinator of all of the functions represented, and the personnel manager in that plant reports direct to him. 'Products: kodaks, cameras, and amateur picture equipment, kodak film, motion picture film, portrait film for professionals, x-ray film, photographic paper, plates, and chemicals. Number of employees: 1931—23,400, of whom 51 per cent were in Rochester; 1 9 3 2 — 2 1 , 1 0 0 , of whom 47 per cent were in Rochester; 1933—20,700, of whom 42 per cent were in Rochester. Number of establishments: 246 in 166 cities. * Ackerman, Carl W., George Eastman. 66

EASTMAN

KODAK

COMPANY

67

Methods of Counteracting Irregular Production and Employment* T h e company has believed for several decades that the proper planning of production is one of the most effective means of stabilizing employment, but the accomplishment has been difficult because of the seasonality of its sales and the fact that its sensitized products cannot be kept long in stock without deteriorating. Moreover, the problem is complicated by the fact that they are sold both in this country and abroad. T h e sales of some of the principal products are highly seasonal. T h e November sales of roll film are only 3 per cent of the yearly total, whereas those in J u l y (the peak month) are 1 5 per cent. T h e management realized long ago that it would be good policy both for the company and the employees to produce at a rate as constant as possible instead of the rate at which the goods happened to be sold. At first, stock was accumulated during the slack season for only a few of the chief products, as the plan required a large investment in refrigerated store rooms. N o w the method is used for nearly all of the products. This program involves four steps. First, a forecast of sales is made by the statistical department, in cooperation with the sales department, which takes into account the long-time trend of sales, as well as current business conditions. T h i s forecast covers a year, but may be modified from time to time during the period. T h e second step is to divide the annual forecast into monthly estimates. B y a study of the seasonal sales month by month over a period of several years, a " n o r m a l " seasonal variation was determined, expressing the sales for each month as a percentage of the sales for the entire year. T h e s e percentages are multiplied by the estimated sales for the year to obtain the monthly estimates. T h e third step is to determine the most economical production level. Production is reduced somewhat during July and See article by Mr. M. B. Folsom, Assistant Treasurer, Eastman Kodak Company, "Program of Stabilized Production and Employment," The Annals of the American Academy of Political and Social Science, March 1 9 3 1 , Volume ' 5 4 , page 143.

68

EXECUTIVE

GUIDANCE

A u g u s t to a l l o w for vacation demands. T h e plan calls, t h e r e fore, f o r steady production during 10 months w i t h reduced production during the s u m m e r months (the time of the sales p e a k ) . I n case the actual sales prove to be l a r g e r than estimated, v a c a tions are curtailed, and if less than the estimate, they are increased. T h e fourth step is the decision as to the proper a m o u n t of stock t o be carried during the year. A f t e r determining the m i n i m u m stock desired at the end of the busy season, estimates are m a d e of the n o r m a l stock to be carried each month. Finished stocks are then built up d u r i n g the slack season and reduced d u r i n g the busy season, and sufficient storage facilities are provided a c c o r d i n g l y . I t is frequently necessary to accumulate more t h a n the n o r m a l stock of a f e w standard products w h e n the orders c o m i n g t h r o u g h for special products are unusually small. T h e stocks w h i c h are built up consist only of standard products w i t h a steady sale.

W h a t have been the results of this program? D u r i n g the eight years from 1922 through 1929, the number of employees laid off at Kodak Park on account of lack of work averaged only 2 per cent of the total number of employees. 4 D u r i n g this period, the highest layoff in any one year was less than 5 per cent of the force, and the lowest 0.7 per cent. T h e company has thus been able to give more steady employment to workers, with less investment in plant and equipment. If the plant were large enough to meet the peak sales, the total investment would be higher, and much of the equipment would be idle during the season of slack sales. T h e resultant saving in carrying charges is said to more than offset the additional cost of carrying higher inventories during the dull periods. Financial Provisions to Enhance Employee

Security

O n January 1, 1929, the company adopted a plan which combines in one arrangement provisions for retirement, death, and disability. T h e i r integration in one unified plan is unusual * In the depression year, 1930, the m a x i m u m number of e m p l o y e e s that operated in any one month w a s 1.7 per cent above the y e a r l y a v e r a g e a n d the m i n i m u m , 3.J per cent b e l o w ; whereas in the previous depression in 1 9 1 1 , 13.5 per cent of the force w a s laid off f o r lack of w o r k .

EASTMAN

KODAK

COMPANY

69

and is designed to make the plan attractive to women and to the younger men.® Its purposes are so well elaborated in M r . Eastman's letter announcing its adoption that it is worth reproducing. 9 " I t is with a great deal of satisfaction, to me and to the Management, that we announce a Retirement Annuity Plan, together with a L i f e Insurance and Disability Benefit P l a n for Kodak employees. " T o put this plan into immediate effect requires a very large investment for the liabilities which have already accrued, covering the past services of employees. I t is proposed that this payment, which will total approximately six and one-half million dollars, be made one-half by funds appropriated by the Company and one-half by the Kodak Employees Association. " T h e Company and the Kodak Employees Association havthus provided for the initial financing, it is necessary that the present rate of the wage dividend be reduced in order to provide funds for the future payments to be made to the insurance company. " W h e n the wage dividend was established, the purpose, first of all, was that it should provide employees, in a lump sum annually, with a sufficient amount of money for investment so that, after a reasonable period of service, the employee would have accumulated from these wage dividends sufficient property to produce an income during old age. O f course, it was also the intention that employees who contribute so largely to the success of the company should, through the wage dividend, share in the profits coming from its success; yet of even greater importance in the minds of the directors was the idea that these wage dividends would enable the employees, during the active years of their life, to provide against ° F o r a m o r e c o m p l e t e description of its e v o l u t i o n , see article by M r . M . B . F o l s o m , A m e r i c a n M a n a g e m e n t Association ( G e n e r a l M a n a g e m e n t Series, N o . 1 0 8 ) , on w h i c h this section has been based. * December 20, 1 9 2 8 .

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GUIDANCE

disability and the lower earning power that might come with old age. " T h e plan adopted, to a large degree, assures our employees a comfortable income in their old age. It is hoped that, in accordance with the original purpose of the wage dividend, they will supplement this income by investing for their future a substantial part of the wage dividends they will receive. " T h e carrying out of the plan necessitates a change in the wage dividend formula. Beginning with the disbursement of J u l y i , 1 9 2 9 , and subject each year to favorable action by the directors, this formula will be as follows: F o r each dollar of dividends declared during the calendar year upon shares of the common stock of the company over and above $ 3 . 5 0 per share, the wage dividend rate is $ 5 . 0 0 per $ 1 , 0 0 0 of salaries and wages paid to employees during the past five calendar years. A s an illustration, if the common stock dividends were $8.00 per share, the wage dividend rate would be $ 2 2 . 5 0 per $ 1 , 0 0 0 of wages during the past five years instead of $ 3 5 . 0 0 per $ 1 , 0 0 0 as at present. F o r an employee who has been with the Company for five years and whose salary has been uniform during this period, this rate of wage dividend would represent almost oneeighth of one year's pay.

" I t is expected that this reduction in the wage dividend will provide sufficient funds to pay the insurance company administering the plan the annual cost of the benefits in the future, the accrued cost having been provided for through the appropriation of $ 6 , 5 0 0 , 0 0 0 by the Company and the K o d a k E m ployees Association.

" T h e M a n a g e m e n t has been working for some years upon a plan to provide, more liberally and reliably than at present, an income f o r old age, a proper protection for disability, and l i f e insurance. Intensive study has been given to the whole plan by the M a n a g e m e n t , and I have naturally taken a deep personal interest in the matter affecting the future of the thou-

EASTMAN

KODAK

COMPANY

71

sands of Kodak workers—a large proportion of whom I have been associated with for a score or more of years. " T h e plan evolved is comprehensive, liberal, and workable. It is, in my opinion, a definite assurance for the future, and will work out to the comfort and happiness of our employees. W i t h the wage dividend, which gives the employee a share in the profits of the company; the sickness benefit plan, which provides a liberal allowance in case of illness; this retirement annuity, life insurance and disability benefit plan; and with the facilities offered the employees by the Kodak Employees Association for financing their homes, and the facilities offered the employees by the Eastman Savings and Loan Association for investing their savings—I feel that a comprehensive program of industrial relations has now been established. I congratulate the employees upon the work that has been accomplished." T h e provisions of the plan are as follows: A . Retirement

Annuity

1 . Male employees: A retirement annuity, payable in monthly installments after 20 years of service at age 6 5 , as follows: a. F o r service before J a n u a r y I , 1 9 2 9 , an annuity equal to I per cent of his salary at the rate paid in 1 9 2 8 multiplied by the number of years of service prior to January 1929. b. F o r future service, an additional annuity equal to 2 per cent of each year's salary from J a n u a r y 1 , 1 9 2 9 , to date of retirement but not beyond the normal retirement date. 2. Female employees: A retirement annuity, payable in monthly installments after 1 5 years of service at age 6 0 . B . Life

Insurance

1 . Death benefit equal to six months' salary for each employee who has completed six months and less than 5 years of service. 2. Death benefit equal to one year's salary for each employee who has completed 5 years of service. 3 . Upon commencement of the retirement annuity pay-

72

EXECUTIVE

GUIDANCE

ments the l i f e insurance will be decreased by the a m o u n t of these p a y m e n t s until the life insurance is r e d u c e d to $500.

C . Total and Permanent

Disability

Benefits

U n d e r the sickness benefit plan, w h i c h continues in f o r c e , sickness a l l o w a n c e s are paid by the c o m p a n y to those w h o are sick w h e t h e r the illness is of t e m p o r a r y or p e r m a n e n t n a t u r e . F o r the l o n g e r service employees, these a l l o w a n c e s run for 26 weeks. U n d e r the total p e r m a n e n t disability benefit plan, the benefits described b e l o w are paid to those w h o are totally a n d p e r m a n e n t l y disabled, the p a y m e n t s c o m m e n c i n g at the end of 2 6 w e e k s of disability. 1 . O n total a n d p e r m a n e n t disability b e f o r e the completion of 1 5 y e a r s of service a n d before a g e 6 0 , the disability benefit is the total death benefit c o m p u t e d at that time, payable in equal m o n t h l y installments of o n e - t h i r d of the m o n t h l y salary f o r the last c a l e n d a r y e a r . I f death occurs b e f o r e the total a m o u n t of the disability benefit has been paid, the balance is paid the beneficiary. 2 . O n total a n d p e r m a n e n t disability a f t e r the completion of 1 5 y e a r s of service, the disability benefit is the retirem e n t a n n u i t y a c c u m u l a t e d to the date of disability. 3 . D e a t h benefits continue to a g e 6 5 f o r m e n a n d 6 0 f o r w o m e n , u n a f f e c t e d by p a y m e n t of disability benefit in case of disability o c c u r r i n g a f t e r completion of 1 5 y e a r s of service. D e a t h benefits are reduced by the a m o u n t of the disability benefits paid in case of disability o c c u r r i n g b e f o r e completion of 1 5 y e a r s of service.

T h e retirement age was set at 65 because an earlier age would have been considerably more expensive. If the normal age had been set at 60, the cost would have been increased by 65 per cent. It was necessary that the annuities should be based upon the entire salary over the years of employment because the plan is a group annuity one with payments related to the liabilities accruing each year. It would not be possible to predict with accuracy the final salary or salaries during the last five or ten years of employment, which is a basis used by numerous companies. T h e plan provides an annuity equal to two per cent of the

EASTMAN

KODAK

COMPANY

73

salary for each year of service after January i , 1 9 2 9 . It was found that this would be equivalent to one and one-third to one and one-half per cent of the final salary. 7 In case a man leaves the company after 20 years of service, he receives a paid-up annuity beginning at age 65 (60 for women). T h e plan also provides that at any time after attaining the age of 55 ( 5 0 for women), a male employee with 20 years of service ( 1 5 for women) may receive an adjusted annuity. T h e latter, of course, would be lower than that paid at the normal retirement age in order to compensate for the lessened time during which the annuity principal is accumulated. T h e entire payment of the premiums to the insurance company is made by the company, and the latter maintains a staff at its main office for the supervision of the plan. Although the retirement annuity, disability, and life insurance are covered in one contract, it is provided that any of the features can be cancelled if desired by the company. Although the company cannot regain the money already paid to the insurance company, it can request upon suitable notice that this money be turned over to some other insurance company. Consequently, the employees are assured that the money can be used for pensions alone, but the management is not tied permanently to one insurance company. T o summarize the benefits that have been secured from the sickness, retirement, and disability plans, they include weekly payments in case of sickness; life insurance equal to a salary of one-half to one year; a retirement annuity somewhat more liberal than the average; and in the case of disability, the face of the life insurance policy if service is short, and the retirement annuity if it is long. In addition, the company began to pay, in 1 9 1 2 , an annual " w a g e dividend" to each employee with the necessary service to be eligible. It has also helped its employees to finance their homes through the Kodak E m ployees Association, and the Eastman Savings and L o a n As' F o r each y e a r of service p r i o r to 1 9 2 9 , the a n n u i t y equals 1 per cent of s a l a r y . T o h a v e m a d e it 2 per cent w o u l d h a v e doubled the cost of meeting the accrued l i a b i l i t y .

74

EXECUTIVE

GUIDANCE

sociation. Members may borrow from the association if they can make a cash payment of from 1 5 per cent to 22 per cent of the appraised value of the property, and if they are in a position to make monthly payments of 1 per cent of the amount borrowed. I n 1 9 3 1 , the Eastman Kodak Company, in cooperation with a score of other Rochester firms, adopted an Unemployment Benefit P l a n providing for the accumulation of a reserve fund from which benefits might be paid to employees on account of slack work. T h e payment of benefits was delayed until January 1 , 1 9 3 3 . T h i s plan is significant because it represents a cooperative attempt of the employers of an industrial community to experiment with unemployment reserves. Most of the companies signing the agreement had previously used one or more of the well known methods of stabilizing employment by scheduling production at an even rate, building up finished inventories during slack seasons, doing repair work to keep the force employed, and spreading employment. T h e y recognized, however, that depression creates problems too great to be solved by the management of an individual company, and that the alternative is to build up reserves in good times which can be used to mitigate the ill effects of wholesale unemployment. Under the reserve plan, employees with one year of service and weekly earnings of less than $ 5 0 are eligible. T h e fund (which it is suggested should be trusteed) is built up by annual company appropriations to two per cent of the payroll until it equals five annual appropriations. Income from investment is added to the principal. During a prolonged period of unemployment, the management may declare that an emergency exists in case the f u n d proves inadequate. In such an event, all officials and employees not receiving unemployment benefits are assessed one per cent of their earnings. T h e plan in each company is administered by a committee appointed by the management, and the unemployment benefits equal 50 per cent of the average weekly earnings of the unemployed person with a weekly maximum of $ 1 8 . 7 5 . T h e average is deter-

EASTMAN

KODAK

COMPANY

75

mined over the last three months of e m p l o y m e n t . Benefits begin after two continuous weeks of u n e m p l o y m e n t a n d continue f o r a period ranging f r o m six to thirteen weeks d e p e n d ing upon the length of service. E m p l o y e e s whose earnings are reduced by part-time e m ployment because of slack work are paid the difference between the actual earnings and the amount which they w o u l d receive in benefits under the plan. S i m i l a r benefits are paid to employees securing temporary work with other concerns, but if the outside jobs secured are permanent, the benefits cease. T o receive the benefits, the employees laid off must report to the company as frequently as the latter m a y require. T h e fact that the contributions to this plan are made only by the company simplified the clerical work of its administration. It is provided in the plan that no benefits shall be paid to employees unemployed on account of strikes, nor to those discharged f o r cause, nor to those w h o f a i l to take " s u c h steps as m a y be required to secure e m p l o y m e n t or w h o f a i l to accept a transfer to a reasonable j o b either with the company or e l s e w h e r e . "

Wage

Payment

T h e majority of the workers in the E a s t m a n factories are paid on a premium system. In addition, the company adopted in 1 9 1 2 its w e l l known " w a g e - d i v i d e n d " plan, under which extra compensation was paid each y e a r when a d i v i d e n d of $ 1 .OO or more per share was declared upon the common stock. 8 I n 1 9 2 9 , the percentage of salary paid as a w a g e dividend was reduced f r o m three and one-half per cent to two and one-fourth per cent, as a result of a change in the basis f o r computing dividends so that the difference might be used to p a y the premiums of the retirement annuity, l i f e insurance, and disability insurance plan. Each eligible e m p l o y e e with at least " T h e f o r m u l a f r o m 1 9 2 3 to 1 9 2 8 w a s as f o l l o w s : F o r each d o l l a r of d i v i dends declared d u r i n g the c a l e n d a r y e a r upon shares of the c o m m o n stock of the c o m p a n y o v e r and a b o v e $ 1 . 0 0 per share, the w a g e - d i v i d e n d rate is $ 5 . 0 0 per thousand d o l l a r s of salaries and w a g e s p a i d to e m p l o y e e s d u r i n g the past five c a l e n d a r y e a r s .

76

EXECUTIVE

GUIDANCE

six months' service in the wage-dividend year receives a percentage of the total wages or salary paid to him during the preceding five calendar years. T h e company emphasizes that it has not considered the dividend a substitute for wages, and that a wage dividend is a form of profit sharing, though not on a strictly pre-determined basis. T h e dividend declared on the common stock, is, of course, declared at the discretion of the board of directors. T h e return to the employees in the form of a wage dividend is directly proportionate to the dividend return to the stockholders, and a prosperous year for the company is automatically reflected in the wage-dividend rate. M a n y of the results of the plan are, of course, indirect and difficult to measure in concrete terms, but the company feels that it is appreciated by the employees and that it exerts considerable influence in stabilizing the working force and in reducing turnover.

Suf-ply and Maintenance of an Effective Working Force In addition to providing free legal advice, cafeterias, vacations with pay (one to two weeks for office and salaried employees), and facilities for recreation, the company was one of the pioneers in its safety work, and has used a suggestion system since 1898 and psychological tests since 1 9 1 8 . At the Kodak Park Works, the company's largest plant, tests have been prepared after careful job analysis. These were begun in a small way as a basis for the placement and training of girls in the film-finishing department. So satisfactory were the results of these early tests that their use has been gradually extended until today all applicants for factory positions in this plant are tested, and the successful applicant placed on a job in the class for which the test rating shows him or her best qualified. Approximately 1 9 , 0 0 0 tests, including 3,200 clerical tests, have been given at Kodak Park, where the tests for all Rochester employees of the Eastman Kodak Company are conducted. T h e results have been used not only for the selection and

EASTMAN

KODAK

COMPANY

77

placement of clerical applicants from without the plant, but for those being transferred from factory to office positions. T e s t s have also been given to prospective time-study men for the department of industrial economy and to prospective foremen. T e s t s are not considered as absolute guides but as merely indicative. T h e y are not intended to take the place of the e m ployment interview, but simply to give additional information to the employment manager. E a s t m a n Kodak was one of the pioneers in adopting a plan for paying employees for ideas. Its plan was originally put into operation at the Kodak Park W o r k s in 1 8 9 8 , and has since been expanded to cover all plants and all classes of employees, except those employed in an executive capacity. T h e f o l l o w ing classification gives the various types of suggestions in the order of their importance to the company. 1.

C o s t reduction

2.

N e w products a n d i m p r o v e m e n t of p r o d u c t

3.

I m p r o v e m e n t of m a n u f a c t u r i n g a n d office methods

4.

R e d u c t i o n of fire a n d accident h a z a r d

5.

General maintenance

T h e fire and accident prevention of the entire company is in general charge of one person, the general safety supervisor, who devotes his time exclusively to this work. E a c h plant also has its own safety engineer, assisted by a plant safety committee. T h e plant representatives and the general safety supervisor together form an executive safety committee, h a v i n g periodic meetings to discuss its problems and to plan the accident prevention work in general. A constant effort is made through the provision of adequate mechanical safeguards and through frequent inspections to prevent accidents. It is realized, however, that the problem can be effectively met only through the exercise of reasonable caution on the part of each individual and by a prompt report to the medical department of every i n j u r y no matter h o w slight. T o accomplish the purpose, responsibility for the prevention of accidents has been placed on the supervision in each department, and educational safety work is systematically car-

78

EXECUTIVE

GUIDANCE

ried on through bulletins and circulars and through personal instruction by members of the safety committees and department supervisors. Particular importance is attached to securing the f u l l cooperation of the foremen in this work and having them accept their responsibility. In addition, the company has emphasized its medical and dental work and its eye treatment. The medical staff consists of the director, six other physicians, three of whom are on fulltime and the others on part-time, and ten trained nurses. Dispensaries, with a physician or nurses in attendance, are maintained at the different plants. Upon request, periodic reexamination is made of all employees, including executives. Work in the field of nutrition was recognized as an integral part of the medical service on J u l y i , 1 9 2 2 , when a nutrition adviser was added to the medical staff. Employees who, through the medical department's physical examination, are found under-weight or in need of special diet are referred to the nutrition adviser with whom individual conferences are held until the defect is remedied. The company, through cooperation with the dental clinic, provides dental cleaning and inspection, and also provides eye examination by an oculist upon request by the employee. A current development in the Eastman program which is worthy of especial attention is the training of supervisors. Its direction is centered in one individual at headquarters, who directs the preparation of the assignments and cooperates with those executives who lead the discussion meetings of the foremen and other supervisors. T h e method followed is a combination of text material and discussion, with the emphasis upon the latter. Since each supervisor has a mimeographed assignment in advance, the discussion itself can be centered upon questions and problems that relate directly to the company and to the application of the principles of management and supervision. In order that the work might be accomplished smoothly and effectively, the program was "tried out" upon the executives, who later served as leaders for the various departmental

EASTMAN

KODAK

COMPANY

79

groups. Questions upon which there was difference of opinion or upon which the company policy had never been stated with clarity came to light and were often settled during this process. W h e n the notes of these discussions were edited, the discussion of debated points was sent to the appropriate officer for action, and that which had proven satisfactory for foremen's groups was transmitted to each leader. T h e combination of these notes and the assignments served to keep the instruction uniform and to insure that similar questions were discussed in each plant and group. Although this development centered upon the training of foremen, the method just described broadened the scope so that questions of interest to general management came to be included. In short, it represents a carefully designed and administered plan of supervisory training from which there emerged valuable by-products.

THE

EDISON

ELECTRIC

C O M P A N Y OF BOSTON,

ILLUMINATING

BOSTON1

MASSACHUSETTS

A m o n g the electric light and power companies, the influence of M r . Charles L . E d g a r was marked. Relatively unknown outside his own industry, he became known within it both for his experimentation in the field of electrical engineering and for his farsighted approach to the human problems arising in utility concerns. This statement deals with the personnel policies pursued by him as president of the Edison Electric Illuminating Company of Boston until his death in April 1932. During the eleven years that he was general manager and the thirty-two years that he was president, M r . E d g a r was an outstanding example of the administrator whose expertness is not confined to one field only. H e was not only a financier and an innovator of developments in the use of physical equipment but he had the gift of so treating his associates as to create teamwork and esprit de corps. Part of this gift was displayed in his ability to use the conference method in order to draw out the best in his associates j part of it was displayed in his philosophy of industrial relations which left its stamp upon his own company and upon the industry. Evidence of his leadership is shown by the fact that he initiated a pension plan, the service annuity fund, as early as 1 9 1 3 .

Place of the Employment Bureau in the Organization Although it cannot be described as a completely centralized personnel department, the employment bureau concerns itself with all the appointive positions in the company. It is one of the seven bureaus reporting to the general manager, and includes two departments, employment and medical. 1 Product: electrical service. Number of employees: 1 9 3 1 — 3 , 5 6 0 ;

80

1932—3i4oo.

EDISON ELECTRIC

(BOSTON)

81

Methods of Counteracting Irregular Production and Employment In an electric company, operations are, of course, unusually constant, and when the management of such a concern is interested in retaining its employees, its record for stability is likely to be exceptional. This is the case with Boston Edison. Since 1920, its ratio of labor turnover on an annual basis has never been higher than 28.3 per cent, and since 1927, it has been under 14.5 per cent. As a result, 75 per cent of the total working force have been employed longer than five years and 41 per cent over ten years. In order to stabilize employment during depression, the working time was reduced to five days per week for most of the employees, and to four days or three days for about five per cent. This staggering of work among the force (exclusive of supervisors) restricted the layoffs between 1930 and 1932 to less than ten per cent of the original force. Financial Provisions to Enhance Employee Security Boston Edison is unusually liberal in providing for the protection of its employees against sickness, accidents, death, and a penurious old age. If employees become disabled off duty through either sickncss or accident, they are continued on their departmental payroll for two weeks and are then transferred to the disability payroll. They are carried on the latter at full pay for thirteen weeks, three-quarters pay for an additional thirteen weeks, one-half for seventy-eight weeks, and onequarter pay for 396 weeks. If disabled from an accident while on duty, the employee receives not only the amount provided by the Workmen's Compensation Act of Massachusetts, but in addition, he receives from the company the difference between this amount and the above schedule for a maximum of 500 weeks or for a fourth of the number of weeks of continuous service, whichever is the lesser. If a permanent employee dies from natural causes or from an accident while off duty, an allowance is made to his dependents, if any, of $100. This amount is increased by $50 for

82

EXECUTIVE

GUIDANCE

each year of continuous service, with a maximum of $ 6 0 0 , which is increased to $ 1 2 0 0 after twenty years of service. If no dependents exist, the allowance for funeral expenses f o l lows the above f o r m u l a , except that the maximum payment is $ 2 0 0 . T h e payment of death benefits to the dependents of those on the executive payroll varies with length of service and salary, and is discretionary with the president. A pension plan, the service annuity system, was started in 1 9 1 3 at the instance of M r . E d g a r and amended in 1 9 2 8 to safeguard by individual contracts the pensions of employees above 5 0 years of age and 1 5 years of service. T h e plan was initiated after experts had made an estimate of the probable cost to the company and a statistical study of the personnel involved. T h e plan adopted called for the accumulation of a f u n d by sums set aside by the company from time to time. P r o vision was made for placing it in trust with a local banking institution and for conserving it strictly f o r pension purposes as long as any such obligations remain. These provisions and safeguards are incorporated in the trust agreement. T h e age of retirement f o r men is 65 and for women 55 years. T h e feature of this plan that is of special interest is the making of an individual contract with each employee over 50 who has 1 5 years of service in order to protect against the loss of pension in case of layoff or discharge before the regular retirement age. T h e reasons f o r this change in policy are presented in M r . E d g a r ' s announcement. " F o r the past fifteen years this Company has had in operation a pension plan which has been modified during the past year to make it somewhat more liberal. " W h i l e pension plans have become more or less a fixed practice in industry, neither this Company nor any other, so f a r as I have been able to learn, has had a pension plan which assured its employees that the pension would be granted and continued through life. " A method f o r accomplishing this last result, as f a r as it seems practicable to do so, has been developed and has been put in force by a vote of the B o a r d of Directors on December

EDISON ELECTRIC

(BOSTON)

83

1 8 , 1 9 2 8 . T h e method used is that of a personal contract between the Company and the employee, which is so drawn that it is a legal obligation of the Company and is backed up by its entire resources and property. " T h e s e contracts will be executed with those employees who, having completed fifteen years of service, have reached the age of fifty, with those who have completed thirty years of service, and with those who are now receiving pensions." T h e practical problem of initiating this protection during the pre-retirement period has necessitated four types of contract that are all legal obligations, but different with respect to their limitations as to conduct, dismissal, and resignation. Series A applies to those on the payroll at the initiation of the plan who had completed 1 5 years of service and attained the age of 50. It provides protection against the less of pension in case of dismissal or resignation resulting from certain causes. Series B covers those on the payroll at the initiation of the plan who have to their credit 3 0 or more years of service regardless of age, and also any men over 60 (and women over 5 5 ) who have 20 years or more of service. This contract provides that, until actual retirement, the status of the employees is the same as under Series D . T h e latter provides that those with 1 5 or more years of service who are qualified by age may retire whenever they choose to apply. Series E applies to those already pensioned and unconditionally guarantees protection for life. T h e Edison Savings F u n d provides a channel for employee savings by payroll deductions. T h e money is used by the company in return for five per cent interest. T h e superintendent of the employment department also administers a loan fund from which employees may borrow up to a maximum of $ 5 0 0 and repay by weekly payroll deductions.

Wage Payment Although employee earnings have fallen during depression because of the decrease in working time, basic wage rates have not been reduced. T o guide the setting of salaries and wages,

84

EXECUTIVE

GUIDANCE

a systematic wage schedule has been developed to aid in leveling out the lack of uniformity between departments. It is not based, however, on a detailed analysis of each job. Most of the employees are on a straight salary basis rather than on an incentive basis, and overtime rates ("time and a h a l f " ) are paid to the majority. Supply and Maintenance of an Effective Labor Force Before making or, at least, before announcing his decision on an important question, it was the custom of M r . E d g a r to bring together a group of his associates in order to get the benefit of their knowledge and opinions. Debate concerning the pros and cons involved in a problem necessarily develops in the organization familiarity with problems that arise and the habit of thoughtful analysis. In addition to this informal educational process, which was part of the administrative technique, formal training was fostered. A l l new employees, including salesmen, were routed through all the principal operations in the company as observers for a period of three to six weeks. Moreover, the admission of employees to colleges and institutes in Boston was facilitated, so that the training may be said to have combined vocational and cultural education. T h e medical work has emphasized prevention, and as part of its program has offered to the employees the benefit of a medical examination by the L i f e Extension Institute. T h e sickness records of the concern are unusually complete, and have made possible a rather exhaustive study of the health experience of its employees by M r . Dean K . Brundage of the United States Public H e a l t h Service, which reveals data of interest. 2 " T h e toll of sickness and accidents during the 1 0 years reviewed was equivalent to an annual experience of 8.9 calendar years of disability per male and 14.0 calendar days of disability per female on the payroll. A f t e r adjusting for differences in the age of distribution of the two sexes, there were ' Bulletin

of the United States Public Health Service, February 25, 1927.

EDISON

ELECTRIC

(BOSTON)

85

202 absences from sickness, exclusive of accidents, among the women to every 1 0 0 male absences." Among the men, sicknesses caused 1 2 times as many absences as industrial accidents, while among the women, the ratio was 1 7 1 sicknesses to 1 industrial accident. Respiratory diseases caused approximately one-half of all the absences and 40 per cent of all the time lost on account of sickness among the men. T h e days of disability were equivalent to 1.4 per year per man and 2.1 per year per woman. T h e vacation arrangement differs according to the class of work on which the employee is engaged. Workers in classes A and C who have between six months and one year of service are allowed vacations with pay at the rate of one day of vacation per month, and those whose service exceeds one year receive two days per month. A l l employees in Classes B and D who have completed five years of continuous service are allowed a six-day annual vacation with pay. This company is a typical example of the fine personnel relationships that occasionally can be traced to the philosophy and personality of an outstanding leader provided he is in the company for sufficient length of time to leave his impress and provided the competitive situation is favorable. In this case, M r . E d g a r was an outstanding executive less known throughout the country than his work merited. H i s philosophy flowered in an industry during the early years of its life when growth was rapid. Moreover, the very nature of the industry has provided in the past a certain freedom from the form of competition which undermines constructive developments in the field of personnel.

GENERAL ELECTRIC COMPANY1 SCHENECTADY, N E W YORK

"Fortunately we are making great progress in America in these difficult relationships [in business]. W e are trying to think in terms of human beings—one group of human beings who put their capital in, and another group who put their lives and labor in a common enterprise for mutual advantage. . . . W e think of managers no longer as the partisan attorneys for either group against the other. Rather we have come to consider them trustees of the whole undertaking, whose responsibility is to see to it on the one side that the invested capital is safe and that its return is adequate and continuous; and on the other side that competent and conscientious men are found to do the work, and that their jobs are safe and their earnings adequate and continuous." This statement by M r . Owen D . Young gives the reader an inkling of the labor philosophy behind the General Electric program of industrial relations. T h e program itself is of significance because of its plans of unemployment reserves ( " u n employment pensions"), and the completeness of its provisions for employee security. It is also of interest to specialists in personnel management because of the unusual degree of compulsion brought to bear upon employees to participate in the contributory features. Place of the Personnel Department

in the

Organization

In each plant of the company, there is a functionalized personnel department reporting to the plant manager. T h e co1

N u m b e r of employees: 1 9 3 0 — 7 8 , 0 0 0 ; 1 9 3 1 — 6 5 , 5 0 0 ; 1 9 3 2 — 4 7 , 0 0 0 . Products', electrical equipment, apparatus, and appliances; heavy machinery and equipment f o r g e n e r a t i n g , transmitting, and utilizing electric p o w e r ; incandescent l a m p s ; and ventilating apparatus. Location of plants: E q u i p m e n t is manufactured at Schenectady, N . Y . ; West L y n n , Mass. ( 2 plants) ; and in 8 other cities; and incandescent lamps a n d radio tubes in 1 2 different cities. In addition, there are a score of subsidiary companies, such as the C a n a d i a n G e n e r a l Electric C o m p a n y . 86

GENERAL

ELECTRIC

87

COMPANY

ordination and standardization of personnel policies and practices among the various plants is effected through the vicepresident in charge of manufacturing.

Methods of Counteracting Irregular Production and Employment Naturally, the methods used to stabilize employment vary with the situation to be met. In the incandescent lamp factories the company began, in 1 9 3 1 , to guarantee a definite amount of work each year, the demand for incandescent lamps being sufficiently stable to make such a guarantee possible. A t first, the company guaranteed 50 weeks of 30 hours each, but this provision was changed in 1933 to 1,500 hours a year for the sake of greater flexibility. In the plants making heavy equipment for central power plants, however, such a guarantee is impractical for the volume of orders fluctuates violently at various stages of the business cycle. T h e effect of depression upon the General Electric sales volume is linked with the fact that its most important lines of product are capital goods. Consequently, in 1 9 3 1 , the company adopted a policy to guide the operating managers of such plants in the direction of more stable employment. Quite logically, this policy emphasizes conservatism in expansion in boom times as the best precaution against severe readjustment and layoff in depression. T h e company proposes to keep the number of workers on its payroll uniform by working them overtime during the peak periods and shortening their hours when orders shrink. In addition, the policy includes the transfer of men from slack to busy departments, the accumulation of plant improvement jobs for the dull seasons, and the building up of stocks of standard product when new orders are slack. T h i s policy is well worth stating in detail. A.

When

business is

increasing:

I . Increase the w o r k i n g s l o w l y as possible.

force

by

adding

employees

as

88

EXECUTIVE

GUIDANCE

2. Increase the number in especially busy departments by transfers from other departments. 3. Resort to overtime in particular departments and generally before increasing the working force. 4. Postpone plant renewal and maintenance work as much as possible, employing the men on regular production. B . When

orders begin to jail off :

1. Cease hiring at once. 2. C u t out all possible overtime and bring departments down to the normal week. 3. T r a n s f e r people from slack to busier departments. 4. Stimulate the sales department to secure cooperation from customers and get business for future delivery. 5. Build standard apparatus for stock up to a certain number of months' shipments, based on average of last three years' sales, adjusted to expectation of next t w o years. 6. See that stocks at all factory and district warehouses are brought up to this maximum. 7. Use men on maintenance and repair work, bringing the plant and equipment up to a high standard. 8. C u t the working week as generally and gradually as possible, by departments ( d o w n to 50 per cent of the normal w e e k ) . 9. Proceed with construction of increased plant facilities previously planned, employing own men as far as possible. 10. D r o p new employees with less than one year of service—single people with no dependents and w h o are most easily spared first—always with not less than one week's notice. 1 1 . In accordance with the custom established for some time, employees should be told whether it is a temporary layoff due to lack of work, or permanent layoff, and in every instance of permanent layoff, the usual compensation, if any, should be paid, depending upon the character of w o r k , age, and length of service.

Financial Provisions

to Enhance Employee

Security

Side by side with the policy to stabilize employment is the unemployment pension plan. It was planned years ago to ameliorate the effects of layoffs from seasonal and cyclical causes. Actually, it was initiated under emergency conditions.

GENERAL

ELECTRIC

COMPANY

89

T h e plan as originally contemplated is, therefore, somewhat different from the plan in operation. On August i , 1 9 3 0 , the scheme was adopted, by vote of employees, in all of the apparatus plants. In establishing the plan, the company embodied four principles which it considered important. 1 . Joint and equal contributions by the employees and the company. 2. Joint participation in the administration of the plan. 3 . Assistance f r o m the group as a whole for those in need or w h o become wholly or partially unemployed. 4 . D u r i n g emergencies, the aid of those in trouble by the equal contributions of the company and those not ordinarily a f fected by unemployment.

T h e company created a trust fund, to which both company and employees contribute, administered in each plant by four to sixteen administrators, half of whom are selected by the contributing employees and half by the manager. F o r two years, the company agreed to pay the entire expense of administering the f u n d and to pay interest on it at the rate of five per cent, compounded semi-annually. In normal times (that is, when an emergency has not been declared to exist), the contributions to the fund are as follows: 1 . F r o m the company, an amount to match the employee payments. 2. F r o m all employees w h o voted to participate, a contribution of one per cent of their weekly or monthly earnings for three years. T h e s e normal payments are to be suspended w h e n e v e r an individual's earnings fall below 5 0 per cent of his average full-time earnings. 2

T h e rules for disbursing the fund provide for a six-months' period of accumulation after its creation, and then for disbursements only to employees who have made normal contributions for six months. Of these normal contributions, 27 per cent may be disbursed in the form of employee loans, 3 ' I t w a s p r o v i d e d in the p l a n that in each p l a n t 60 per cent of those e l i g i b l e must p a r t i c i p a t e f o r the p l a n to become e f f e c t i v e . T h e a c t u a l acceptance w h e n the p l a n w a s first voted upon w a s 77 per cent.

90

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GUIDANCE

per cent for payments to employees or pensioners in need, and the remaining 70 per cent for unemployment payments. T h e disbursements to member employees laid off on account of lack of work are at the rate of 50 per cent of his average fulltime earnings with a maximum of $ 2 0 per week. Member employees whose earnings are reduced below 50 per cent of their average pay by part-time employment are entitled to the difference between that actually received and the 50 per cent figure.3 T h e foregoing description applies to normal periods only. During "bad times," the plan provides that an "unemployment emergency" is to be declared if the weekly payments of unemployment benefits exceed two per cent of the average weekly earnings of the contributing employees during the preceding quarter of the year. Thereupon assessments of one per cent are made upon all executives and employees who are receiving 50 per cent or more of the average full-time earnings until the trust fund is built up to 75 per cent of its previous level. 4 These additional contributions are matched by the company. It so happened that at the very moment when the unemployment plan was adopted (August i , 1 9 3 0 ) orders were declining rapidly. Consequently, on December 1 , 1930, President Swope, after consultation with employee representatives, initiated a substitute emergency arrangement for the regular plan because the latter's period of accumulation had been so short. It provided for emergency contributions and reduced " O n e of the critical points in the administration of a plan of u n e m p l o y m e n t reserves is the definition of " u n e m p l o y m e n t . " In this case, it has been defined as f o l l o w s : " U n e m p l o y m e n t commences w h e n a contributing employee is l a i d off because of l a c k of w o r k . U n e m p l o y m e n t ceases when such e m p l o y e e is o f f e r e d suitable w o r k w i t h i n the c o m p a n y , at a rate of compensation not less than the r e g u l a r rate n o r m a l l y paid f o r such w o r k , that w i l l result in e a r n i n g s of at least 5 0 per cent of his n o r m a l h o u r l y e a r n i n g s , and not less than his w e e k l y u n e m p l o y m e n t c o m p e n s a t i o n . T e m p o r a r y w o r k outside the c o m p a n y s h a l l not influence a c o n t r i b u t i n g e m p l o y e e ' s e l i g i b i l i t y f o r part-time p a y ments, but such p a y m e n t s can o n l y be m a d e a f t e r investigation by and w i t h the a p p r o v a l of the l o c a l a d m i n i s t r a t o r s . " * T h e e m e r g e n c y p l a n superseded the r e g u l a r one so that no one paid both contributions a n d assessments at the same time.

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the maximum benefits from $ 2 0 to $ 1 5 per week for ten weeks. Loans were then made up to a maximum of $ 2 0 0 , which was later raised to $300. On November 1 , 1 9 3 1 a special guarantee plan was adopted for the ensuing six months by which the assessment upon all employees was raised to two per cent of their pay. Upon its expiration, most of the plants, excepting that at Schenectady, reduced the contribution again to one per cent. On J u n e first of that year, it was decided to furnish food instead of cash, although a little cash was supplied at Schenectady to cover gas and light. In the middle of 1 9 3 4 , salaried employees who were not members of the plan were released from making further contributions. Realization of the help thus provided for associates is said to have won the support of those employees who had until then been skeptical. One man, who had refused to sign up and had influenced others to do likewise, received a loan to help him return home after being laid off. H e thereupon went back to his department in order to tell his foreman and associates that his opinion had been changed. T h e results of the operation of the unemployment pension plan and of the employment guarantee have been as follows: At the end of 1 9 3 3 , the regular trust fund had a balance of $ 3 8 7 , 0 0 0 . T h e unemployment emergency fund had a balance of $ 1 , 2 7 1 , 0 0 0 , having disbursed $3,460,000 out of the receipts of $ 4 , 7 3 1 , 0 0 0 , during the period of thirty-seven months. T h e employment guarantee plan cost the company, in 1 9 3 2 , only $ 1 , 2 5 7 , a n ( i during the first two years of its operation, the employees accumulated $62,000 in the savings fund which is part of the plan. T h e pension plan, adopted in 1 9 1 2 , provides a pension for every employee with twenty years or more of service who attains the age of 70 (60 for women). It is a composite plan with a minimum pension the entire cost of which is borne by the company, and an additional pension plan, adopted in 1 9 2 8 , which is paid for by those employees with one year or more of service who elect to participate. T h e added contribution from the employees of 1 ^ per cent of their annual earn-

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ings has the effect of increasing the company pension by about 50 per cent. Participation in the additional pension plan is a condition of employment after five years of continuous service. T h e r e is an optional retirement provision for men who retire between 65 and 69. T h e adjusted pension at the former age is 1 . 1 6 5 P e r c e n t the average earnings of the last ten years multiplied by the number of years of service. In case of disability, however, an employee may receive relief through the pension plan as early as age 3 5 , provided he has had the required 20 years of service. T h e amount varies from one per cent at age 3 5 to 1 . 4 per cent at age 65 of his average earnings over the last 1 0 years multiplied by the number of years of service. T h e additional pension plan, which has been already mentioned and which is supplementary to that paid for by the company, provides for deductions from the employee's pay ranging f r o m one and one-half per cent for those entering below the age of 28 to 1 5 per cent for those entering at age 60 or over. T h e funds are invested by a board of five custodians. W h e n he is pensioned, an employee may choose the method by which his contributions may be paid to him. H e may take the amount in a lump sum or in 1 2 0 or more monthly payments; he may use it for the purchase of an annuity; or he may take it in the form of securities. If he leaves the company before the retirement age, the employee receives the amount that he has contributed plus the amount that he has earned on it. Group life and disability insurance has also been provided by the company on a composite basis. A minimum amount, ranging from $ 1 5 0 to $ 1 , 5 0 0 , depending upon age at entry, service, and number of dependents, is supplied without cost to the employees. This free insurance terminates upon separation from the company except in the case of pensioners, for whom it is reduced by the amount of the pension. I n 1 9 2 5 , a plan of additional insurance was added. Participation in this second plan is now a condition of employment

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for all male employees after five years of continuous service. N o medical examination is required if the insurance is applied for within thirty-one days after the employee becomes eligible (which is at the end of one year of continuous service), or when, at the completion of five years of service, participation becomes compulsory. T h e amount of additional insurance varies with the salary earned by the employees, and ranges from $ 5 0 0 to $2,000. T h e cost of this additional insurance varies from $0.58 per month per $ 1 , 0 0 0 for employees who enter at age 20 to $4.60 for those who enter at 60 years of age. This additional insurance may be continued by pensioners if they so desire. Moreover, if an individual who is carrying it should become totally and permanently disabled before he is 60, he receives benefits. Supplementing the group life insurance is the mutual benefit association to which all employees are eligible and which has local sections under the jurisdiction of a general chairman. T h e cost to the employee is an initiation fee of $ 1 . 0 0 plus weekly dues of $0.25. These continue until the reserve per member amounts to $5.00, whereupon dues are suspended until the reserve per member falls to $2.50. T h e association provides a moderate death benefit of $ 2 0 0 and the payment of $24.50 per week toward hospital expenses for not more than six weeks in any twelve-month period. In the case of sickness, the payment is $ 1 2 per week for a maximum of fourteen weeks in any twelve-month period. T h e waiting period required prior to the first payment is a week. At the close of 1 9 3 2 , about 50,500 employees were insured for $64,000,000 of free insurance, and $85,000,000 under the additional insurance plan. Since the inauguration of the first plan in 1 9 2 0 , over $9,000,000 has been paid in death benefits to the families of some 4,000 deceased employees or as disability benefits to 569 employees. T h e savings plan was started in 1922 with the formation of the G. E . Employee Security Corporation, whose bonds may be purchased by cash payment or by payroll deductions. T h e

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company has eliminated the danger of a fluctuation or loss of principal invested by its employees by selling to the latter only the bonds of this corporation and keeping the capital stock in its own portfolio. These bonds, of which a maximum of $ 5 0 0 may be purchased annually, yield five per cent interest, with an additional one or two per cent if company earnings increase by specified amounts. These supplementary percentages are paid only to those who are still employees. E m p l o y e e bondholders nominate directors to represent them on the board of the Security Corporation. F o r a decade, the employees have been assisted with the acquiring of their own homes. Over 2,700 homes have been purchased or built, representing a value of about $20,000,000. T h e payments to date are in excess of $8,000,000, the balance being in the form of first and second mortgages held by financial institutions. T o the end of 1 9 3 2 , defaults had occurred in 2 1 cases, and the losses sustained by the company amounted to about $ 2 1 , 0 0 0 .

Wage Payment General Electric uses both individual and group incentives for its manual workers, and in addition, has several plans of extra compensation for its executive groups. T h e extra compensation of the latter is based upon the net profit of the activities under their supervision. T h e payments under these profit-sharing plans amounted to about $750,000 in 1 9 3 2 (paid to 366 employees), and nearly $2,000,000 in 1 9 3 1 (paid to 1 , 7 3 1 employees).

Supply and Maintenance of an Effective Labor Force Since the plants are scattered, each one takes care of its own selection and placement of employees through a functionalized employment department. Before being hired, the selected applicants are given a medical examination, which, at least at the Schenectady plant, is extremely thorough. In fact, the whole medical program is emphasized more than in most companies.

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ELECTRIC

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Educational facilities are provided for the employees at most of the works. T h e most elaborate program is at Schenectady where the following courses are offered: Student engineering course ( f o r graduates of technical engineering schools) Advanced course in engineering Business training course ( f o r both high school and college graduates) In addition, five educational funds are available for the assistance of employees and their children. Throughout the company, suggestion systems have been established to stimulate initiative and to encourage ideas for the improvement of methods and processes. A l l employees whose duties are not of a supervisory nature are eligible. In 1 9 3 0 , 2 9 , 9 1 9 suggestions were received, or 536 per thousand eligible employees. Of these, 3 2 . 1 per cent were adopted, for which awards were paid in the amount of $ 9 4 , 0 9 1 . In eight years, the latter totaled $ 4 6 2 , 1 6 8 . Workers who are paid by the hour receive one week's vacation with pay for continuous service of from three to ten years, and two weeks' vacation with pay for continuous service of ten years or more. On account of business conditions, these arrangements have been in abeyance since the beginning of 1932. Joint Relations A t the Schenectady Works, the workers' council consists of representatives, elected by the employees, and of the manager and such other officials as he may appoint to advise and assist him. In addition to three officers (chairman, vice-chairman, and secretary), the council has four standing committees, composed of employee members only with the exception of the editing committee (on which they are in the majority). T h e officers also are chosen from the "elected," or employee, members of the council. T h e executive committee of seven members is composed of

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five members who represent each of the five geographic divisions (covering from ten to fourteen buildings each) and two who are members at large. Its function is to call council meetings and to take up questions concerning individual workers. T h e editing committee consists of one elected representative of the workers' council and one chosen from the manager's assistants, together with the secretary of the council to supervise all publicity matters. The hospital committee consists of three elected representatives, at least one of whom is a woman, whose duties consist of regular visits to the institutions in which fellow employees may be confined as patients in order to assure them of proper care and attention. The election committee governs and supervises all elections as provided for in the by-laws. It contains five members, one elected from each geographic district in the same manner as the executive committee. If problems arise affecting those in any district, any individual or group may appeal to the councilman, who, after consultation with the shop advisory committee, presents the matter to the foreman either by himself or in company with the parties concerned. If the matter is not adjusted satisfactorily, it is taken to the superintendent of the section. If still unsettled, they (councilman and parties concerned) may then proceed with the executive committee which may, without loss of identity or freedom of action, become a joint committee with equal management representation. Upon failure of this joint committee to arrive at a satisfactory settlement, the executive committee then takes the grievance to the following parties. First—To the manager Second—To the council for instructions T h i r d — T o the vice-president in charge of manufacturing Fourth—To the president F i f t h — T o the council for its disposition Problems affecting all employees in general are referred direct to the executive committee which proceeds with them as in

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the case of individuals. A councilman or an individual may appeal to the council from a decision arrived at by any standing or special committee. T h e council then decides between individual and committee, and either declares the case closed or takes one of the following steps—it may refer the matter back to the committee, or it may appoint a special adjustment committee empowered to proceed.

T H E G O O D Y E A R T I R E AND R U B B E R AKRON,

COMPANY1

OHIO

I n the literature of management, the name G o o d y e a r is associated with the F l y i n g Squadron and with the six-hour shift. L e s s w e l l known but more significant has been the long-continued success of its executives in developing new and i m p r o v e d products. B u t it is its personnel management that concerns us here. F o r a number of years the functions of a foreman have been trimmed down at G o o d y e a r . H e cannot hire, nor can he fire arbitrarily; the labor department does the one, and is consulted about the other. H e need not concern himself about having enough material on hand to keep his department busy f o r this is a responsibility of the scheduling department. H e does not have to see to the transportation of material to or away f r o m his department, f o r this is the j ob of transportation. H i s equipment is kept in repair by engineering maintenance, and his help " b r o k e n i n " by the labor training division. R e lieved of responsibility f o r these functions the foreman at G o o d y e a r can concentrate on his main jobs as a productive leader, which is to see that men, materials, and machinery are used at f u l l efficiency. T h e personnel policies of the corporation are interpreted by the manager of the labor department who reports to the assistant factory manager, but M r . P . W . L i t c h f i e l d (president since 1 9 2 6 ) takes an active part in the formulation or revision of personnel policies. T h e execution of the latter is the r e sponsibility of a series of units, which include the labor d e partment (started in 1 9 1 0 ) , the labor training division, G o o d year Industrial U n i v e r s i t y , and the Industrial Assembly (the works council). ' P r o d u c t s : automobile tires and tubes; rubber hose, heels, and b e l t i n g ; balloons. Number of employees: 1 9 3 0 — 1 9 , 6 0 0 at A k r o n ; 1 9 3 2 — 1 6 , 3 1 0 at A k r o n , and 3 6 , 1 0 0 in all plants. 98

GOODYEAR

TIRE

AND RUBBER

Methods of Counteracting Irregular ployment1

COMPANY

99

Production and Em-

M a n y of the problems of the tire industry center around the wide fluctuations in costs and profits. A tire concern is not only affected by general business but also by independent fluctuations in the cost of one of its basic materials, crude rubber. Plants must carry a four months' supply at all times because of the distance from plantation to factory, and its price at Singapore has been as flexible as the material itself. During depression, the industry paid less than four cents a pound for rubber as compared with $ 1 . 2 0 a pound in 1 9 2 5 . In one year, rubber may constitute less than 2 0 per cent of the factory cost of a tire, and in another almost 50 per cent. Moreover, a price change of one cent a pound may add or subtract a million dollars from the value of the inventory. In addition to attempting to secure more stable production by forecasting sales, Goodyear has secured flexibility through its F l y i n g Squadron, a group of some 500 men. Although the primary function of the squadron is to train its members, the versatility of the latter has enabled it to be used to meet contingencies. T h e force can be concentrated where needed and makes unnecessary the " h a n d y m e n " that foremen so often carry in reserve. Goodyear was one of the first of the well-known companies to spread work by means of the six-hour shift. Started late in 1 9 3 0 , this arrangement kept on the payroll some 3,000 employees who otherwise would have been laid off. In addition, the policy was adopted of replacing by men married women whose husbands were employed so that more families might have a source of income.

Financial Provisions to Enhance Employee

Security

In 1 9 2 7 , the company set aside $ 5 0 0 , 0 0 0 as the nucleus of a pension fund to which one per cent of the total payroll is 1 Until the current depression, employment at Goodyear was relatively stable. F r o m 1 9 2 4 to 1 9 2 9 , the ratio of labor turnover from all causes ranged from 54. per cent to 79 per cent, and the average length of service of thoie in the factory is between eight and nine years.

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added annually. T h e payments are made to an insurance company. Pensions are paid to employees of 1 5 years or more of continuous service upon the attainment of the age of 65 years (60 years for women). T h e amount is one per cent of the aggregate compensation paid to the individual during his employment by the company. Ninety-eight per cent of the workers belong to the Goodyear relief association, each member of which is provided by the company with life insurance ( $ 1 , 0 0 0 for men and $500 for women). In case of need, the widow and children of a deceased employee are often given employment. T h e Goodyear hospital association was founded as a benefit association to provide relief assistance and hospital expenses for non-vocational injury or sickness. In 1 9 3 0 , some 1,739 of its members were assisted by it, the benefits totalling nearly $50,000. Through its compensation division, the company carries its own compensation insurance against accidents to employees while on duty. An arrangement for the purchase of houses on easy terms in the 4 5 0 acre tract at Goodyear Heights was set up in 1920, resulting in an attractive, moderate-priced residential section close to the factory. Wage Payment Goodyear wages are set by analysis of its jobs. Some obviously require higher skill than others. F o r instance, it takes from one to three years to develop a good calendar man, whose job is to coat or impregnate tire fabric with rubber. If the operation is to be done with sufficient precision of gauge, temperature, and pressure for the finished products to be of uniformly high quality, the calendar man must be better paid than his neighbor who merely takes strips of rubberized fabric off the bias cutting machines and puts them on a conveyor. In all, some 10,000 separate operations have been studied as to skill, fatigue, length of time to learn, noise, and discomfort. As new methods were introduced, the operations have been re-analyzed to keep the rates in balance. If rates for tire build-

GOODYEAR

TIRE AND RUBBER

COMPANY

101

ing, for instance, are too high in relation to others, many workers will want to transfer to it. T h e efficiency department has the responsibility for rate analysis, but its conclusions are checked with the practical experience of foremen and production heads. T h e workers themselves, through the Industrial Assemblymen, also review each new rate.\The base rates are thus established after an analysis of the difficulty and responsibility of each occupation, and the form of incentive payment is piecework. It is M r . Litchfield's theory that since the company sells tangible products, not time, it should compensate its employees for output rather than for time.

Joint Relations T h e need for a channel of communication between management and employees in a plant of some 1 8 , 0 0 0 employees caused M r . Litchfield to suggest, in 1 9 1 9 , a shop council, called an Industrial Assembly. This plan, which is also operative in the company's coal mine, consists of a Senate and a House, each of which has an elected officer to preside over it. Some 60 representatives are elected to the assembly, which usually reaches a decision by majority vote. T h e r e are also joint committees on wages, employment and working conditions, safety and sanitation, and welfare and publicity. T h e interest in the elections is such that in the period 1 9 2 2 to 1 9 2 9 , 72 per cent to 81 per cent of those eligible voted in the nominating elections; and 80 per cent to 86 per cent in the general elections. T h e percentage of new members elected to the assembly fell from 66 per cent in the second assembly to 2 1 per cent in the eleventh.

Supply and Maintenance of an Effective Labor Force T h e labor department hires all new employees and is consulted about discharges. It proceeds on the theory that the company needs men who " m a k e out" on piecework rates, and who are stable, not floaters. T o avoid shifting men from one department to another, the attempt is made to choose and

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place them correctly at the outset. T o aid in attaining this result, each of the jobs in the Akron factory has been analyzed as to what physical and mental characteristics it requires. One prerequisite of employment is the ability to read and write English. T h e Goodyear training is twofold in nature: shop training better to equip a man on his job, and general education to broaden his background and enrich his l i f ^ The first of these does not stop when the labor training division "breaks i n " new workers but extends to the retraining of low producers. Goodyear Industrial University, which has as many as 2,000 students, provides the employees with a means of a general education. T h e courses offered are both practical and cultural. T h e y range from blueprint reading to mathematics, history, and economics. Perhaps the most famous training development at Goodyear is the Flying Squadron, which has been mentioned already. It has furnished men for key positions as important as superintendent. It gives men of capacity the opportunity to demonstrate their ability and to find their most useful niche, so that they are often placed in permanent jobs before the completion of the three-year course. T h e recreational activities are significant for two reasons. T h e y are self-starting and self-sustaining. T h e committee for employee activities serves as a clearing house for some 22 organizations that pool their receipts. The company has tried to be neither a Santa Claus nor an old maid aunt by purchasing bats and balls and then telling the employees to go out and play. Their time after hours is considered their own and the company merely attempts to provide the facilities for healthful recreation.

H A R T , S C H A F F N E R AND CHICAGO,

MARX1

ILLINOIS

Industrial law, the most advanced perhaps to be found anywhere, is in evidence at Hart, Schaffner and Marx. T o view its operation, one may appropriately begin where the company and its workers hold court. " A t the head of a plain table sits a big man with a VanDyke beard, a strong voice and a strong, understanding face, M r . Mullenbach, Chairman of the Trade Board. M r . Mullenbach is umpire, paid equally by union and company. H i s position is that of a j u d g e in a court of original jurisdiction. AH day he adjusts the rival claims of company and 'people'; keeping industrial warfare from becoming anything more than verbal conflict; turning out goodwill for firm and people." Such is the setting for trials like that described so vividly by M r . John R . Commons and his associates. 2 A minor union official was charged by the company with being a "trouble maker." H e was a tailor, and in addition, "shop chairman" for the union. T h e job of "shop chairman" involved the discussion of workers' grievances with the appropriate foreman, and under the agreement, he could neither be discharged nor removed from his union position except by trial. This "squat, square-headed, white-faced, phlegmatic J e w " sat down at the table accompanied by two tailors from his shop and the chairman of the trade board. These were the only members thought necessary out of the total membership of eleven, for both sides depended upon M r . Mullenbach's decision. T h e latter sat at the end of the table and along the side were the two union deputies who represented the defendant. One deputy was " a soft-eyed man with a sharp 1 Products: men's clothing (men's and boys' suits and o v e r c o a t s ) . ' Commons, J o h n R., and other members of the Department of Economics, University of Wisconsin, Industrial Government^ p. 1 9 3 .

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tongue and a refined, peculiarly oriental face; the other, a Russian b u l l d o g . " T h e first witness was the shop foreman, a fiery J e w who testified that he had been refused " a n y satisfaction" in the case of a stitcher who was doing bad work. Subsequently, the defendant had said " I am through with y o u . " T h e r e followed testimony that the defendant had lied to gain union recruits. T h e examination of character witnesses required nearly two f u l l mornings, the witnesses including an Irish forelady who "always cried when she got m a d , " and " a l w a y s apologized when she told a girl to shut u p , " knowing the latter to be unladylike. Before the proceedings had been finished, the defendant's constituency disposed of the case by deposing him. T h i s trial is typical of industrial law as it has evolved under the H a r t , Schaffner and M a r x agreement. From this company has emerged the most illuminating American experiment as to the virtues and limitations of industrial law within a single enterprise. In this company, the business executive can see what is probably the highest development to date of a form of industrial government that may become commonplace in the future. T h i s law developed through a series of agreements arrived at by collective bargaining. It is interpreted in turn by an impartial chairman who is in reality both an industrial j u d g e and a mediator. T h e code has been created, piece by piece since the initiation of the 1 9 1 1 agreement between the company and the Amalgamated Clothing Workers of America. It represents a prominent use of employer-union agreements to avoid strikes and lockouts by the arbitration of differences. 3 Supplemented by the precedents set by new decisions, is has proved adequate to settle all the labor questions that have arisen to date. 1

" T h e v e x e d question of a r e m e d y f o r stoppages is raised by this case. T h e L a b o r D e p a r t m e n t asks the b o a r d to support it in using drastic measures to curb this e v i l , and to influence the T r a d e B o a r d to ccase r e v e r s i n g its d i s c h a r g e o r d e r s in that connection. T h e c h a i r m a n is v e r y desirous of c o o p e r a t i n g in r e m e d y i n g this evil but doubts the w i s d o m of a p p l y i n g the e x t r e m e p e n a l t y of d i s c h a r g e in e v e r y case. H e suggests that in the m i l d e r f o r m s of s t o p p a g e , it m i g h t be better to a p p l y the m i l d e r p e n a l t y p r o v i d e d by the a g r e e m e n t ; n a m e l y ,

HART,

SCHAFFNER

AND

MARX

105

T h i s pioneer development has spread to the other clothing manufacturers in Chicago, and to other clothing markets, like Rochester. T h e influence of this company has therefore extended f a r beyond its own walls. In fact, one w o u l d have difficulty in finding a firm that had a greater influence upon its industry. N a t u r a l l y , the credit for raising the manufacture of men's clothing f r o m a sweat shop industry, with a l l the evils that accompany sub-contracting, to one with high labor standards must be divided between the firm's management and the union officials. H o w e v e r the credit be apportioned, it is evident that the successive steps toward higher standards in H a r t , Schaffner and M a r x were followed, sooner or later, by the remainder of the " m a r k e t . " M o r e o v e r , the philosophy of joint relations that it has fostered in conjunction with M r . Sidney H i l l m a n and other leaders of the A m a l g a m a t e d C l o t h ing W o r k e r s of America has aided the latter to f o l l o w constructive tactics rather than policies of mere negation. 4 In brief, this firm has for more than two decades been at the center of a development in the technique of joint relations that bids fair to gain added significance as collective dealing between employers and employees becomes more extensive. a small fine which should be imposed on each p a r t i c i p a n t . T h e e x t r e m e p e n a l t y of discharge could then be reserved f o r the more flagrant cases of s t o p p a g e , and a g r a d a t i o n of penalties a c c o r d i n g to the g r a v i t y of the o f f e n s e could be i m p o s e d . " ( D e c i s i o n A p p e a l Case N o . 3 9 0 , A u g u s t 1 3 , 1 9 1 7 , J . E . W i l l i a m s . ) * " O n the p a r t of the e m p l o y e r it is the intention a n d e x p e c t a t i o n that this compact of peace w i l l result in the establishment and maintenance of a h i g h order of discipline and efficiency by the w i l l i n g c o o p e r a t i o n of union a n d w o r k e r s rather than by the old method of s u r v e i l l a n c e a n d c o e r c i o n ; that g o o d standards of w o r k m a n s h i p and conduct w i l l be m a i n t a i n e d a n d a p r o p e r q u a n t i t y , q u a l i t y and cost of production w i l l be a s s u r e d ; a n d that out of its operation w i l l issue such cooperation and g o o d w i l l between e m p l o y e r s , f o r e men, union and w o r k e r s as w i l l prevent m i s u n d e r s t a n d i n g a n d f r i c t i o n a n d make f o r g o o d team w o r k , g o o d business, m u t u a l a d v a n t a g e and m u t u a l respect. " O n the p a r t of the union it is the intention and expectation that this c o m pact w i l l , w i t h the cooperation of the e m p l o y e r , operate in such a w a y as to m a i n t a i n , strengthen, and s o l i d i f y its o r g a n i z a t i o n , so that it m a y be m a d e strong e n o u g h , and efficient e n o u g h , to cooperate as c o n t e m p l a t e d in the p r e ceding p a r a g r a p h ; a n d also that it m a y be strong e n o u g h to c o m m a n d the respect of the e m p l o y e r without b e i n g f o r c e d to resort to m i l i t a n t o r u n f r i e n d l y m e a s u r e s . " ( P r e a m b l e to the 1 9 1 6 A g r e e m e n t w r i t t e n by J . E . W i l l i a m s , C h a i r m a n of the B o a r d of A r b i t r a t i o n . )

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EXECUTIVE

GUIDANCE

Place of the Personnel Department in the Organization One cannot discuss the place of personnel management in the operating organization of this company without discussing it in terms of the joint agreement. T h e director of the company's industrial relations represents the company on the joint trade board, presided over by an impartial chairman, M r . J a m e s Mullenbach. Under this arrangement, responsible executives of the company not only participate with the union officials in matters of mutual interest within the company, but also in the development of such plans as the unemployment insurance fund adopted in 1 9 2 3 for the entire Chicago clothing market. Because the union has enjoyed a preferential position since 1 9 1 3 , which gives it the first claim upon jobs that are open, the hiring function has in effect been transferred from the management to the union. 5 Consequently, the latter operates an employment exchange, which functions not only for H a r t , Schaffner and M a r x , but for all other clothing firms in the market. It should be noted, however, that the impartial machinery f o r H a r t , Schaffner and M a r x is independent of that for the remaining shops in the market. T h e employment exchange has taken on added duties in connection with the joint unemployment reserve fund, and occupies a key position in the latter's administration. Its recordkeeping is elaborate and has been used as a model for other exchanges established for specific industries. A record is kept of each individual's wages, hours worked, and transfers within a given plant and from plant to plant. T h e calibre of the leaders has not only colored the development of this union-management arrangement, but has been instrumental in its success. M r . Joseph Schaffner, who was the * A s stated in l a t e r C h i c a g o a g r e e m e n t s , the agreement f o r union preference is as f o l l o w s : " P r e f e r e n c e shall be a p p l i e d in h i r i n g and discharge. W h e n e v e r the e m p l o y e r needs a d d i t i o n a l w o r k e r s , he shall first m a k e application to the u n i o n , s p e c i f y i n g the n u m b e r a n d k i n d of w o r k e r s needed. T h e union shall be g i v e n a r e a s o n a b l e time to s u p p l y the specified help, and if it is unable, or f o r a n y reason f a i l s to f u r n i s h the required p e o p l e , the e m p l o y e r shall be at liberty to secure them in the open m a r k e t as best he c a n . "

HART, SCHAFFNER

AND MARX

107

initiator, although distressed by the fact that his employees struck in 1 9 1 0 in spite of the interest that he had previously taken in them, diagnosed the source of the difficulty to be the loss of the old personal relationship between himself and his workers. T o reestablish it, he secured Professor E a r l Dean H o w a r d from Northwestern University to serve as labor manager. Working for his company was another individual destined to occupy a large place both in this arrangement and in American labor leadership. This individual was a young clothing cutter, M r . Sidney H i l l m a n , then 24 years old who had been trained in a Russian rabbinical school. Before he was 1 8 , he had been imprisoned for his activities against the Czarist government, and had used his incarceration to study economics and political science. Upon the advent of this agreement, he turned from his ambition to be a lawyer and devoted himself to the local leadership of the clothing workers. H e is now general president of the Amalgamated Clothing Workers of America, and has come to be recognized by employers and employees alike for his fairness and farsighted policies. Still another who has contributed much to the stability of the arrangement was M r . J . E . Williams, who served as Chairman of the Board of Arbitration from 1 9 1 2 to 1 9 1 5 . T h e influence of his personality upon the joint relations of the two parties was very great.

Methods of Counteracting Irregular Production and Employment Once a code of law had been developed to take care of the grievances arising on the job, attention was devoted to experiments that would increase job security. It was a logical development to move from protection against unreasonable discharge to protection against the loss of job. T h e methods adopted in this enterprise to counteract irregularities in employment are interesting because of the union influence present. 9 " " J o b control for the clothing workers may be summarized in terms of industrial security. . . . Security of tenure in the job on a reasonable basis of

EXECUTIVE

108

GUIDANCE

T h e industry s u f f e r e d both f r o m seasonal

fluctuations

and

a l o n g - r u n decline in the n u m b e r of m e n needed. T h e r e f o r e devices were perfected within the collective bargaining mac h i n e r y to reduce t h e n u m b e r of p e o p l e e m p l o y e d with as m u c h fairness and as little hardship as is possible in this u n h a p p y d i l e m m a . T h e c o m p a n y and t h e u n i o n first a p p l i e d such m a n a g e m e n t devices as appeared practicable and t h e n turned to u n e m p l o y m e n t insurance as a second line of d e f e n s e . T h e e f f o r t s to p r o v i d e g r e a t e r continuity of e m p l o y m e n t i n c l u d e d such expedients as the t r a n s f e r of surplus e m p l o y e e s to o t h e r d e p a r t m e n t s ; the s h a r i n g of w o r k b y the equal division of w h a t w a s a v a i l a b l e ; t h e use of dismissal w a g e s to e l i m i n a t e an excess of cutters. C h a n g e s w e r e also m a d e w i t h respect to the s e n d i n g out of w o r k to be done in homes, or b y contractors. T h e f o r m e r was s t o p p e d entirely. W i t h respect to contract w o r k , the principle maintained in the d e cisions concerning it was that t h e c o m p a n y c o u l d continue to send the same proportion of w o r k to contractors as it has been accustomed to d o in the past. M o r e o v e r , in the allocation of p r o d u c t i o n to sections and w o r k e r s , w o r k m a y be g i v e n to a n y e m p l o y e e e x p e r i m e n t a l l y , but o t h e r w i s e it must g o to the section n o r m a l l y e n g a g e d in that t y p e of w o r k . T h e equal division of w o r k in d u l l seasons was d e c i d e d upon b y a g r e e m e n t , but no r u l i n g s h a v e been m a d e as to t h e specific m e t h o d s f o r d i v i d i n g it. T a k e n t o g e t h e r , these a r r a n g e m e n t s h a v e enabled t h e u n i o n to f o l l o w its announced p o l i c y not to hinder the introduction of i m p r o v e d m e t h o d s nor to force t h e retention of inefficient ones. I t is h i g h l y significant that the union rem e m b e r e d t h r o u g h o u t that, in p u r s u i n g its o b j e c t i v e s , w o r k f o r its m e m b e r s m i g h t be e n d a n g e r e d b y policies too inflexible and restrictive. Since the industry h a d to face a shrinkage in t h e d e m a n d f o r suits, at least f o r those of h i g h e r g r a d e , a good

conduct and g o o d

workmanship

has been assured

w o r k e r s in the

settle-

m e n t o f n u m e r o u s s h o p d i s p u t e s . . . . S e c u r i t y in t h e s t a n d a r d o f l i v i n g e s t a b l i s h e d b y the t r a d e a g r e e m e n t is c o n d i t i o n e d t h e u n i o n a n d is s u b j e c t t o s o m e

by the i m m e d i a t e

fluctuation

bargaining power

c o n d i t i o n s . " G l a d y s L . P a l m e r , " J o b - C o n s c i o u s U n i o n i s m in t h e C h i c a g o Clothing Industry,"

The

American

Economic

of

w i t h m a r k e t a n d n a t i o n a l business Review,

March

Men's

1930, page

35.

HART,

SCHAFFNER

AND

MARX

109

constructive policy on the part of the union was essential if additional jobs were not to be destroyed by the competition of lower cost centers.

Financial Provisions to Enhance Employee

Security

A n unemployment insurance plan, jointly supported by employers and employees, was adopted in 1 9 2 3 for the entire Chicago labor market, and therefore covers the H a r t , Schaffner and M a r x employees. T h e final establishment of the f u n d came after three years of pressure from the union which, in its 1 9 2 0 convention, had adopted a resolution in which the following quotation was embodied. "Justice dictates that the industry which depends upon the workers to keep alive should take care of them when they are unemployed. " T h a t can be done only by the creation of a special fund for the payment of unemployment wages; no gift and no alms, but wages from the industry to the worker. There is no reason why the industry which pays a permanent tax to the various insurance companies in order to indemnify the employer in case of an emergency, should not likewise have a permanent fund for indemnification for lack of work. . . . " B y 1 9 2 2 , unemployment insurance was introduced for the first time into the collective bargaining discussions on the same plane with wages and other conditions of employment. In the negotiations of 1 9 2 3 , the starting of a fund was agreed to prior to the decision on the wage increase by the board of arbitration. When the latter fixed the amount of the wage increase, it stated that part of it was to be used for contributions to the unemployment fund. T h e contribution agreed upon was three per cent of the weekly wages of each worker to be borne equally by the employees and the employers. Since the fund covered all the men's clothing workers in the city, it was necessary to establish an elaborate system of administration. It was essential to keep a record of individual contributions, together with wages received and hours worked by each worker, and the weekly contributions of each firm. In

110

EXECUTIVE

GUIDANCE

addition, the u n e m p l o y m e n t exchange was improved so that the trustees of the funds could be sure that they were not disbursing benefits to those for whom jobs were available. T h e benefits reflected the seasonal nature of the industry. T h e year was d i v i d e d into two periods, M a y to October, and N o v e m b e r to A p r i l , in each of which a worker had to accumulate 4 4 hours of unemployment before he was eligible for benefits. T h e latter was originally 40 per cent of full-time wages, with m a x i m u m limits of $20 per week and two and onehalf weeks per season ( f i v e weeks per y e a r ) . In 1928, the employers' contributions were increased from 1.5 to 3 per cent, so that the total contribution from both parties became 4.5 per cent. T h e m a x i m u m benefit period during any year was also increased f r o m five to seven and one-half weeks, but the proportion of an employee's earnings payable in benefits was lowered f r o m 40 per cent to 30 per cent. A f t e r the initiation of the plan in 1923, a year elapsed before any benefits were paid. D u r i n g the six years that foll o w e d the benefits totaled five and a half million dollars, and the cost of administration equaled six per cent of the money contributed. O n e of the noteworthy points in the evolution of this plan was that the union urged benefits for short-time u n e m p l o y m e n t because it had previously secured recognition of the principle that work should be shared equally among members of a given shop. T h e result of this union pressure is to be seen in the fact that, since 1925, benefits were paid if the time w o r k e d was less than 36 hours per week. Still another question of policy was whether the fund for the Chicago clothing market should have a general fund for the market as a w h o l e or an independent fund for each establishment, the union f a v o r e d the former, but the employers the latter, because individual funds would permit companies to profit if their e m p l o y m e n t was steadier than the market as a whole. 7 H o w e v e r , all of the Chicago firms have adopted identical * T h e contributions of sub-contractors, however, were pooled in a fund for the market. F o r a comparison of the C h i c a g o plan with that of the Rochester and N e w Y o r k clothing markets, see Paul H. D o u g l a s and A a r o n Director, The Problem of Unemfloyment.

HART,

SCHAFFNER

AND

MARX

111

rules and have chosen the same trustees for their several funds in order to reduce the burden of administration. A l l of the necessary records for administering the unemployment fund are collected in a single office. H e r e is tabulated the weekly payroll of each clothing firm in Chicago, showing the earnings and hours of each worker, together with the employer's contribution to the unemployment fund. T h i s information provides the basis for the payment of unemployment benefits. H o w e v e r , unemployment insurance could not meet the problem of excess employees in the industry—-an excess that appeared to be permanent. F o r this situation, H a r t , Schaffner and M a r x has twice used dismissal wages. A decade ago, 3 0 0 cutters were released with a dismissal wage of $ 5 0 0 each. Of this amount, $ 3 0 0 was paid by the company, and $ 2 0 0 from the unemployment insurance fund. T h e second case concerned 400 workers in the tailoring department who were released in 1 9 3 3 with payments of $ 2 0 0 each from the unemployment insurance fund. Wage Payment Wages are, of course, settled by collective bargaining. T h e agreement remains in force for three years, but either the company or1 the union may request a review of rates and hours at any time by filing a request 60 days before the opening of the spring or fall selling season. T h e responsibility for setting piece rates rests primarily with the trade board, referred to later, but for convenience it is turned over to a rate committee of three members. In practice, the rate setting is done almost exclusively by the two members representing the company and the employees. T h e y follow the rule that revisions in "prices" (i.e., rates) must correspond to the changes in the work, and that, when possible, new prices must be based on old ones. T o an extent unusual in collective bargaining, they are guided by time studies. I n case the two committee members are unable to reach an agreement, the matter is taken up with the f u l l committee

112

EXECUTIVE

GUIDANCE

of three, the third member being the chairman of the trade board. If its decision is unsatisfactory to either party, an appeal m a y be taken to the board of arbitration. I n contrast to some highly unionized industries, such as printing and building, many of the operations are on a piece rate basis, the company deciding which work is to be paid f o r in this way. M o r e o v e r , certain decisions of the trade board in 1 9 1 9 established the point that " p e o p l e [are] not warranted [ i n ] stopping work on account of dispute as to applicability of specifications and rate to certain w o r k . " T h e conspiracy of union members to restrict output and for the purpose of deceiving the rate committee and gaining an increase in rate resulted in a fine of $ 5 . 0 0 f o r each of three men. 8 A s to the introduction of labor-saving equipment and improved methods, the board of arbitration decided in 1 9 1 6 that " t h e r e is nothing in the Agreement which prevents the introduction of machinery f o r the purpose of saving and increasing efficiency, even though its introduction may reduce and displace the handworkers usually employed in the a f fected section. But in fixing the scale of wages for the operating of such machinery, the Board believes the company is restrained by the Agreement and by the precedents and practices hitherto obtaining, f r o m reducing the earnings of the workers employed in the section below the average level of the standard provided for in the A g r e e m e n t . " T h e feeling of the board of arbitration concerning the delicate problem of balancing increased efficiency with worker security is brought out by the following statement of M r . W i l l i a m s , made in connection with an appeal. 9 " T h e chairman feels strongly that the company should be supported in its efforts to improve the methods and has no sympathy with the anti-improvement attitude which has characterized some of the trades unions in the past, yet he believes that changes when made should not be at the expense of the worker where it is possible to avoid it. In the present case, he does not feel that the amount of work or saving involved "Decisions of T r a d e Board, A p r i l 24. and 25, 1 9 1 9 . * The Hart, Schaffner and Marx Labor Agreement> igio,

page 22.

HART,

SCHAFFNER

AND

MARX

113

is important enough to make it a test case of the efficiency principle, or that the nice balancing of the factors of efficiency of work and injury to worker really requires to be subjected to the test of adjudication in this doubtful instance." Prior to the agreement, the power to fix piece work rates belonged to the foreman alone, and the workers were exposed to " t h e evils of sub-contracting, speeding, rate-cutting, unfair competition, unfair discrimination and the like." 1 0 T h e wage arbitration and decisions, which occupy a prominent place in the history of this union-management relationship, evolved certain principles for the adjustment of wage rates by means of the impartial machinery. T h e 1 9 1 1 agreement introduced a system of written specifications and prices covering all operations. These specifications cover and describe what is to be done as well as the quality of the work. Changes in them are a primary concern of management, and are therefore initiated by it, but before becoming effective they must be settled by the price committee. Once the specifications and prices have been fixed by joint agreement, they are binding both upon the workers and the shop foreman. T h e y can be changed only by the parties to the agreement, or at their instance, by the trade board. I n order to settle these questions, adequate records are kept of the various operations and the rates paid for them, and time study is resorted to to measure the differences in the difficulty of jobs. T h e principle that has been followed in adjusting piece rates is that a worker is entitled to his "customary earnings as long as he is occupied at his own work or at work requiring an equal degree of skill or effort. If the necessary degree of skill or effort is raised by a change in the required quality of his work or its intensity or in the method of performing it, so that he can turn out fewer garments per day than he produced before, the piece rate for his operation must be correspondingly increased so as to yield the same earnings per hour as he previously received." 1 1 10

Wolman, Leo and Associates, Research Department, Amalgamated Clothing Workers of America, Clothing Workers of Chicago, page 300. " Ibid., page 308.

11+

EXECUTIVE

GUIDANCE

T h e principle of maintaining hourly earnings just r e f e r r e d to does not m e a n that individual earnings of both piece and h o u r l y workers will not d r o p when there is lack of work. O r d i narily time lost by waiting for work in the shop is not compensated f o r if it results f r o m forces beyond the ability of m a n a g e m e n t to anticipate or control. T h e trade board d e cided, h o w e v e r , t h a t if a worker has to wait because the foreman or m a n a g e r has not used reasonable care in supplying him with work, t h e m a n a g e r may be fined but there is no other redress. W h e n e v e r a piece rate is set in advance by estimating t h e difference in output between the work in question and other similar work, the new rates must be tested as to their actual earning power. Consequently, rates set by the price committee and trade board are always provisional and temporary, and " a r e subject to review a f t e r sufficient period of trial to determine their m e r i t . " If piece workers are transferred to hourly rates, it is provided that the latter must be based on his earnings while on piecework. T h e period used for calculating the hourly rates consists of f o u r weeks selected when there was a normal flow of work a n d w h e n the piecework rates were " p e r m a n e n t . " Supply

and Maintenance

of an Effective

Working

Force

T h e service activities commonly supplied by management to h e l p maintain a force of high efficiency are furnished in this case by the union. T h e latter has a large recreation hall, a library, a n d a credit union. T o the extent that such things foster employee loyalty, their provision by the union develops loyalty to it r a t h e r than to the company. T h e y are mentioned here in o r d e r that the reader may not get the misconception that, because the company provides relatively few w e l f a r e activities, its employees are not well provided for in this respect. N e i t h e r does t h e company provide new employees when needed. I t has no e m p l o y m e n t department of its own. W h e n

HART,

SCHAFFNER

AND MARX

115

it needs workers, the foreman sends a request to the shop chairman, who in turn notifies the employment office of the union. T h e latter supplies the necessary help at no expense to the company, and keeps the employment records as well. T h e reason for this arrangement is that the Amalgamated has a preferential agreement with the Chicago clothing manufacturers, which requires the latter to requisition their help through its employment exchange. Although this shifting of the employment function to the union gives it an advantage in collective bargaining, it also imposes upon it the obligation to manage the supplying of workers efficiently. F o r this reason, the exchange was revamped in 1 9 2 2 by M r . Bryce M . Stewart, then chief of the Canadian Public Employment Service. T h e preferential agreement previously referred to applies not only to hiring but to transfer and discharge. If it becomes necessary to transfer workers from one department to another, it is agreed that non-union workers shall be transferred first, unless union workers are willing to go. 1 2 Also, union workers have preference in transfers from lower-paid to higher-paid sections, or operations. T h e need for maintaining an adequate balance of sections and the risk of impairing the efficiency of the organization are recognized. Claims relating to preference are weighed by the trade board so that union preference may be enforced without inflicting substantial injury on the company. T h e principle of preference is likewise applied to layoffs. Those who are not members of the union in good and regular standing must be dismissed first if layoffs are necessary. Then union members may be laid off in the order of their seniority, but an exceptionally efficient worker, or an especially valuable member of the union may be exempted. T h e Hart, Schaffner and M a r x company has been one of the first to reduce its normal working time. A 44-hour week was included in the agreement with the union signed in Januu T h e company has the right to transfer employees f o r the purpose of administration and discipline, subject to review by the trade board.

116

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ary 1 9 1 9 . T h i s marked the advent of the 44-hour week in the clothing industry. In September 1 9 3 3 , the normal working time was further reduced to 40 hours per week. T h e f u l l power of discipline and discharge rests with the company and its agents, but if an employee feels that he has been discharged unjustly, he may appeal to the trade board, which has the power of review. T h e question of discipline has given rise to decisions of considerable interest. In 1 9 1 7 , M r . Williams, chairman of the board of arbitration, handed down the following decision: " I n reviewing this charge of inefficiency the consideration is brought home to the chairman that with each limitation of the power of the company to enforce discipline on its own initiative the responsibility of the two boards grows heavier. T h e agreement is based fundamentally on two things, namely, to maintain efficiency of production, and the efficiency of the union, and the more the power of the company to enforce its own discipline is diminished, the greater the responsibility of the two boards, and the greater the need of cooperation by the union." 1 3 T h e viewpoint of the union toward these matters is portrayed perhaps by the following comments from The Clothing Workers of Chicago published under the direction of D r . L e o Wolman of the Amalgamated. " A n essential condition of an efficient industry is efficient management. . . . In other words, those who manage the industry must be left free to devise such new methods and processes as they conceive to be of technical advantage, and they must have the authority to introduce these changes without undue resistance from the workers affected by them. . . . " B y making executive orders subject to protest by the union and to review and veto by the impartial machinery, the management gains a desirable freedom of initiative while the workers secure a guarantee against injury to their rights and interests. . . . " 1 4 ™ The Hart, Schaffner and Marx Labor Agreement, 1 g 2 a, page 1 7 . " Ibid., pages 196-197.

HART,

SCHAFFNER

AND MARX

117

Joint Relations T h e original H a r t , Schaffner and M a r x agreement was signed in January 1 9 1 1 after a strike of four months' duration, and this agreement has been followed by others adopted in 1 9 1 6 and at three-year intervals thereafter. Its administration is centered in a board of arbitration and in a trade board, together with certain deputies, officials, and representatives of the parties interested. T h e board of arbitration has final jurisdiction over all matters relating to the agreement. It consists of three members, one chosen by the company, one by the union, and a third (the chairman) who is the mutual choice of both parties. Although it concerns itself chiefly with questions of principle and with new issues as they arise, it has the power to decide upon facts as well as principles. T o relieve it, however, from the necessity of deciding the majority of specific grievances, the latter are submitted first to the trade board, which has original jurisdiction over all matters arising under the agreement. Cases brought before it are considered and decided according to the procedure and rules of practice established in the agreement or laid down by the board of arbitration. T h e trade board originally consisted of eleven members, all of whom, excepting the chairman, were employees of H a r t , Schaffner and M a r x . Five were selected by the company and five by the union from the various departments. N o w the workers are represented by the business agent and the shop chairman of the shop where the complaint originates 5 the company sends a representative in addition to the manager of the shop affected. T h e cutters and trimmers still retain their special trade board representative, but the other trades have now substituted their shop chairman. T o the chairman is assigned the responsibility for the successf u l working of the agreement, and it is generally recognized that the personality of M r . Mullenbach, who has been chairman of the trade board since 1 9 1 2 , has played a large part in its successful operation. H e presides at meetings, investigates

118

EXECUTIVE

GUIDANCE

complaints, tries to mediate conflicting interests, and in cases of disagreement, casts the deciding vote. Other officers who have an important place in the machinery are the deputies, delegated by each side to represent it. T h e statements of the two chief deputies are regarded as authoritative presentations of the position of their respective principals. Moreover, an agreement of the chief deputies is observed by both parties, unless reversed or modified by one of the boards. T h e deputies have the power to investigate, mediate, and adjust complaints, and any settlements made by them are binding. T h e procedure followed when a grievance arises in the shop is to have it reported by the worker to his shop representative who presents it without delay to the shop superintendent. These discuss the complaint, but do not argue it. In the event of a failure to agree, both of them report it to their respective deputies, who in turn visit the shop and take such testimony as will contribute toward a just and satisfactory decision. Should they fail to settle it, they certify the case to the trade board for trial, furnishing to the latter a written statement of facts to which they have jointly agreed, if possible. T h e trade board hears cases in the order of their filing. One copy of the board's record is retained by its chairman, and the other given to the chief deputy of the union. All decisions are in writing. If either party desires to appeal f r o m a decision, it must file with the trade board a notice of such intention. O r , either side may ask the chairman of the trade board for an amendment, modification, or a stay of execution. I n case an appeal is carried to the board of arbitration, the chairman of the trade board furnishes a summary of the case giving the main facts and the grounds for his decision. Appeals may be heard solely by the chairman of the board of arbitration, if such action is acceptable to both parties. T h e scope of this judicial machinery is worth noting. It includes grievances of any kind, whether or not the matter is touched on in the agreement itself. Moreover, the initiation by this company of impartial machinery (which required un-

HART,

SCHAFFNER

AND MARX

119

usual faith) led to the evolution, in 1 9 1 9 , of a system of industrial government for the entire Chicago clothing market. It has spread also to other clothing centers, like Rochester. A s the union sees the outcome, the claims of ownership are being "increasingly subordinated to the needs of the industry as a joint enterprise and a public utility. T h e rights of the owners to all possible profits have yielded ground to the demands of expert management for efficiency on one side, and to the human rights and interests of the workers on the other. . . . T h e economic power of the parties to production can express itself in the making and the changing of the laws, but once established by agreement, these laws govern both, and cannot be ignored or violated with impunity." 1 5 Although the distinction between the making of laws and their interpretation has been recognized in this experiment at the outset, it becomes somewhat hidden in the actual administrative detail. W h e n new issues arise, the committees appointed to study them have semi-legislative powers in that their findings may add to the existing " l a w , " but temporarily their work is administrative in character. When possible, the chairman attempts to bring about agreement by mediation in order to avoid rendering a decision which, though it would be obeyed, might disrupt the mutual friendliness of the two parties. H i s decisions therefore are neither his own opinions solely, nor mere technical applications of prior rulings and precedents. T h e goal has been to achieve real justice rather than the mere following of the letter of the law, and as the union sees it, " T h e practice of the adjustment boards has been even better than their theory." Some of the early results secured by the company from the arrangements described herein are brought out in the statement prepared by the company for the Federal Industrial Relations Commission in 1 9 1 4 . " N o t the least of the advantages we have derived from our system is the reaction of the ideas and ideals, first applied to the labor department, upon the other departments and particularly upon the execu" Clothing

Workers of Chicago,

pages 1 9 1 - 1 9 2 .

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EXECUTIVE

GUIDANCE

tive staff of the manufacturing department. Inefficient methods . . . could not long survive when every complaint brought by a workman was thoroughly investigated and the rootcause of the trouble brought to light. " T h e unexpected and indirect results of our labor policy in increasing the efficiency, reforming the conduct, and raising the intelligence of the executives coming into contact with the system have been as profitable and satisfactory as the direct results, that is, the creation of harmony and good will on the part of the people toward the Company." 16 " The Hart,

Sckaffner

and Marx

Labor

Agrecment,

¡920,

page 69.

ILG

ELECTRIC

VENTILATING

CHICAGO,

COMPANY1

ILLINOIS

In contrast to the highly developed programs of large corporations is the almost complete lack of one in the I l g Company. In this regard, it differs likewise from the Samarkand and the Columbia Conserve companies, the other small firms included. In short, Ilg's employee relations may be differentiated from those of the other selected concerns by the emphasis upon flexibility. It has a profit-sharing plan that began when the company was founded, and a flexible fund for employee security that is not part of the assets of the corporation, but is available to help employees meet the emergencies of life. During depression, it has been used for employee loans. T h e unusual feature of the profit-sharing experiment is that it was started with the birth of the enterprise when the latter had only seven employees. Since 1 9 0 7 , bonuses have been paid in all but four years. T h e reserve fund has all the advantages that go with flexibility, chief of which is the fact that the same amount of money will do more work. T h e same fund can be used to meet a variety of needs and, therefore, offers more effective protection to the employees while it lasts. On the other hand, it must be recognized that where a fund is used for unsecured loans to employees during depression, the risk is considerable that the fund will be exhausted when the time comes to provide pensions.

Place of the Personnel Department in the Organization T h e company, having only some 200 employees, does not have a formally organized personnel department. Instead, we find the situation so common in small concerns of the intimate interest in employee affairs by line executives. Needless to ' P r o d u c t s : c o o l i n g , heating, d r y i n g , and ventilating refrigerators. N u m b e r of employees: 2 1 5 . 121

equipment;

electric

122

EXECUTIVE

GUIDANCE

say, this arrangement makes for closer coordination of personnel and general management policies. Reporting to the production manager is a nurse who also keeps the personnel i ecords.

Methods of Counteracting Irregular Production and Employment T h e stability of the force is indicated by the fact that 62 per cent of the employees have been with the company for twelve years or more. T h e management believes that the company benefits from retaining through depression years as much of the regular working force as possible. Consequently, it has laid off relatively few employees (the number in 1 9 3 2 being about 3 5 out of 2 5 0 ) . T h e chief element in steadying production has been diversification of product. Until 1 9 1 6 , the propeller fan had a peak sales period of three months in each year, a peak so high that 90 per cent of the sales volume was sold in these three months. In fact, nothing was sold after August. T h e n , the unit heater was developed in order to provide a use for these fans in winter time. In a similar fashion, the electric unit cooler and the electric heater are complementary. D u r ing the depression, low production has given the company an opportunity to develop new products. T h e management feels that its product research has progressed as far in one year of depression as in three years of normal production. N e w lines of product, like the electric refrigerator, have reduced the number of people laid off. Discounts are also offered on the propeller fan, which is fairly standard and made in a few sizes only, in order to encourage the placing of orders prior to November first. T h e fans are shipped some time after the first of the year, the company having the privilege of shipping up to April first. During the depression, the management has spread work by shortening the week.

Financial Provisions to Enhance Em-ployee Security T h e timely experiment of a flexible reserve, already referred to, is described by President Frank as follows: " P e r h a p s

ILG ELECTRIC

VENTILATING

COMPANY

123

the eventual development along this whole line is a company foundation, completely flexible, to be used for unemployment benefits, for pensions, for insurance or for any emergency." This fund is managed by the W e l f a r e Club which consists of sixteen men of whom ten are foremen and the others, including M r . Frank, are from the office force. T h e club is an incorporated, non-profit company, to which the I l g Company transfers, for investment in conservative bonds, all funds that the management allots to employee activities. During the present emergency, money is being lent against stock held by the employees, but a stiff rate of interest is charged on these collateral loans both to restrict borrowing and to encourage repayment. If a man is at work, he must put up security, but the permanent employees who are temporarily laid off are granted loans without collateral. At least until the fall of 1 9 3 2 , the interest on the fund was adequate for these loans. With the use of the money for emergency purposes, what will be the fate of the pension plan for which the fund was originally accumulated? T h e pension idea is by no means discarded. Should the present fund be exhausted in relieving the I l g unemployed, it is planned to start another when company earnings permit. T h e management feels that it can now afford to utilize the funds for purposes other than pension because the average age of the employees is only thirty-eight years. T h e same fund is used for death benefits in amounts from $ 5 0 0 to $ 1 , 0 0 0 , provided the employee has been employed six months and has passed a satisfactory physical examination. Benefits are paid in ten installments. T h e profit-sharing plan, so-called, is a wage dividend determined at the end of the year by the directors of the company, and is based upon the annual salary of each employee. T h e percentages of annual salary paid in bonuses are shown on page 124. These bonuses are paid in the form of interest-bearing certificates that can be cashed fourteen months after date of issuance. T h e y bear 5 per cent interest, and in most cases, have been used to purchase the common stock of the I l g Company.

EXECUTIVE

124 190 7 190 8 190 9 191 0 191 1 191 2 191 3 191 4

6 3 2 3 6 7 12 16

1915 1916 1917 1918 1919 1920 1921 1922

GUIDANCE o 20 20 30 30 30 o o

1923 1924 1925 1926 1927 1928 1929 1930 I931

6 8 10 10 6 5 5 o 0

T h e management feels that the ownership of stock by employees has been highly advantageous to the latter, but only because they were given the opportunity to acquire it early in the life of the concern. Not only were the opportunities to secure it frequent, but often time-payments were made possible. At present, 87 per cent of all I l g employees are stockholders, and many of them have holdings that cost them v e r y little because they had the joint advantage of early purchase and of several stock dividends.

Joint Relations I n spite of the small size of the company which naturally brings about reasonably close contact between the executives and the rank and file, there are two channels by which employees may make their ideas known to the top management. T h e first is the W e l f a r e Club, already described, which has become a management group taking the initiative in matters affecting company policy and product. In fact, it has even suggested to the board of directors the dividend rate to be paid on the stock and the percentage of bonus to be paid on the annual wages. In addition, there is a Service Club of all employees with a subordinate committee of six, called the service committee. T h e latter not only manages recreational activities, but takes care of any grievances or questions affecting the force as a whole. F o r example, when the question of working hours was raised, the club voted to work from 7 : 3 0 to 4 o'clock in both winter and summer to facilitate transportation and to make the time at home more useful.

IRVING T R U S T NEW

COMPANY1

YORK CITY, N E W

YORK

W a l l Street has so often been the butt of criticism that it may seem incongruous to the uninformed to present a personnel program with a W a l l Street address. Yet that of the Irving Trust Company is of significance because of the caref u l thought which its executives have devoted to the relationship of the personnel department and the operating organization. This bank has grown rapidly during the past decade as the result of a number of mergers, and among its nineteen offices, located in M a n h a t t a n , Brooklyn, and the Bronx, are four large ones in downtown N e w York. Since it ranks among the largest banks in the United States (in fact, among the first d o z e n ) , its personnel problems are typical of those to be found in large financial institutions. Not only are its personnel activities worthy of study, but its management has attracted attention in other directions, such as the development of improved operating methods, and the use of manuals so that its procedures may be definite and clearly understood. Its products, like those of almost any large trust company, consist of various forms of financial service p e r f o r m e d for individuals, partnerships, corporations, and governments. These are of three main types: 1 . T h e receipt, p a y m e n t , collection o f , a n d the a c c o u n t i n g f o r the surplus f u n d s of depositors. 2 . T h e l e n d i n g of f u n d s a n d e x t e n d i n g of credit. 3 . O t h e r services, such as the purchase a n d sale of f o r e i g n e x c h a n g e ; f i d u c i a r y services, a n d i n v e s t m e n t counsel, i n c l u d ing the purchase, sale, a n d custody of securities.

In order to furnish these services to its customers, the company needs certain facilities of the same type required by other ' N u m b e r of e m p l o y e e s : A s of D e c e m b e r 3 1 , official s t a f f — 1 1 4 . 125

1933—clerical

staff—1,783;

126

EXECUTIVE

GUIDANCE

enterprises. I t must h a v e effective w o r k e r s ; adequate space, and appropriate equipment and supplies with which to w o r k ; suitable methods of keeping accurate records of condition and performance;

provision

for obtaining legal

counsel

when

n e e d e d ; and other related facilities. O f these, its personnel activity is a m o n g the most important because m a n y officers a n d members of the staff hold positions of trust, and in addition some have contact with customers. T h e main purposes of the personnel department and the nature of its functions are indicated by the f o l l o w i n g outline: A . For Management: 1 . Supply suitable workers a. Develop sources of labor supply b. Maintain organization for selection and placement c. T r a i n new employees 2. Maintain effectiveness of force a. Advise and counsel department heads and personnel assistants on personnel policies and methods b. Maintain proper relationship of individual salaries to each other and to the market c. Stimulate the development and progress of individual employees d. Eliminate causes of grievances 3 . Keep adequate personnel records 4. Watch salary expense of the company B . For Management and Owners: 1 . Study personnel problems of the company 2. Establish personnel policies and procedure 3 . Determine fundamental salary policies 4. Report salaries to state and federal governments for income tax purposes. C . For Employees: 1 . Place in suitable jobs 2. Stimulate the development and progress of employees 3 . Promote health and give aid in emergencies 4. Provide personnel services and conveniences (i.e., life insurance, saving plan, rest rooms, conferences on personal problems) D . For Customers and General Public: 1 . Furnish references and information concerning employees 2. A n s w e r inquiries regarding personnel subjects

IRVING Place of the Personnel

TRUST Department

COMPANY in the

127

Organization

T h e relationship between the centralized personnel department in the general office and the officers in charge of the various banking units has been evolved after considerable study. In the general or headquarters office, certain services are rendered to the company as a whole. In some of these services, like employment, the banking offices cooperate for convenience and economy. Still other activities are of a coordinating nature, such as the keeping of adequate records and the development of uniform policies relating to salaries, hours, etc. A considerable part of the personnel work, however, is done neither in the general nor in the individual banking offices, but by personnel men responsible for that activity in a number of branches. T h e r e are at present five regional groups of offices, each of which has its own personnel officer who supervises that activity in his domain. Such duties as the computation of the payroll are supervised in this way. T h e work of these regional men is coordinated, however, by the central personnel officer at headquarters (i.e., the general office). A more exact description of the relationship is that each group personnel man reports to the executive in charge of his group of banks as his " l i n e " superior, but follows the policies and methods determined by the general office. T h e staff relationship of these group personnel men to the central personnel officer is strengthened by the fact that some of them have spent time in the general office, and by the fact that the latter keeps itself informed as to the local problems.

Methods of Counteracting ment

Irregular

Production and

Employ-

I n many banking departments, the volume of work varies according to the day o f the month or the hour of the day. In still others, there are seasonal peaks during the year, as in the collection of coupons, the volume of which reaches a peak near April first, J u l y first, September first, and January first. T o counteract these seasonal influences, Irving has employed a number of devices. T h e s e include the staggering of the hours

128

EXECUTIVE

GUIDANCE

at which employees report for work, the hiring of part-time people, the transfer of workers from one operation to another, and occasionally, the use of a backlog of work on which employees can be placed when scheduled work is slack. T h e particular method chosen depends upon the nature of the work done. Briefly, the policy is to seek as much flexibility as possible both in the working force and in the work itself. As in other enterprises, some employees were laid off in the early stages of the depression, but the regularity of employment greatly exceeds that in most manufacturing plants. L i k e other banks, it pays employees on a salary rather than on an hourly basis, which adds slightly to their security.

Financial Provisions to Enhance Employee

Security

T h e company provides group insurance for all members of the official and clerical staffs with the exception of certain temporary employees. A member of the staff becomes eligible for insurance upon the completion of six months of continuous employment and at that time is insured for $ 5 0 0 , with periodic increases until the maximum of $5,000 is reached. A n employees' loan arrangement is provided by the company to enable members of the staff to meet financial emergencies. It is not the purpose of this fund to aid in the financing of homes or in the purchasing of other real estate. Loans rarely exceed one month's salary, and the applicant signs and endorses a note to cover the amount borrowed. A f t e r approval by the personnel man responsible for the group offices in which the borrower is employed, the application is sent to the central personnel department for final action. T h e bank also operates a saving and investment plan in order that officers and members of the staff may have the convenience of saving through payroll deduction. This plan, adopted in 1 9 2 9 , provides a fund to be invested in first mortgages and/or participation in first mortgages on real estate legal for trust funds in N e w Y o r k State. Participants may withdraw at any time, but interest is calculated only on the 1 5 t h of each month.

IRVING Wage

TRUST

COMPANY

129

Payment

A l l members of the staff are on a salary basis. T h e responsibility f o r the a m o u n t paid to each member of the clerical staff rests with his immediate supervisor, subject to the approval of the banking office head. T h e guiding range for salaries is reviewed by the central personnel d e p a r t m e n t in order that those of various departments and offices may be kept in line with each other. At least once a year, the salary of each member of the staff is reviewed and the group personnel officers are responsible f o r seeing that no individual is overlooked. T h e s e personnel m e n consider the cases of employees in their group with the responsible officers and submit proposed changes to the central personnel d e p a r t m e n t for approval. Vacations with pay, provided for both official and clerical staffs, vary in length f r o m one month f o r vice-presidents to two weeks for clerical employees hired prior to J a n u a r y first of the current year. Vacation time is not permitted to accumulate. Since the ordinary vacation season is f r o m J u n e first to September thirtieth, the head of each banking office is responsible for scheduling the absences of his staff so that a minim u m number will be away at any one time. In certain cases, salary is given in lieu of vacations to employees who are resigning. T h e company has f o r many years provided dismissal wages for those laid off on account of lack of work and other reasons. T h e number of weeks of salary paid as a dismissal wage has been based on age a n d length of service. Supply

and Maintenance

of an Effective

Labor

Force

If a vacancy occurs within the company, it is filled whenever possible by the transfer of an employee f r o m within the same office or g r o u p of offices, or f r o m some other branch of the company. If a suitable person does not seem to be available f o r transfer, a requisition is sent to t h e e m p l o y m e n t section, which has already been described as providing a cooperative e m p l o y m e n t service for all parts of the company. A f -

130

EXECUTIVE

GUIDANCE

ter the interviewer discusses with the applicant the location, requirements, and nature of the job, the latter is sent to the personnel representative of the group of offices in which the vacancy exists. If acceptable to him and to the department head for whom he will work, an investigation is made to check the information supplied on the application blank, and letters are sent to the applicant's references. Employment is contingent upon the satisfactory results of these references and of a physical examination. In case the officers of a banking office consider that a member of its staff warrants dismissal, the question must be referred to the central personnel department before final action is taken. In order to encourage study of subjects related to employees' work, the company refunds one half the tuition fee to any member of the staff completing approved courses in the American Institute of Banking, and other local schools and colleges. T o aid in solving the personnel problems of the company, the central personnel department includes a research section. Problems requiring investigation are studied and recommendations are made on the basis of the company's own experience and that of other organizations. This department is not only responsible for keeping up-to-date information on developments in personnel management, but for making specific studies on such questions as retirement, salaries, job analysis, insurance, labor turnover, and saving and investment plans.

T H E

KOHLER

KOHLER,

COMPANY1

WISCONSIN

A model village always gives occasion for debate. O n the one side, it provides tangible evidence as to the admirable living conditions that might be achieved with the necessary planning and perseverance; on the other, it may complicate joint relations because labor sympathizers may feel that it restricts the freedom of workers to act independently. T h e question of primary interest is the manner in which such a village, however ideal, affects the relations between employer and employee. Kohler, therefore, provides an example, both of how inviting an industrial community may be, and of the emotional intensity that a struggle over collective bargaining may develop. In addition to creating a planned community of unusual charm, this company has attempted to furnish stable employment by manufacturing to stock. T h e first of these steps creates the physical setting for comfortable living; the second aims to provide steadiness of employment and income so that workers may enjoy it. But inherent in both are the seeds of trouble, for even a village as ideal as Kohler seems to increase the emotional stress during labor disturbances, and making for stock creates financial problems for management if the policy is pursued over-long during extended depressions. T o organized labor, and perhaps to workers generally, a ' P r o d u c t s : enameled sanitary w a r e , vitreous w a r e , seats, brass p l u m b i n g fixtures, cast iron boilers and radiators, and electric l i g h t i n g units. N u m b e r of employees: 1 9 3 3 — 2 , 5 9 0 . Since K o h l e r ' s principal product is enameled iron p l u m b i n g w a r e , f o u n d r y w o r k remains an important step in its m a n u f a c t u r i n g process. T h e application of enamel is a combination of art and industry. Between these t w o steps is the preparation of the castings f o r enameling. These, together with the necessary f a c i l i t a t i n g operations, a f f o r d a diversity of jobs that has been increased by the addition of the line of products of automatic electric plants f o r the generation of current f o r private use. Since K o h l e r makes its o w n engines and electrical generators, this line provides w o r k f o r machinists, assemblers, and electrical w o r k e r s . 131

132

EXECUTIVE

GUIDANCE

company town is a " r e d flag." T h e r e have been too many bad examples of towns used by companies to take advantage of workers. A t their worst, company villages are dismal in the extreme. T h e y are merely rows of drab wooden shacks, too flimsy to be w a r m , too dirty to be hygienic, and too uniform to be interesting. A n d worse perhaps than these physical deficiencies is the feeling of their inhabitants that they live in a town owned, operated, and controlled in all its details by those f r o m whom they draw their pay. In such towns, the companies own the houses and rent them to their workers. T h e y may even compel workers to live in them and to buy at the company store at prices set by the company. It is because of such cases that many workers think of living in company villages as akin to serfdom. But K o h l e r f a l l s at the other extreme. It is an example of a company-sponsored town at its best: a demonstration of the physical comfort and beauty that one wishes all workers might enjoy. L i k e Bournville in E n g l a n d , it shows what can be accomplished toward securing an industrial town that combines factory life with the physical setting of an attractive suburb. Its physical f o r m reflects the fascinating topography created by the winding Sheboygan R i v e r , which is said to flow more than twenty-five miles between points that are only four miles apart, and the ideas of President W a l t e r J . K o h l e r , f o r m e r l y governor of Wisconsin. In collaboration with a number of local citizens and aided by authorities in town planning and landscape architecture, he planned a village with the parks, playgrounds, and schools needed f o r a well-ordered community life. T h e houses, usually of the cottage type, are built according to individual designs. Instead of f o r m i n g a gridiron of blocks, K o h l e r ' s boulevards and avenues fit the contour of the land, and the plant, the motor traffic, and the shops have all been segregated f r o m the residential district. T h e corporate limits of the Village embrace some 2 , 1 0 0 acres, which are zoned according to a careful plan so that the industrial area is confined to the northeast section of the town. T h e residential part contains the substantial homes for workers that have been built by a non-profit development corpora-

KOHLER

COMPANY

133

tion, the K o h l e r I m p r o v e m e n t C o m p a n y . T h e houses, which are in the main brick or f r a m e construction attractively designed, have been built on a l a r g e scale f o r economy. T h e y are sold at cost. T h e deeds do not limit the disposal of the property, but like those in m a n y residential neighborhoods, provide restrictions against nuisances. T h e V i l l a g e g o v e r n ment is autonomous, and its business operations are distinct, although its physical facilities are linked with those of the plant. T h e latter provides water for the V i l l a g e upon a contractual arrangement, and is compensated f o r this service. T h e water mains and hydrants, fire-fighting equipment, and sewage disposal plant, built at a cost of $ 1 0 0 , 0 0 0 , are all owned and operated by the V i l l a g e . Despite the tendency of these physical ties to create a semblance of paternalism, there has been a definite attempt at K o h l e r to make the V i l l a g e g o v e r n m e n t democratic. A l though f o r a considerable period, the same set of officials were returned to office year a f t e r y e a r , three of the six trustees up f o r re-election d u r i n g 1 9 3 3 and 1 9 3 4 were defeated. ( T h r e e vacancies occur each y e a r . ) Of the two school board members up f o r re-election during this period, one was d e f e a t e d . O n the V i l l a g e board (as of D e c e m b e r 1 9 3 4 ) , two members were not connected with the company, which is true also of the V i l l a g e clerk. T h e V i l l a g e president, however, has f o r some time been the chief engineer of the K o h l e r C o m p a n y , and its treasurer, the personnel m a n a g e r of the company. Consequently, there is a close relationship between the operating management of the plant and such community activities as the V i l l a g e g o v e r n m e n t and the building and loan association. Y e t it is part of the philosophy behind this experiment that the community and a corporation located within it can cooperate to a high degree without the latter's domination.

Place of the Personnel Department in the Organization T h e manager of the personnel department reports directly to the executive vice-president. T h o u g h he has status sufficient to bring the needs and problems of the w o r k i n g force to the

134

EXECUTIVE

GUIDANCE

attention of the chief executives, his relationship to the line officials is of a staff type (i.e., he works with them and through them). In hiring new employees, for example, he is responsible for the initial procurement and selection of candidates, but the foremen also interview them. As in most wellrun concerns, the choice must be mutually satisfactory. In no sense, therefore, is the personnel function the responsibility of the personnel department alone; on the contrary, it commands the active attention of the president, the executive vicepresident, and the factory manager. Methods of Counteracting Irregular ployment

Production and

Em-

Since the company manufactures plumbing fixtures, it suffers from the violent fluctuations in volume that are the lot of industries allied with building construction. At the time of the 1 9 2 1 depression, it filled its warehouses with finished products, such as bath tubs and sinks, thereby giving to its workers steady employment. T h e recovery from the slump, together with the activity in the construction industry, soon emptied the warehouses so that, from the points of view of both management and workers, the venture was highly successful. In the following years, the firm manufactured for stock during the winter in order to provide work for its employees during the slack period from December to March, and to get an early start on its spring and summer orders. During the depression of the 1 9 3 0 ' s , Kohler again followed its traditional policies, and by manufacturing for stock kept its regular force employed f u l l time until February 1 9 3 1 . T h e policy could not be continued in the face of the slim demand for plumbing fixtures and the necessity of borrowing, for its warehouses became filled with finished goods, and its working capital depleted. T h e company also pushed lines, such as self-contained electrical units, that would tend to stabilize production through diversification. At first, it had difficulty in finding among its well-trained employees those with sufficient versa-

KOHLER

COMPANY

135

tility to do work different f r o m that to which they had been accustomed. Emphasis upon training by supervisors, however, permitted the transfer of employees f r o m plumbing fixtures to products such as radiation and electrical units. T h e impossibility of meeting the reduction of volume by the further piling up of inventories, or by diversification, forced the company to spread w o r k in all departments by staggering the hours. Short shifts were not new to the enamel shop, because six-hour shifts had been considered necessary on account of the heat ever since big bath tubs had been introduced. T h e foremen continued on an eight-hour shift, so that an employee had t w o sets of supervisors, but this fact is said to have produced no ill effects. T h e office employees were put on a shortened working week, but the experiment proved somewhat unsatisfactory. M e m b e r s of the organization often could not get in touch with each other because those with w h o m they wished to communicate were absent. 2 T h e policy of spreading work resulted in keeping on the force perhaps 1,000 employees who might have been released entirely, and spread the suffering f r o m loss of income over all alike. Fair as this arrangement may seem at the outset of depression, it tends to retard adjustment to changed conditions. In favor of it is uniformity of treatment. Opposed is the fact that the income of all workers may be reduced below the minimum needed f o r subsistence, and that all are held in a condition of despair because the unneeded workers have not been forced to seek e m p l o y m e n t in other firms and industries. E v e n the overflowing warehouses which had made possible the g i v i n g of w o r k early in depression meant a postponement of e m p l o y m e n t later on w h e n it was needed still more urgently.

Financial Provisions to Enhance Employee Security In addition to the provision of steady employment, the company has facilitated e m p l o y e e saving by permitting the ' T h e National Industrial Recovery Act further shortened the working week for the majority of these workers.

136

EXECUTIVE

GUIDANCE

workers to purchase seven per cent preferred stock. T h e amount of stock allotted has varied with the length of service, and the stock is paid for by payroll deductions of one per cent of the amount purchased. T h e company carries group insurance, to which the employees may add at their own expense. T h e amount of the policy is $ 3 0 0 at the end of three months of employment and $ 5 0 0 at the end of the first year, with increments of $ 1 0 0 for each year of service thereafter until the total reaches $ 1 , 0 0 0 . T h e benefit association, supported by equal contributions from its members and from the company, is perhaps the principal medium of financial protection provided by the company, other than the assurance of a steady job. T h e association, to which each member pays $0.40 per month (membership is voluntary) pays benefits in cases of illness or death, and also furnishes the services of nurses, physicians, and a dentist. T o members, the medical care is free; to their families, the charge is nominal. Membership in the association reduces the cost of surgical operations. T h e association pays a death benefit of $200 and a sick benefit of $ 1 . 5 0 a day up to thirteen weeks in any year following the first illness after becoming a member. T h e dentist makes inspections, cleans teeth, and takes care of emergencies, but does not put in fillings at company expense. T h e company has not accumulated a separate pension fund, but it takes care of its old employees by carrying them on the payroll, or if they are able to work, by transferring them to jobs to which they are adapted. T h e y receive the same pay as before the transfer.

Wage Payment About 90 per cent of the work in the factory is paid for on a piecework basis. N o wage cuts were made until the end of 1 9 3 1 , when wages and salaries were cut simultaneously. T h e hourly workers were not cut as heavily as the salaried employees because their income had already been lowered by the reduction in time. H o w e v e r , the hourly workers had

KÖHLER

COMPANY

137

an opportunity to earn some extra money from work for Village that was financed by a $100,000 bond issue. In August 1933 the minimum wage was restored to 1929 level of $0.40 per hour in order to comply with plumbing fixtures code, submitted on July 29, but not proved until January 1934. T h e management states that per cent of the employees receive wages in excess of minimum.

the the the ap95 the

In its reply to the union proposal described later, the management rejected the union demand for four wage categories only, and pointed out that the thousands of articles produced required tens of thousands of operations which in turn require many classes of rates to reflect differences in the skill and experience required. In reply to the union demand that piece rates be 30 per cent higher than the minimum rates on day work, it replied that its piece rates do permit earnings at least 30 per cent in excess of the $0.40 minimum. Supply and Maintenance

of an Effective

Labor

Force

T h e employment department receives and interviews all applicants. N o one is hired until after he has received a medical examination. F o r m a l training is provided for the foremen and the salesmen. T h e latter take a prescribed course at the factory before starting to sell, and at intervals return to the plant for further instruction. T h e r e is no organized training for apprentices, but voluntary classes for foremen and others are held after hours without pay. T h e emphasis in these classes is upon improvement on the j o b ; for one year the theme was waste reduction; the next, technical training in plumbing, heating, and electricity. Cost figures are given to the foremen, but for their own departments only. In connection with the safety program, general meetings have proved satisfactory. T h e company publishes and finances an employee magazine, " K o h l e r of K o h l e r N e w s . " T h i s serves likewise as a trade paper, and it is the full-time responsibility of the assistant to the advertising manager. T h e athletics are managed

138

EXECUTIVE

GUIDANCE

by the Recreational C l u b , of which the dues have ordinarily been $ 0 . 5 0 p e r y e a r . T h e intramural activities, such as rifle practice and horeshoe pitching, h a v e been continued through the depression, but the basketball team does not enter into outside competition as extensively as in the past.

Joint Relations R e f e r e n c e w a s m a d e at the outset to the fact that at the time of t h e 1 9 3 4 strike, the joint relations between the c o m p a n y a n d the w o r k e r s w e r e complicated b y the existence of the V i l l a g e . Since this discussion is focussed on policies and p r o g r a m s , it is concerned with the strike only to the extent that the latter t h r o w s light upon the problems of joint dealing. 3 C o n s e q u e n t l y , w e w i l l first outline the important facts concerning the strike itself and then discuss certain of the u n d e r l y i n g problems. P r i o r to the adoption of the National Industrial Recovery A c t in the spring of 1 9 3 3 , the Kohler Company did not have employee representation, but soon thereafter (September), the Kohler W o r k e r s ' Association came into being. I n J u l y a local union of the American Federation of Labor was organized in Sheboygan. Its representatives met with executives of the Kohler Company three times during the fall of 1 9 3 3 , and again on J u l y 6, 1 9 3 4 . A t the last of these meetings, the union representatives presented a proposal concerning the recognition of the principle of collective bargaining, the assurance of seniority rights, a provision against discharge, demotion, or other discipline, except for "just and sufficient cause," a 30-hour week and a 6-hour day, reemployment of workers laid off in August 1 9 3 3 , the classification of all employees into four groups, a minimum hourly rate of $ 0 . 6 5 , piece rates 30 per cent higher than the minimum day-work rates, time and a half in emergencies and double-time rates on holidays, no deductions for faulty work unless union representatives and employer agree that it was caused by gross negligence or wilfulness, and the arbitration of controversies between the parties to the agreement. T h e management of the plant replied in writing on J u l y 1 3 . O n J u l y 1 6 the strike began, and for ten days, some 2 0 0 employees were kept as prisoners within the factory. O n the night * For a detailed description of the strike, see Garet Garrett's article, "Section Seven-A at Sheboygan," The Saturday Evening Post, October 27, 1934.

KOHLER

COMPANY

139

of J u l y 2 7 , a riot occurred, during which t w o m e n w e r e fatally injured. O n e of these had never w o r k e d f o r K o h l e r . I n September the N a t i o n a l L a b o r Relations B o a r d conducted an election in which all employees on the payroll of September 7 , 1 9 3 3 w e r e permitted to vote. T h e official result w a s a vote of 1,063

for the K o h l e r W o r k e r s ' Association, and 6 4 3

for the

L a b o r U n i o n . O t h e r ballots, to the n u m b e r of 5 7 7 , w e r e challenged by the t w o parties. O f these, 3 6 8 are said to have been challenged by the union because they w e r e cast by office e m ployees, special police, etc., and about 2 0 0 by the W o r k e r s ' A s sociation on the g r o u n d s of violence.

T h e demands presented by the union on J u l y 6 were not essentially different from those that are customary in labor disputes. T h e real point at issue, of course, was whether the employees were to be representd by the company union or by the labor union, and concerned Section 7 - A of the National Recovery Act, a statement with which present-day Americans are as familiar as with the Biblical Commandments or the Constitutional Amendments. 4 Since this issue has been faced in thousands of companies, one is led to query as to why the strike was marked by such feeling and violence. Perhaps two factors were at work: a division of interest among the workers because some lived in Kohler and others did not; and the feeling that property ties interfered with independence of thought and action. It was inevitable that the majority of those laid off in the summer of 1 9 3 3 should have lived outside the Village, because the citizens of the latter tended to be employees of long standing. There is said to have been no discrimination in favor of the Villagers, except that some were given a f e w extra hours of work to assist them to make their building and loan payments. T h e effect of property rights was resented 4 " T h a t employees shall have the right to organize and bargain collectively through representatives of their choosing, and shall be free from the interference, restraint, or coercion of employers of labor, or their agents, in the designation of such representatives or in self-organization or in other concerted activities f o r the purpose of collective bargaining or other mutual aid or protection; that no employee and no one seeking employment shall be required as a condition of employment to join any company union or to refrain from joining, organizing, or assisting a labor organization of his own choosing."

140

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GUIDANCE

by union leaders who had no quarters to use as a center for their operations, and who could not overcome the loyalty of the Kohler residents. T o the unions the explanation was timidity; to the management, loyalty. 5 Moreover, the close relationship of Village to plant was emphasized during the strike when negotiations had to be undertaken to permit the passage of a carload of coal into the plant every second day in order that the Village might have water and fire protection. T h e 200 odd workers who were marooned within could receive food in packages mailed in by parcel post, but coal had to be secured through arrangement with the picketing strikers. It is clear, therefore, why the hundreds of union sympathizers who had come into Kohler from the neighboring town of Sheboygan should have felt almost as much enmity toward the Village as toward the plant itself. There seems to be little doubt that the emotional tenseness of the situation was accentuated by the existence of the Village. One might conclude from this experience that such a town, however well conceived, brings about personnel problems that are ordinarily escaped. Representing one of the finest American examples in community planning, Kohler's tragic experience emphasizes certain of the difficulties that must be faced in such developments whatever may be their significance in the future decentralization of industry.® ' D u r i n g the ten days of m o d e r a t e l y p e a c e f u l p i c k e t i n g , an o b s e r v e r not connected w i t h the c o m p a n y reports that he s a w in the picket lines o n l y five w h o m he recognized as citizens of K o h l e r . T h e m a n a g e m e n t says there w e r e not more than a dozen. A c o m p a n y executive believes the f a c t that the K o h l e r residents represent a self-selected g r o u p is the correct e x p l a n a t i o n as to their lack of p a r t i c i p a t i o n . * In accordance w i t h o u r practice of s e c u r i n g both union and m a n a g e m e n t points of v i e w , this case w a s submitted f o r criticism to M r . H e n r y O h l , J r . , President of the Wisconsin State F e d e r a t i o n of L a b o r . He sent it to the local union, and commented that it " o m i t s some v e r y essential facts without w h i c h any story of the s t r u g g l e w o u l d not present a true p i c t u r e , " and that it contains inaccuracies. A l t h o u g h he g a v e no detailed criticisms that could be incorporated herein, he indicated that a statement is being p r e p a r e d b y the local union directly a f f e c t e d , F e d e r a l L a b o r U n i o n N o . 1 8 5 4 5 , the h e a d q u a r t e r s of w h i c h a r e in S h e b o y g a n , Wisconsin. U n f o r t u n a t e l y , it w a s not a v a i l a b l e b e f o r e this b o o k went to press.

T H E L E E D S AND N O R T H R U P PHILADELPHIA,

COMPANY1

PENNSYLVANIA

T h e Leeds and Northrup Company was awarded first prize in the contest, sponsored by M r . B. C. Forbes, for the best employee program. It was from this contest that the suggestion for this study emerged. It is natural to expect that a program honored in this signal fashion should have the usual arrangements that one expects to find in a firm with advanced personnel policies, that is, employee representation, retirement annuities, group insurance, and systematic guidance of wage rates and promotion. Quite unique, however, are certain other developments, such as the limitation of membership on the board of directors to operating executives, which in combination with managerial profit-sharing and an unusual stock-ownership plan, makes this a partnership in corporate form 5 an unemployment reserve f u n d ; and a technique for checking the actual effects of wage adjustments, variations in working time, and promotion. Place of the Personnel Department in the Organization T h e head of the personnel department reports to the factory manager. H i s responsibilities, however, are not confined to the shop, for many of his activities concern the clerical staff. A mere statement as to the location of the personnel department in the organization chart of the company gives a very inadequate idea of the emphasis given and the degree of attention paid by executives to this phase of management. This company is typical of those in which the major execu1

In the preparation of this section, much help has been secured from a statement written by M r . Morris E . Leeds, President, The Em-ployee Plans of the Leeds and Northruf Comfany. Products: electrical measuring instruments and apparatus for temperature control. Number of employees: January 1 , 1 9 2 g—5 9 1 ; January 1 , 1 9 2 9—7 5 2 ; January i , 1 9 3 0 — 1 , 1 4 5 ; January 1 , 1 9 3 1 — 1 , 0 5 5 ; January 1, 1 9 3 2 — 7 1 9 . 141

142

EXECUTIVE

GUIDANCE

tives consider personnel policies to be among the first claims on their thought and interest. Not only has the president of the concern been the source of and support for most of the developments affecting the employees, but the executive committee, composed of those who head the major departments, is imbued with the same personnel philosophy. Of importance also is the fact that the factory manager was once a department foreman, in which position he was vigorous and outspoken in his support of workers' contentions and proposals. This general interest of the executive group in personnel problems may be traced to the fact that the board of directors consists of operating executives exclusively. Although the concern is a corporation, it has unusual provisions, which are discussed later, to keep the operating control in the hands of those who are experienced, competent, and in full sympathy with the company's policies. These policies have so permeated the thinking of the executives that the latter hold to an unusual degree a common philosophy of industrial relations. T h e scope of these policies in the company is indicated by the following quotation from a statement by its president. "As we conceive them, human relations involve the entire personnel from the executive officers to the latest apprentice; they must be something more than the means which management and ownership use to maintain morale and efficiency among workers. A business organization should be a unified group of people banded together to earn a living for its members, seeking to do justice among all of them and to the rest of the world." Methods of Counteracting Irregular Production and ment

Employ-

The company has an outstanding record for holding its executives and others in key positions. None of the employees sufficiently high in rank to become holders of employee shares have voluntarily left the concern either to join competitive firms or to set up concerns of their own. Realizing that stability of employment can best be provided by continuous work,

LEEDS

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COMPANY

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measures have been adopted to stabilize production. When business is brisk, the company increases its working hours, paying time and a half for overtime; when work slackens, it drops back to the standard week. This procedure avoids the necessity of taking on, during peak periods, employees whom it would have to lay off later, and by overtime pay it shares prosperity with its employees. During slack periods, the company manufactures for stock those items for which the demand is sufficiently stable to justify this practice. Because of the wide use of the company's products throughout industry, seasonal irregularity is not here a serious problem. Y e t the very diversification of the company's sales outlets makes i t — as a supplier of capital equipment—particularly exposed to cyclical depressions and cyclical unemployment, and this has determined its measures for defense and protection. It also carries on research to develop new apparatus and new uses for present products. T h e amount of research is large in proportion to the size of the business. Since Leeds and Northrup manufactures producers' goods the demand for which declines sharply in cyclical depressions, it is obvious that in such times the company cannot provide regular employment. Therefore, partially to offset the uncontrollable forces affecting the regularity of operations within the company, an unemployment benefit fund was started in 1 9 2 3 , that is, at the end of the last great depression. T h e company made an initial deposit of $5,000, and arranged to contribute to the fund two per cent of each payroll, until the total should equal twice the largest total payroll of any week in the previous twelve months. On the basis of the 1 9 2 1 depression, it was estimated that such a fund, when f u l l y accumulated, would be adequate to pay suitable allowances to as many as would be laid off or have their working time reduced. T h e fund was placed with a trust company under a trust agreement for this particular purpose, so that it would not be subject to the hazards of the business. T h e works council was invited to assume chief responsibility for the management and disbursement of the unemploy-

144

EXECUTIVE

GUIDANCE

ment benefit fund, with the understanding that the benefits would be paid only up to the amount of the fund as accumulated, and that the company assumed no obligation beyond that. T h e council willingly assented and decided upon the following working agreement for administering the fund: Control of the fund is vested in a committee of five members, of w h o m three are appointed by the council and t w o by management. O n l y employees whose annual compensation is $ 2 , 6 0 0 or less will be eligible for unemployment benefits. Unemployment benefits are to be at the rate of 75 per cent of normal, full-time wages for those having dependents and 5 0 per cent for those without dependents. Unemployment benefits are to be paid to those discharged, laid o f f , or working less than the regular 4 4 - h o u r week. Those discharged for cause do not benefit from the f u n d , but may contest such discharge before the appeal board. Duration of benefit payments is regulated by length of service and ranges from three weeks for three months' service to twentysix weeks for those w h o have served five years. In general, each year of service adds five weeks of compensation. T h o s e w h o work on a reduced schedule are compensated for the time lost in the same proportion and for the same duration as those w h o lose full time without impairing the worker's right to full benefit if subsequently laid o f f .

T h e benefits that the management of the company feels it has received from the unemployment reserve plan are indicated by the following quotation from a statement by its president. " W e have always inclined to the view that any alert management is so cognizant of the gains from stabilization and the costs of not stabilizing that the additional incentive of avoiding the payment of unemployment benefits would be relatively slight. Experience has none the less made clear that the desire to conserve the fund has operated on management and workers alike as both a useful reminder and stimulus to save even that cost of irregularity. " I t is hard to appraise the indirect benefits on plant morale and efficiency, but it is safe to say, I think, that both management and workers have accounted the fund as beyond money

LEEDS

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NORTHRUP

COMPANY

145

value. T h e present feeling of our management is one of satisfaction that we did inaugurate the plan when we did and that we had the money available to disburse. Our chief regret in regard to it is that we did not take a long period of depression like the present into our reckoning, and so accumulate a much larger sum. W e could quite easily have done this during the years from 1923 to 1930 without increasing the rate of contribution, by merely setting a larger fund to be accumulated at that rate. " A s stated, the fund was originally set up to aid in discharging the obligation that our particular management felt toward protecting its workers against losses due to lack of work, resulting either in reduced time or layoff; and its success in that purpose is measurable by its success in protecting workers until they could get reemployed. That the duration of benefit has not proved adequate in all cases has but led to supplementary loans or relief measures to provide for the more needy people." T h e essential fact is that the reserve plan has enabled this medium-sized firm to distribute some $94,000, in benefits and loans, painlessly and in an orderly way well into the depression. One may form his own estimate of the help derived from it by firm and workers alike. T h e attitude of the company as to the value of such a reserve is reflected in its intention to build an even stronger plan when conditions again permit. N o decisions have been made, but the few changes to be made will probably be in the direction of conserving the fund for major emergencies by adding a waiting period and paying less liberal benefits for part time, toward enlarging the company reserve, and possibly toward provision for supplementary employee contributions or savings accounts as a second line of defense. As already indicated, the fund was designed to provide benefits for both layoffs and losses due to reduced working time. In the years 1923 to 193 r, the company had placed in the fund some $68,000 by intermittent contributions equalling only about two-thirds of one per cent of the total payroll over

EXECUTIVE

146

GUIDANCE

this period. Interest accumulations during the same period totaled over $21,000. O f this total only $500 had been distributed prior to 1930, but in that year $23,600 was paid out, and in 1 9 3 1 , $40,000 more. O f these payments, approximately $17,500 in each year consisted of benefits on account of the reduction in hours. 2 In analyzing the results of the unemployment reserve plan after ten years of existence, it is helpful to examine them as of two d a t e s — O c t o b e r 1931 and June 1932. I n October 1 9 3 1 , the f u n d still contained about 40 per cent of its maximum amount, demonstrating that the f u n d met the original expectations of its founders. M o r e o v e r , the parttime benefits, coupled with the maintenance of wage rates, kept the purchasing power of L e e d s and N o r t h r u p employees during the first half of 1931 at 95.3 per cent of the 19281929 level. O f those laid off up to October 1 9 3 1 , 21 per cent had obtained permanent jobs before their benefits expired, and 19 per cent more were still receiving benefits. Subsequently, however, layoffs depleted the fund rapidly, and in spite of a reduction of benefits f r o m 50-75 per cent of wages to 25-40, it was exhausted by June 1932 (that is, two and one-half years after the onset of the depression). Includ* UNEMPLOYUENT BENEFIT FUND

Calendar Year

Contributions by company

Interest earned

Administration costs

B a l a n c e in f u n d on December 3'

%

307

1

, '57

1913

»'5,853

1914 1915

8,535 6,507

1926

7,089

>,484 2,050

1937

782

1928

7,5« 21,609

1929 '93° '93' 1931 (6 m o . )

—

Average number

Number

Total

covered

receiving

benefits

by the

benefits

paid

plan

$16,085

291

25,522

337

102

33,356 42,405

2,326

90 88

346 411

45,'41

479

2,576

53

55,'85

—

3,37°

377 411

79,787 60,967

499 728 927

661

23,607 40,537 22,614

S>'99

*

75

91

—

—

3 1

"63 56 —

—

285

2 —

3 , >07 862

I,>38

22,398

828

482

6,895

555

6,984

53'

280

»74,793

$22,442

$2,986

—

$

— —

$87,265

LEEDS

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NORTHRUP

COMPANY

147

ing the six layoff benefits which constituted the only unemployment liability incurred by the f u n d prior to 1 9 3 0 , 864 individuals were paid benefits f r o m t h e i f u n d during its first ten-year cycle. Of these, 3 7 5 received benefits for part time only, 2 6 3 for layoff only, and 2 2 6 on both counts.

Other Financial Provisions to Enhance Employee Security Since old age without income is another threat of insecurity that preys on the minds of workers of advancing years, the employee representatives in council requested, in 1 9 2 6 , that this subject be considered. A joint committee, on which council members predominated, worked on it assiduously for many months, finally reporting a plan of old age retirement allowances which was approved and put into operation in 1 9 2 7 . U n d e r this plan the company purchases f r o m an insurance company annuity policies for all employees of five years' service and over, which, on retirement of men at 7 0 years of age and of women at 6 5 , will give an annual income of one per cent of their total salary during service. I f employees elect to cooperate by paying three per cent of their salary, the company doubles its contribution. T h u s , a non-participating employee with f o r t y years of service and an average salary of $ 1 , 5 0 0 would, at retirement, have received aggregate compensation amounting to $ 6 0 , 0 0 0 and would therefore receive $ 6 0 0 per year f o r the rest of his life. If he had participated, he would receive double this amount from the company's contribution, and about $ 3 8 0 f r o m his o w n — a total of approximately $1,580. A sick benefit association, originally organized in 1 9 1 7 by the employees, has had a successful and useful career. Its funds are accumulated f r o m dues, and f r o m them it pays sick benefits and makes loans to members. W i t h the cooperation of the company, it provides group life insurance for its members, which pays at death $ 5 0 0 f o r those of less than one year of service, and larger amounts f o r longer service up to a maximum of $ 1 , 5 0 0 f o r ten years. About 80 per cent of the employees are members.

148

EXECUTIVE

GUIDANCE

T h e unique financial structure of the company and the provision f o r the purchase of stock by selected employees have already been referred to. A board of trustees, elected annually, not only decides upon the employees w h o may hold voting stock, but has for its main purpose the distribution of the voting stock a m o n g a number of competent employees, the provision of a fair and non-controversial method for retiring the holdings of those leaving the company, and the furnishing of a relatively safe investment with a fixed dividend for those whose business experience did not j u s t i f y the holding of common stock. T o meet these needs, three classes of shares were created: E m p l o y e e s ' Shares, Converted Shares, and Investment Shares. E m p l o y e e s ' Shares have f u l l voting rights, may be held only by selected employees of the company, and are entitled to the profits remaining after the payment of the d i v idends on the other types of shares. C o n v e r t e d Shares have a par value of $100, a cumulative preferred dividend of eight per cent, are callable by the trustees at any time, and may be bought and sold like ordinary stocks. Investment Shares are similar, except that they have a prior claim on earnings and assets, have a limited issue, and are sold for cash only. T h e last two classes yield a high return and, at the same time, give the employees who purchase them a sense of " b e l o n g i n g " to the organization. T h e unusual feature of the participation in ownership by the employees is centered in the E m p l o y e e s ' Shares. T h e s e may be h e l d only by those selected f r o m the group w h o have five years of service and salaries in excess of $1,500. T h e y are sold for cash only, and there is no provision for their purchase f r o m the company on an installment basis. E m p l o y e e shareholders w h o leave the company must either sell their shares to other approved employees or exchange them for C o n v e r t e d Shares. T h e value of E m p l o y e e s ' Shares is determined annuall y by a formula based upon the weighted average of company earnings during the past five years. 3 ' See Balderston, C . C a n b y , Managerial

Profit

Sharing.

LEEDS

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149

Some of the results of the plan are indicated by the following figures. T h e r e are now 60 owners of Employees' Shares holding a total of 4,452 shares. T h e 63 owners of Investment Shares hold 1,562 and the 132 owners of Converted Shares hold 10,210 shares. It is evident, therefore, that one of the objectives of the arrangement has been attained, namely, to diversify the ownership of the company. In 1 9 1 5 , M r . Leeds owned all of the common stock, but by 1 9 3 1 , 4 6 per cent of his holdings had been distributed. In addition, $100,000 worth of Converted Shares belonging to him have been called for resale to employees. Wage

Payment

F o r its manual and clerical workers, Leeds and Northrup uses either straight salary or day work rather than an incentive f o r m of compensation. A mild incentive is provided, however, by the quarterly review of each individual to consider his j o b and his rate in the light of carefully kept cost records. T h e latter are being refined by the development of labor standards set by motion and time-study analysis. T h e level of wages in this company has been investigated rather thoroughly by the writer in connection with another study. 4 T h e rates on most occupations are as high or higher than the average in other Philadelphia metal plants. M o r e over, in 1929 and 1930, annual employee earnings of all but a few workers (eleven in 1 9 2 9 ) were sufficient to enable them to keep a family of typical size in "health and decency." T h e standard of comparison was a reasonably stiff one, as will be seen from the figures used in 1930. M a n , wife and 3 children

$1,920

M a n , w i f e and 2 children

1,667

M a n , w i f e a n d I child

1,378

M a n and w i f e

1,223

Single w o m a n (apart f r o m f a m i l y )

814

Single m a n (apart f r o m f a m i l y )

944

S i n g l e w o m a n ( a s part of f a m i l y )

612

S i n g l e m a n ( a s part of f a m i l y )

671

* See Leeds, M . E., and Balderston, C. Canby, Wages: A Means of Their Adequacy.

Testing

150

EXECUTIVE

GUIDANCE

A quarterly review of each person's rate is made by the head of the personnel department, the employee's department head, and the factory superintendent in the case of factory employees. When reviewing clerical employees in the sales, accounting, engineering, and research departments, the factory superintendent is replaced by the corresponding line executives in the other departments. In making their review of shop employees, this group has two guides to follow. One is a range of rates (that is, minimum and maximum) for each occupation, set after a careful analysis of its requirements as to skill and responsibility. After grading, these occupations were priced from figures secured from over 1 2 0 metal manufacturers in the community through^ a trade association. T h e second guide is a figure shown on each individual's record card indicating the amount needed to maintain the family of a typical Leeds and Northrup man of the same length of service. For the executive group, a bonus plan was inaugurated in 1922. The plan provides for the setting aside of a portion of the net profits remaining after paying eight per cent on the preferred and six per cent on the current value of the common stock. This fund is distributed among the major and minor executives, including salesmen and others in the sales organization. The total number in the bonus group are classified in sub-groups. The upper groups receive bonuses which are relatively larger in proportion to base salary than those of the lower groups. T h e largest bonus may be a hundred times as large as the smallest, and the relationship of bonus to salary is fifteen to twenty per cent for those in the lowest group and more than double the base salary for those at the top. One must hasten to add, however, that the base salaries are kept at a low level in order that the principal compensation may vary with the success of the enterprise. Moreover, the bonuses for chief executives are made proportionately larger than those of minor executives so that each may receive the equivalent of what he produces for the company. It is an attempt to give

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AND NORTHRUP

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151

managers their just share of the fruits of the enterprise they manage. The bonus group exercises an important influence in determining what new members shall be brought into it and the shifts in rank of those that are in. Each year the group makes recommendations to the management on both of these points, which have, with a few exceptions, been approved as made. Occasionally, the recommendations have included demotions or separations from the bonus group as well as promotions to it and within it. The owners and top management feel that the bonus plan has worked well. Shortly after it was put into operation, the group arranged to have monthly meetings. These are held in the evening away from the plant and at the members' expense, and consist of dinner, followed by papers, discussion of plant problems, and some form of recreational activity. The meetings have two good results. First and most important is to "get together" on something other than the every day business basis—an arrangement by which the men get to know each other as a group of men engaged in a common enterprise. The mutual understanding and the respect engendered in these meetings have made it much easier to iron out internal plant misunderstandings and difficulties. Second, real progress has been made in these meetings in dealing with specific problems that have to do with better operation. Joint

Relations

T h e Cooperative Association is an organization representing the entire personnel, not merely the shop employees. It was formed in 1 9 1 8 when, under war-time stimulus, the force had so increased that close contact with management was no longer possible. Its formation was deliberately planned, being discussed first with a small group of foremen and then with all of the older employees. One of its primary objects was to unify the force, an objective that an organization of manual workers alone would not have attained. The association functions

152

EXECUTIVE

GUIDANCE

through a council representing various divisions of the organization, one-half of whose members are elected semi-annually to serve for one year. Its officers are elected annually. T h e name " c o o p e r a t i v e " is descriptive of the association's functions in two directions: first, to work with the management on business matters in which the employees have a direct interest; and second, to direct a variety of activities in which the employees can be mutually h e l p f u l , such as athletics, entertainments, education, and mutual benefit societies. T y p i c a l of these are the good order, convenience, and comfort of grounds and buildings; hours of work and vacations; regulations safeguarding discharge; and overtime pay and wages. In connection with the first group of subjects, the council has f u l l p o w e r ; in connection with the second, the management leans heavily upon it for consultation and advice. Since the work of the council is regarded as a legitimate function of business, its meetings are held on company time, and its secretarial expenses are paid for by the company. T h e f o l l o w i n g list of the council's committees indicates the range and extent of its activities: A . C o m p a n y - e m p l o y e e relations 1. P e r m a n e n t c o m m i t t e e on w a g e s 2. A p p e a l board A n employee w h o is discharged and feels that he has not had proper consideration m a y appeal to this board. I t reviews cases and submits its findings to the m a n agement 3. T i m e study c o m m i t t e e 4 . F i n a n c e c o m m i t t e e (deals w i t h c o u n c i l ' s are on a b u d g e t basis)

finances,

which

B . General welfare 1 . E d u c a t i o n a l plan committee C o o p e r a t e s w i t h employees in their educational e f f o r t s . T h e c o m p a n y pays one-half the cost of e v e n i n g or c o r respondence courses for such employees as the c o m mittee certifies to have done satisfactory w o r k 2. G e n e r a l i m p r o v e m e n t committee that functions w h e n requested by the council on particular problems of plant housekeeping

LEEDS

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COMPANY

153

3 . Science club committee 4 . L u n c h room committee C . Entertainment and athletics 1 . Committee in charge of athletics 2. C o m m i t t e e in charge of glee club 3 . Reception and entertainment committee

T h e record of the cooperative association is not one of unmixed success, for its earlier years of accomplishment were followed by an unsatisfactory period, which occurred during the depression of 1 9 2 1 - 1 9 2 2 . T h e management, preoccupied with difficult business situations, made wage reductions and layoffs summarily. T h e council, jealous of its prerogatives, which it felt had been infringed upon, became inactive and lost standing with the workers. From this experience, the management became impressed with the necessity of treating the council's advice and suggestions with respect if the latter was to take its duties seriously. Consequently, care was taken in the retrenchment of 1 9 3 0 - 1 9 3 3 to seek its cooperation. When compliance with its recommendations or requests is not considered advisable, the reasons must be made clear after the whole subject has been explored thoroughly by joint committees seeking a mutually satisfactory adjustment. Guided by this experience, the council and management have, in recent years, achieved a high degree of mutual understanding. Since the cooperative association has created an impressive record of accomplishment, the management feels that, although a more highly developed personnel department might have been employed for the same ends, a plan less democratic would not have been equally successful in developing an organization permeated by good will. T h e extent to which supervisors and workers are informed as to the trends of the business is indicated by the fact that the monthly figures of orders, shipments, and unfilled orders and their comparison with the budget estimates are posted in chart form on bulletin boards in the cafeteria and near the factory entrance. These charts show both the trends and the absolute figures.

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EXECUTIVE

GUIDANCE

Among the multitude of influences that affect esprit de corps is the physical setting in which each employee spends his working hours. In common with our other cooperating concerns, this one provides excellent physical working conditions. T h e lighting is especially fine: in fact, the intensities of illumination in the shop and clerical departments range from 25 to 35 foot-candles, whereas in many firms an intensity of 1 0 foot-candles is considered sufficient. T h e significance of this firm's prosperity and growth must not be lost sight of in an evaluation of its policies and experiments in the field of industrial relations. It has participated in the development of the electrical industry, and its products have been in demand by engineers because of the excellence of their workmanship and the attention devoted to their servicing. Since the company's management problems have been primarily those of product design, the maintenance of high standards of precision, and the close coordination of its activities, the building of harmonious teamplay among qualified individuals has been important. 5 " Of the force normally employed, only 40 per cent are engaged directly in production. T h i s percentage is small because of the large amount of engineering required, the diversification of the line which increases the tools and jigs, and the carefulness with which the parts are inspected.

R . H . M A C Y AND C O M P A N Y , N E W YORK, N E W

INCORPORATED1 YORK

R . H . M a c y and C o m p a n y is the largest department store in the w o r l d . It has merchandising skill of a high order which is reflected in its personnel relations. Perhaps the most significant feature of its personnel management is its close " t i e - i n " with the operating management. T h o u g h it places its employees under h e a v y pressure during the busy months, this company has devoted unusual attention to training, the review of salaries, and the care of the sick. In fact, the dispensary of this firm is so well planned and up-to-date as to merit especial mention.

Place of the Personnel Department in the Organization T h e emphasis which successful retailers must place upon the attention to customers and the relative importance among the expense items of labor cost explain w h y top executives in this store concern themselves with problems of .personnel. N o t only does M r . P e r c y Straus, president and chairman of the ' N u m b e r of employees: 8,ooo to 15,000 depending upon the time of year. Nature of business: retail department store. Affiliated stores: L . Bamberger & Company, Newark, N . J . ; Davison-Paxon Co., Atlanta, G a . ; LaSalle & Koch Co., Toledo, O. This store has grown under the guidance of certain definite, though unique, policies. 1. It buys for cash and has batteries of clerks to see that each bill is paid to secure both the maximum time and the maximum discount. 2. It sells for cash and has no charge accounts. 3. It aims to undersell its competitors in metropolitan New York by at least six per cent. 4. Last but not least, it emphasizes effective publicity and shows a flair for skillful merchandising. Certain of the 149 departments have been built up until they are famous, the five most important in sales volume being furniture, drugs, housefurnishings, silks, and toys. T h e drug department is said to be not only more complete in its stock than most drug stores, but like the nearby book department, it is a magnet for customers on account of its low prices. ( " R . H. Macy & Co., Inc.," see Fortune, M a y 1 9 3 0 , page 82, and April 1 9 3 3 , page 3 1 . ) 155

156

EXECUTIVE

Éz Ü2 o

z

Ö u >

X Q: Li_

0 I— q: < 1

o z o

GUIDANCE

K

O iILris-Otì> J-O 3Q O 3D OlJ X CL Iii 5o6 N u m b e r of p a r t i c i p a n t s in possession of one or m o r e shares of stock '>851 S h a r e s of stock held b y 1 , 8 5 1 participants 1 14,85 + A v e r a g e n u m b e r of shares held per s t o c k h o l d i n g participant 62 N u m b e r of shares of stock held by trustees f o r the benefit of u n p a i d - u p accounts 66,561 T o t a l p r o f i t - s h a r i n g d i v i d e n d s p a i d and credited to 4 , 5 0 6 p a r t i c i p a n t s d u r i n g fiscal y e a r e n d i n g J u n e 3 0 , 1 9 3 3 . $ 5 6 8 , 7 1 8

PROCTER

AND GAMBLE

COMPANY

169

chased for him at the average market price of all stock purchased during the quarter for profit-sharing accounts. Either upon retirement for age or after receiving 52 weeks of disability benefit, the employee ceases to be a participant in the plan and receives the shares of common stock paid for at the time of his retirement regardless of the length of time he has been in the plan. T h e pension and benefit plan is based upon a definite contract between the company and those employees earning not more than $ 3 0 0 a month. ( I f a man's salary should rise above this figure, he may continue as a participant if he so desires.) T h e pensions range from $ 1 0 a month for a man with 1 0 years of service or less to $60 a month for one who has worked 30 years or more. T h e retirement age is 65 for men and 55 for women. T h e plan also provides benefits in case of death ( $ 1 , 0 0 0 for men and $ 5 0 0 for women). T h e pension and benefit funds are contributory; the company pays $ 2 0 per $ 1 , 0 0 0 of aggregate yearly wages, and each eligible employee pays half as much. T h e company's contributions comprise the fund from which are paid pensions, death benefits, benefits for total and partial disability, and any deficits in the sick benefit account. Total disability benefits for the first year equal two-thirds of an employee's wages, with a maximum annual payment of $ 1 , 6 0 0 . A f t e r the fifty-second week, he receives an allowance computed according to the retirement schedules.

Sup-ply and Maintenance of an Effective Labor

Force

T h e Employees' Service Department not only hires new employees, but interviews all workers whom foremen wish to discharge in order to locate them elsewhere in the plant if such action seems wise. This means that foremen may discharge men from their own departments but not from the company. Several of the plants have an athletic association. T h e company operates a loan fund from which employees facing an extreme emergency may borrow up to $ 4 0 0 at four per cent interest.

EXECUTIVE

170

GUIDANCE

Constructive work to insure the safety of employees is the responsibility of the local safety engineer. In the execution of his plans, the engineer is aided by committees, composed of workmen. In addition, his central staff audits the safety procedure in each factory and mill. T h e main responsibility for the program, however, is in the hands of the operating executives, who are being made increasingly aware of it. Joint

Relations

T h e company has not carried on collective bargaining with unions, but it has a formal plan of employees' conference committees at all of its factories. Moreover, a workman from each of the three largest plants, Ivorydale, N e w Y o r k , and Kansas City, is elected each year to the board of directors. 4 These members may both enter into the discussion and vote. 4 T h i s is the only one of the c o o p e r a t i n g companies w h e r e workers, as such, are represented on the board of directors.

T H E

ROCKY

MOUNTAIN

DENVER,

FUEL

COMPANY1

COLORADO

" T o establish industrial justice, to substitute reason for violence, confidence for misunderstanding—to defend our joint undertaking against every conspiracy or vicious practice which seeks to destroy i t " — s o runs a clause in the contract between the Rocky Mountain F u e l Company and the United Mine Workers of America. Workers and owners have an equal and independent voice in determining working conditions and wages, but the union members are so much a part of the joint program that they not only offered on one occasion to lend one-half of their wages to pay the bond interest but have engaged in an active campaign to increase the sales of the company's product. 2 This contract forms the basis for an industrial relations policy that is unusually straightforward and that has provided higher vv£ge_rates and lower costs than in the average Colorado mine. Despite an almost complete lack of welfare activities, this company has attained the essentials of successful labor relations in an industry which is both sick economically and burdened with a tradition of strife between owners and workers. During some forty years, the owners and workers in the Colorado coal field engaged in warfare. On Thanksgiving D a y , 1869, the Knights of Labor was organized in the home of Uriah Stevens, a member of the Garment Cutters Society of Philadelphia, and between 1 8 7 0 and 1 8 9 0 small groups were formed throughout the country to work for better wages, hours, and conditions. A joint convention of the National Dis1 Products: screened lignite and bituminous coal f o r domestic use and steam coal f o r industrial purposes. N u m b e r of employees: 1 9 3 1 — 6 1 5 ; 1 9 3 2 — 5 3 1 . T h e second largest coal c o m p a n y in C o l o r a d o . ' O f the $ 7 7 , 0 0 0 which the employees contributed, a l l but $ 9 , 0 0 0 has been repaid and the debt is being reduced continually.

171

172

EXECUTIVE

GUIDANCE

trict Assembly, 1 3 5 Knights of Labor, and the National Progressive Union (all coal miners) met in the City H a l l at Columbus, Ohio, on January 23, 1890, and formed the United Mine Workers of America. Shortly thereafter they began to organize the coal miners of Colorado and later staged the bitter and violent strike of 1903 which resulted in an 8-hour day and higher wages in the coal mining industry in that state. In the years that followed, the whole coal industry suffered from intense competition created chiefly by the excessive opening of mines. T h e discontent of the miners with their conditions led to the tragic Colorado fight of 1 9 1 3 - 1 9 1 4 which, with its bloodshed and bitterness, culminated in the so-called Ludlow Massacre of April 20, 1 9 1 4 . Again in 1 9 1 9 , there was a strike for higher wages that was settled by a wage of $7.50 per day. But when the Jacksonville scale expired in 1 9 2 7 , the Colorado industry was once more enveloped in a labor struggle, led this time by members of the I . W . W . T h e horrors of this strike, in which five men were killed at the Columbine mine of T h e Rocky Mountain Fuel Company, seemed so intolerable to Miss Josephine Roche, then the largest stockholder of the company, that she determined to obtain sufficient stock control, at whatever cost, to permit her to put into effect the policy of industrial justice and union cooperation she had long urged upon her company. F o r a year, 1 9 2 7 , she exercised minority control only, but management economies which she was able to introduce won for her enough proxies at the end of the year to control a majority of the board of directors. This control she later solidified by purchasing the interest of another stockholder. She found the company burdened with heavy fixed charges and a none-too-efficient management. F o r example, at the time of the so-called Ludlow Massacre in 1 9 1 4 the then active management of her company had spent a half million dollars on preparations for war with its workers, including the installation of electrically charged barb wire and machine guns. Miss Roche, who had publicly announced at the time she took over the company that she would recognize and deal with

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MOUNTAIN

FUEL

COMPANY

173

the union if the miners organized, again invited the miners to unionize the Rocky Mountain mines. A f t e r the organization had been effected, officials of the company met with the local and national officials of the United Mine Workers of America in the late summer of 1928 and signed the covenant referred to above. T h e new policy reassured skilled miners who had been unable to get work in the Colorado mines because of their part in the strike of 1 9 1 3 - 1 9 1 4 , and they came back from the Colorado hills and even from Wyoming and other states. M r . J o h n R . Lawson, who had been an active union leader in the 1 9 1 3 - 1 9 1 4 struggle against the three big Colorado coal companies, was brought into the Rocky Mountain F u e l Company by Miss Roche and made a vice-president. So the man against whom this company had fought in that bloody and dramatic struggle was enabled to bring his sense of fairness and broad labor philosophy to bear upon its problems. It is clear that in this company one does not need to look far for those who are the inspiration for that confidence in the company which is the first attribute of its successful dealing with its employees. Miss Roche as president, M r . E d w a r d P . Costigan as general counsel, and M r . J o h n R . Lawson as vicepresident are the nucleus whose honesty of purpose plays an unquestioned part in the whole arrangement. Miss Roche, with a background of study of economics and social problems, wide experience in social welfare work in the East, and years of service in the Juvenile Court in Denver, has high ideals of industrial justice and natural sympathies with the workers which make her one of the outstanding figures in industry. She is probably the first woman to be president of a large coal company in the United States, and her guidance of the company in the face of difficulties stamps her as an able executive. T h e administration of the personnel policy of the company is joint between the company officials and superintendents, and representatives of the miners. Although the signed union contract specifies how the wages and hours are to be treated, it has been interpreted as neither limiting the development of in-

174

EXECUTIVE

GUIDANCE

formal friendly relations nor as a mechanism for rigid control. Rather, it has served as a point of departure from which both union workers and company management might work toward their common objective.

Method of Counteracting Irregular Production and Employment Until 1 9 3 2 the total number of miners employed was little affected by the depression, there being 595 employees in 1 9 2 9 , 623 in 1 9 3 0 , 6 1 5 in 1 9 3 1 , and 5 3 1 in 1 9 3 2 . T w o explanations account for this unusual record. First, the union committees arranged for the rotation of work during slack months. Second, the sales were increased by the help of the miners and their union friends so that 1 9 3 2 was a better year both in volume and financial results than were any of the three preceding years. T h e policy of rotating work was started in 1 9 3 0 . T h e r e were then 6 2 3 employees on the payroll as compared with 5 9 5 the year before, but production declined 1 3 per cent (that for the entire state f e l l 1 7 . 5 per cent). In the spring when the work began to slacken, the available employment was allocated to those considered to be regular employees. Stability of employment has a most unusual meaning for the employees of this company; at least, their solution of a situation which endangered the control of the concern is unusual. In the spring of 1 9 3 1 the competitors of the Rocky Mountain F u e l Company made a drive to reduce wages, but the Rocky Mountain F u e l Company not only maintained its high wage scale but strove to prevent wage reductions in general. This wage reduction move was followed by a price-cutting campaign directed against Miss Roche's company in the summer of 1 9 3 1 , and this price war bid fair to be disastrous, f o r it endangered the payment of bond interest which fell due in October. T h e six hundred miners adopted resolutions voting to the company a loan of half of their wages for the months of August, September, and October to enable it to meet the price cuts in coal which had followed wage reductions in nonunion mines. T h i s remarkable evidence of cooperation on the

ROCKY

MOUNTAIN

FUEL

COMPANY

175

part of the miners not only assured the company's ability to meet its bond interest but also served as definite notice to the non-union operators that the union miners were determined to carry out the purpose declared in their contract of defending their joint undertaking with the Rocky Mountain Fuel Company "against every . . . practice which seeks to destroy it." This loan was accepted by the company on the condition of its return to the miners as soon as conditions improved. Wage

Payment

Until June 1 9 3 2 , the daily wage in the Rocky Mountain mines was $7.00, or 23 cents more than that paid by other companies in Colorado. In return for the differential which he received, the Rocky Mountain miner dug in 1 9 3 0 one and three-fourths tons more coal per day (per man employed in and about the mines) than the average miner in the state. In 1 9 3 3 the production per miner (i.e., one engaged in actual mining) per day in the Rocky Mountain mines was 1 0 . 5 tons, whereas the production per miner per day for the state as a whole was only 7.8 tons. There is a limit, however, to the gap which can be bridged by greater productivity. This fact was clearly recognized by the union officials at the time the agreement was written and, at their suggestion, a clause was inserted to make the wage scale flexible as an aid to the permanence of the concern. This flexibility provision states that whenever wage reductions affect more than 5 1 per cent of the tonnage produced in the Rocky Mountain F u e l Company's field of operations, other than the tonnage produced by the company itself, the wages of the Rocky Mountain F u e l Company are to be adjusted. For example, the daily wage for an 8-hour day was reduced from $7.00 to $ 5 . 2 5 in M a y , 1 9 3 2 , but the reduction maintained a differential of approximately 25 cents per day over wages paid by other Colorado coal companies. T h e higher productivity of the Rocky Mountain miners may be explained in part by their greater skill and in part by the esprit de corps which has been fostered. Whatever be its cause, the gain in productivity has been steady since 1928.

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GUIDANCE

In that year, the output per man per day (including all men employed in and about the mines) was 5.27 tons; in 1 9 2 9 , 5.98 j in 1 9 3 0 , 6.49; in 1 9 3 1 , 6.2 j and in 1 9 3 2 and 1 9 3 3 , 6.3. This improvement was the result of greater labor efficiency, for little labor-saving machinery was installed during that period. Operating cost in 1 9 3 2 was 4 1 . 2 cents a ton lower than in 1928. (Operating cost in 1 9 3 0 was the same as in 1929, but 19 cents below that of 1 9 2 8 ; 1 9 3 1 was 7 cents below 1 9 3 0 ; and 1 9 3 2 was 15.2 cents below 1 9 3 1 , making a total reduction since 1928 of 4 1 . 2 cents.) During that same period, the administrative and selling costs were also reduced greatly through improvements in management. In addition to the fact that this company's wage rates are higher than those of the other coal companies in Colorado, what is even more important is that payment under the contract for various kinds of work not paid for by non-union operators makes the actual earnings of the union miners of this company very much higher than those received by other miners. T h e average annual earnings paid Rocky Mountain miners were $ 1 , 6 6 1 in 1 9 2 8 , $ 2 , 1 0 4 m r 9 2 9> $ r > 7 5 9 ' n I 93°> $ r > 7 7 0 in 1 9 3 1 , $ 1 , 6 5 0 in 1 9 3 2 , and $ 1 , 3 3 1 in 1 9 3 3 . T h e high average earnings for the last three years have added significance when the fact is taken into consideration that rotation of work in the summer was in effect in those years. Supply

and Maintenance

of an Effective

Labor

Force

Since the management of the mines and the direction of the working force is vested in the company's managers, the latter have the right to hire and discharge. However, in case of a grievance, the privilege is extended to the workers of making anjnvestigation and-seeking an adjustment. Under the terms of the agreement, the management may impose penalties for absence without notice, for loading impure coal, or for other failures in the performance of duty. T h e personnel arrangements of this company lack many of the service features which are customary. However, a deduction is made from the monthly wages ( $ 1 . 0 0 for single and

ROCKY

MOUNTAIN

FUEL

COMPANY

177

$ 1 . 5 0 f o r married m e n ) to assist in maintaining the medical and health service. T h e mine physicians, in cases of ordinary illness, furnish medical service to both miners and their families. A m o n g other services provided is the furnishing of house coal to employees at a price fixed by the company and the local unions. T h e safety w o r k in the mines of the company has been sufficiently effective to keep the fatality record l o w . I n 1 9 2 9 there was only one fatal accident; none in 1 9 3 0 ; three in 1 9 3 1 ^ and none in 1 9 3 2 and 1 9 3 3 .

Joint

Relations

A s already indicated, the union-management arrangement is the distinguishing feature of this company's management. U n d e r this agreement, the union has the right to investigate and take part in the adjustment of grievances. In each mine a pit committee consisting of three men selected by the miners acts in the settlement of grievances in cases in which a pit boss and a miner, or a f o r e m a n and a laborer fail to agree. I f this committee cannot reach an agreement with the pit boss in question, the case is discussed by the mine superintendent and the pit committee. T h e i r f a i l u r e to agree w o u l d send the case to the district president of the U n i t e d M i n e W o r k e r s of A m e r ica and the manager of mine operations, and if there is still no agreement, it is passed upon by the president of the company and the national president of the U n i t e d M i n e W o r k e r s of America, or their representatives. D u r i n g this process, it is provided that w o r k must continue; there must be neither strike nor lockout. T h e statement of principles that forms the preamble to the contract between company and union is worth reproducing in full. " W e , the signers of this document, seeking a new era in the industrial relations of Colorado, unite in welcoming this opportunity to record the spirit and principles of this agreement. " O u r purposes a r e : " T o promote and establish industrial justice; " T o substitute reason for violence, confidence for misunder-

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GUIDANCE

standing, integrity and good faith for dishonest practices, and a union of effort for the chaos of the present economic w a r f a r e ; " T o avoid needless and wasteful strikes and lockouts through the investigation and correction of their underlying organization. " T o stabilize employment, production, and markets, through cooperative endeavor and the aid of science, recognizing the principle that increased productivity should be mutually shared through the application of equitable considerations to the rights or workers and economic conditions affecting the operations and the business of the Company. " T o assure mine workers and operators continuing benefits and consumers a dependable supply of coal at reasonable and uniform prices; " T o defend our joint undertaking against every conspiracy or vicious practice which seeks to destroy it; and in all other respects to enlist public confidence and support by safeguarding the public interest."

T H E SAMARKAND COMPANY1 SAN FRANCISCO, CALIFORNIA

In any discussion of personnel, the declaration is likely to be made by some one, " Y e s , but I don't need all this in my company you see it is s m a l l . " F o r many activities, this has the ring of truth; for others, it is merely an excuse. T h e Samarkand C o m p a n y is the smallest of those cooperating in this study, yet its program is worthy of special emphasis because of the care taken to protect its employees even after the death of the present owners. Its program is one of the f e w in which employment is guaranteed. Each employee is assured of twelve months of employment, including t w o weeks' vacation with pay. Its other outstanding developments are a pension plan in which the accrued liability f o r service prior to the initiation of the plan was paid up by the company and a profit-sharing scheme for all employees, excluding officers, who have five years or more of continuous service. In addition to the other means to insure the continuance of its personnel policies, arrangements are being made for the common stock to be purchased by five persons, including the now active managers, in the event of the death of any of the principal stockholders. In the words of M r . J . P . Rettenmayer, President, " T h e purpose of this program is to plan, prepare and provide against the common hazards of life, such as poverty, illness, non-occupational accidents, emergencies, old age and death. M a y it be stated at the outset that there is no paternalism in any of the plans that constitute this program. It is but an expression of our understanding of the principles that underlie the relationship of M a n a g e m e n t , E m p l o y e e s , and Stockholders. 1 Product: ice cream Region served: San Francisco, Los Angeles, and Oakland Number of employees: 56

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EXECUTIVE

GUIDANCE

" E a c h part of the program has been carefully scrutinized as to the effect of its application upon the four parties to industry, i.e., Labor, Capital, Management, and the Public. It is realized that the success and permanency of this program is directly dependent upon the benefits it produces for all the parties concerned. If it were to operate for the benefit of some at the expense of the other parties, it would naturally fail. W e especially recognize a mutuality of interest in our relations with the organization personnel, a common ground for the promotion of our mutual welfare, opportunities for service and the attendant responsibilities."

Financial Provisions to Enhance Employee

Security

T h e owners of this business have provided safeguards for the future security and opportunity of its employees that are quite unusual. T o prevent the jeopardy of the program in the event of the death of M r . J . P . Rettenmayer, he and M r s . Rettenmayer, who are the principal holders of the common stock, have provided in their wills that their respective stockholdings in the company shall not be acquired by their heirs. Specifically, this provision is that in the event of M r . Rettenmayer's death or upon the expiration of the ten-year period beginning in 1 9 3 1 , a group of five persons shall have a six months' option to purchase at book value the common and preferred stock of this corporation held by M r . and M r s . R e t tenmayer. T h e terms are 1 0 per cent at the time the option is exercised and the remainder in ninety monthly installments of one per cent each month with interest at six per cent per annum. Should any of these five individuals have ceased to be actively engaged in the conduct of the business or have become identified with a competitor, his interest, right, and title in the said option terminates. Appropriate provisions are made f o r the filling of vacancies that may occur within the group to which the options are granted. Although the latter may retain f o r themselves such portions of the stock as they desire, it is the wish of the present principal stockholders that the stock be shared with other members of the organization.

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COMPANY

181

A pension or retirement annuity plan, underwritten and administered by an insurance company, became effective A p r i l i , 1 9 3 1 . It is contributory, that is, the employee pays a part of the cost of the proposed retirement income, but the company assumed the entire cost of the accrued liability incident to service prior to A p r i l i , 1 9 3 1 . N e w employees have the privilege of joining on the first anniversary date of the plan which follows the completion of one year of service. O f ficers are also eligible. F o r men, the normal retirement date is the anniversary of joining the plan nearest the sixty-fifth birthday, and for women, the sixtieth. W i t h the consent of the company, an employee may retire before or after the normal retirement date and receive an adjusted amount of retirement income. In the event of withdrawal f r o m the organization prior to the normal retirement date, the employee has three options: 1 . T o h a v e all of his contributions r e f u n d e d in cash by the insurance c o m p a n y . 2. T o continue his contributions to the insurance company and receive a m o n t h l y income payable for life f r o m the n o r m a l retirement date, as provided by the total a m o u n t of his contributions. 3 . T o leave his contributions with the insurance c o m p a n y and reccive a m o n t h l y income payable for life f r o m the n o r m a l retirement date, as provided by his o w n contributions up to date of w i t h d r a w a l .

In case of death before retirement, all contributions made by the e m p l o y e e are returned to his or her beneficiary. In the event of death after retirement, any excess in the amount of the employee's contributions over the amount of retirement income that may have been received is paid to the beneficiary. T h e retirement income in the schedule below is approximately one and one-half per cent of the average salary while a contributor. W i t h one exception, a period of at least sixteen years will elapse before an employee reaches the age of sixty-five. Consequently the cost is much less than that imposed upon firms which delay making provision for pensions until a large num-

EXECUTIVE

182

GUIDANCE

S C H E D U L E OF B E N E F I T S A N D C O N T R I B U T I O N S

Annual R a t e of Salary

$ 1 0 0 0 and less 1001-1400 1401-1800 1801-2200 2201-2600 2601-3000 3001-3400 3401-3800 3801 and over

M o n t h l y R a t e of Retirement Income for E a c h Completed Employee's M o n t h l y Y e a r as Contributor Contribution in Salary Class $1 . c o 1.50 2.00 2.50 3.00 3-5° 4.00 4.50 5.00

$2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00

ber of employees are ready for retirement. T h e company reserves the right to change or discontinue the plan, but any change or discontinuance cannot effect the contributions a l ready made. Other provisions for employee protection are as follows: 1 . Group life insurance in amounts of $2000 per person, except heads of departments, who receive insurance certificates of $ 4 0 0 0 . T h e insurance is of a contributory type. Upon an employee's attaining ten years of service, the insurance becomes non-contributory. T h e insurance includes disability benefits amounting to $ 1 8 per month per thousand dollars insurance for a period of sixty months in case of total and permanent disability. Commencing with the expiration of a ninety-day period of total and permanent disability, benefits are paid by the insurance company direct to the disabled employee. Officers of the company are included in this plan. 2. Health and non-occupational accident insurance, the cost of which is shared equally between employees and T h e Samarkand Company. T h e employee participation is unusually high, for when the plan was installed, all the employees in active service availed themselves of this protection. N e w employees are eligible upon the completion of one month of service. 3. A credit union organized under the laws of the State of California and operated by the employees provides funds to meet the emergencies of its members. In its method of operation, or-

SAMARKAND

COMPANY

183

ganization, and control, the credit union is a miniature bank, concerned with the smallest units of savings and equally small questions of credit. T h e funds of the credit union are accumulated by the sale and issuance of shares which may be paid in cash or in regular weekly or monthly installments. From its funds, loans are made to members upon the approval of the credit committee and are repayable over such a period of time as the credit committee may deem wise. Loans are subject to the need, character, industry, dependability, and responsibility of the individual. T h e company, with the approval of the directors of the credit union and the sanction of the appropriate state officials, has subscribed 50 per cent of the shares, but it is allowed only one representative on the board of directors. 4. T o encourage thrift, the company pays its employees an amount equal to interest credited to them on savings accounts deposited out of their current earnings. Deposits are not to exceed $ 2 5 per month and a total of $600 per employee. T h e money is deposited at banks in San Francisco, Los Angeles, and Oakland in the names of the individuals and is subject to withdrawal at will. This arrangement provides availability of the principal and seven per cent interest per annum. Officers of the corporation are not eligible to participation.

Wage Payment T h e management policy is to pay salaries equal to, or higher than, the wage scales of the leading San Francisco, Oakland, and L o s A n g e l e s corporations for comparable services and responsibilities. In addition, all heads of departments and salesmen (excluding officers) are eligible to participation in a profit-sharing arrangement. Other employees do not participate until they h a v e a continuous service record of five years. T h e amount of the profit-sharing f u n d in any year is 2 5 per cent of the profits of that year in excess of the average of the five years 1 9 2 6 to 1 9 3 0 , inclusive. Bonuses are paid in the same f o r m in which the stockholders' dividends are paid, i.e., in cash or stock, or bpth. T h e apportionment of the profitsharing f u n d is based upon the ratio of the yearly salary of each eligible employee to the total of the salaries of those eligible over and above the average annual net profits for the five years mentioned above.

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T h e management considers this entire program practical and workable and believes that all of the plans can be continued indefinitely. T h e right, however, is reserved to make changes to meet conditions beyond its control or that may be deemed advisable in the light of experience. Supply and Maintenance of an Effective Labor Force An annual medical examination of all employees is provided at the company's expense, and upon application, care is provided for cases of illness or non-occupational accident. Since the output is a food, it is vital that the employees should be free f r o m communicable disease and ailments as well as conditions that cause impairment of health and effectiveness.

STANDARD O I L C O M P A N Y

(NEW

N E W YORK CITY, N E W

JERSEY)1

YORK

T o one analyzing variations in personnel practices and results, the Standard Oil Company (New Jersey) presents three noteworthy features-yits employee representation, its annuity plan, and the high degree of participation of its employees in contributory plans for their protection. Its president, Mr. Walter C. Teagle, has been a national leader of the movement to share work in order to relieve unemployment. Place of Industrial

Relations

Work in the

Organization

In common with the other Standard Oil companies, the general organization structure emphasizes the decentralization of authority and responsibility. In line with this policy, each refinery has a personnel manager, who reports to the general superintendent^ and similarly, other large operating units have men in charge of industrial relations work responsible to the head of the particular u n i y T h e industrial relations staff at headquarters keeps contact with the various field operations and has general staff supervision over questions affecting industrial relations policies and uniformity of methods. Methods ment

of Counteracting

Irregular

Production

and

Employ-

F o r many years this company has had in effect a six-day week as well as a basic eight-hour day or its equivalent. T h e ' N a t u r e of business: holding company; subsidiaries and affiliates are interested in the production, refining, and distribution of petroleum products in domestic and foreign markets. Number of domestic employees: 1 9 3 0 — 5 4 , 6 8 1 ; 1 9 3 1 — 4 6 , 1 9 7 ; 1931— 46,388. T h e total number of employees on December 3 1 , 1 9 3 2 , throughout the world was 120,469. T h e area of domestic operations of the company extends from Maine to T e x a s , and the refining and producing operations over the entire world. 185

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effects of the various plans to improve the relationship of employees and company were a gradual reduction of labor turnover, with the result that even in boom years, the turnover rate was very low. E a r l y in the depression, it was determined that every possible effort should be made to continue in employment the competent employee. T h e early steps included the prohibition of new employees, the elimination of overtime work, and the making of all possible transfers. Some made-work was also attempted. L a t e r on, part-time work was extended, and finally, on J u l y I , 1 9 3 2 , the working time of every one was reduced to five days or forty hours a week. T h e hours of executives and supervisory employees whose duties required continuous attendance were not restricted. A l l salaried employees, including the management group, however, were reduced in pay the same as if they had been reduced in time. T h e hourly wage scales were not altered during this period. As early as 1 9 2 5 , the company paid cash layoff allowances where a shortage of work caused a layoff which could not be handled by any of the methods outlined above, the amount depending upon age and length of service.

Financial Provisions to Enhance Employee

Security

Reference has already been made to the fact that the participation of employees in the contributory features of the various financial plans is astonishingly high, in fact, the highest that we have encountered in any large company. F o r example, 93 per cent of those employees of subsidiaries who are eligible for the group life insurance plan have subscribed, and the participation in the contributory features of the annuity plan equals 75 per cent of those eligible, although participation in both of these plans is voluntary. T h e various provisions of these plans may be outlined as follows: 1 . Sickness benefits, which include compensation for accidents incurred while off duty. These are paid to employees with more than one year of service, if sick for more than seven

STANDARD

OIL CO. (NEW

JERSEY)

187

consecutive days. T h e benefits are at least equal to half pay, and date from the first day of absence with a maximum of 6 to 52 weeks, according to the length of service. These are paid wholly by the company. 2. T h e company provides payments to injured employees in excess of those required by the workmen's compensation statute. I t provides all medical care and treatment in the case of accidents occurring while the employees are on duty, f u l l pay for the first 1 6 weeks, and two-thirds pay for the next 36 weeks of total disability. Compensation thereafter is in accordance with the State Workmen's Compensation L a w . , 3. Death benefits paid by the company range from $ 5 0 0 to $2,000, depending upon the yearly earnings and length of service as well as the dependency of the beneficiaries left. These benefits are increased to a maximum of one year's pay if an employee has ten years of service and is in the group insurance plan. 4. T h e group insurance plan is paid for largely by the employee. Supplemental death benefits are provided by the company. T h u s , if an employee is subscribing to and paying for group insurance, he is eligible to take, after ten years of service, group insurance to the amount of one year's pay, and to receive an equal amount paid for by the company. 5. F o r all eligible employees, the participating companies provide retirement annuities at their own expense and without contribution from the employees: In addition, supplemental annuities are paid to those employees who contribute toward their cost. T h e participation in the contributory feature is wholly voluntary. Since the present plan was substituted for its predecessor on January 1 , 1 9 3 2 , employees in the service at that time receive for each year of service prior to 1 9 3 2 , an annuity of two per cent of their average annual pay during their last five years of service as provided under the former plan. T h e new arrangement, however, reduces the annuity from two per cent to one per cent for each year of credited service rendered after January 1 , 1 9 3 2 . Employees are permitted to build this one

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GUIDANCE

per cent company annuity up to two per cent by voluntary contributions of approximately one-half of the additional expense. T h e remainder is paid by the participating Standard companies. Separate funds or reserves are accumulated, one from the contributions of the participating companies for the payment of company annuities, and the other from the joint contributions for the payment of the supplemental annuities. These reserves are trusteed, and the company guarantees that they will be used only for annuities. T h e annuity reserves which had been accumulated by the end of 1 9 3 0 (prior to the present plan) totaled nearly $54,000,000. \ T h e annuities are intended primarily for those employees who reach the normal age of retirement and who have the necessary service credit^, T h e normal service requirement is 20 years. T h e normal retirement age was originally 65 for men and 55 for women/with optional retirement above age 60 (women 5 0 ) for those with 35 years of service; but in 1 9 3 3 , as part of the worksharing program, all directors, executives, and employees above age 62 were retired.'This temporary emergency measure is no longer in effect and the normal retirement ages mentioned above apply. H o w e v e r , the retention of male employees is subject to review at 62 and periodically thereafter until age 65, when retirement is mandatory. R e tirement for women is now mandatory at age 55. L i f e annuities, paid for by the companies, terminate on the death of the annuitant. This is true also of the supplemental life annuities, unless, at the time of retirement, the annuitant chooses to take a reduced supplemental refund annuity. In the latter case, if he dies before he has received, from the supplemental annuity, the sum of his contributions with compound interest at three per cent accumulated to the date of retirement, the difference is paid to his beneficiary or to his estate. If an employee desires to withdraw from the plan prior to his retirement, he is paid back his entire contribution with compound interest at not less than three per cent. This provi-

STANDARD

OIL CO. (NEW

JERSEY)

189

sion holds also for an employee leaving the company., I f his service after commencing to contribute exceeds twenty years, he has the option of receiving a deferred life annuity beginning at the regular retirement age and based upon his own contributions and those made by the participating companies toward his supplemental annuity. If an employee dies before becoming eligible for retirement, his contributions, together with compound interest at not less than three per cent, are paid to his beneficiary or to his estate. 6. T h e stock acquisition plan is an extremely liberal one in that it enables employees with one year of service to buy common stock by payroll deduction, with a contribution from the company of $0.50 for every dollar of the employee's money. T h e stock, which may either be treasury stock or be purchased on the open market, is held by trustees until the expiration of the period over which the payments are made. This stock purchase plan is unique not only in the liberality of the 50 per cent which is added by the company, but in the fact that the purchase price of the stock is adjusted semi-annually. Wage Payment T h e great variety of operations in this company makes any generalization as to wage payment difficult. In the refineries, .2yge.x2.tes are on an hourly ha sis.. In nearly all other operations, such as sales and producing, regular employees are carried on a salary basis, although they are considered wage earners. Most of the operations of this company do not lend themselves to the setting of output standards by time study. L a r g e scale equipment is to a considerable degree automatic and does not involve the individual repetitive work characteristic of industries using piece work. H o w e v e r , in a few cases, as in the package and barrel manufacturing, piecework and d i f ferential bonus plans are in effect. Considerable attention has been devoted by the management to wage and salary standardization so that basic salaries are fairly adjusted to the d i f ficulties and responsibilities of the work.

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GUIDANCE

I n 1 9 2 9 , the company adopted a five-year incentive plan for directors and other executives, but in the last three years that the plan was in operation, earnings were insufficient to provide a f u n d and the plan expired without replacement.

Supply and Maintenance of an Effective Labor Force • T h e hiring of employees is decentralized so far as the general company program is concerned, but is centralized in the individual units. Employment offices cooperate in balancing the force with the available work, and no one who is qualified is laid off without other nearby employment offices being notified. T h e latter are able to place many of these cases. T h i s method was given especial emphasis during the past three years as a means of dividing the available work. J o b training is constantly under way to improve the effectiveness of the force, and recently, considerable job training f o r the specific purpose of adapting old employees to newly developed jobs has been in progress with satisfactory results. Generally speaking, job training is carried on by the supervisors responsible for the various operations, with such help and guidance as the individual industrial relations offices can give.

Joint Relations T h e employee representation plan consists of joint conferences between the employees and the management concerning wages, hours, working conditions, and other matters of mutual interest. In case of dispute, the final decisions are rendered by the board of directors. 2 T h e main purpose of the plan, which has been in effect since 1 9 1 8 , is to provide a "means of contact between the management and every employee, and regular opportunities for collective action by representatives of the employees and of the management on all matters of mutual interest. In proposing this plan, the directors of the company believed that a system 5 In the plans applicable to some units, arbitration clauses have been inserted by agreement of employees and management.

STANDARD

OIL

CO.

(NEW

JERSEY)

191

which w o u l d create an opportunity for the honest expression and fair consideration of the views of all, and which w o u l d send men to their work with the consciousness that so long as the industry flourished their interests were safeguarded, must in the l o n g run bring results in efficiency, cooperation, harmony and mutual benefit, and promote justice to employees, officials and stockholders. Experience since the adoption of the plan has f u l l y confirmed this b e l i e f . " Representatives of the employees and management of the refineries in N e w Jersey adopted a joint agreement, which has since been the basis for handling all matters in which employees and management are mutually concerned. T h e plan was soon extended with slight modifications to the refineries at Baltimore, M a r y l a n d ; Parkersburg, W e s t Virginia; and Charleston, South Carolina. It has now been adopted in all subsidiary companies. T h e representation plan has also been installed, with such changes as were necessary because of scattered personnel, and peculiar field conditions in the marketing, pipe line, producing, and other field operations. In accordance with the general method and rules of the original election, as amended from time to time in joint conference, annual elections of employees' representatives are held in each of the units. E m p l o y e e s in each plant or field vote by districts or divisions agreed upon by the joint conference. T h e number of representatives varies from one for each 150 employees in the larger units to one for 50 employees in the smaller, usually with at least two representatives in each division. I n each division, election is h e l d under the supervision of the employee representatives. M e n on all shifts are given opportunity to vote during their working hours. A l l employees except those identified with the management, such as general officers, managers, superintendents, department heads, timekeepers, foremen, sub-foremen, are entitled to vote, and are eligible for election. T h e plans do not specifically limit to actual employees eligibility to serve as representatives. In actual practice, however, representatives have always been cho-

192

EXECUTIVE

GUIDANCE

sen from among employees. This customary procedure is embodied in election notices and ballots. Each employee who is eligible to vote is given a ballot upon which he may write as many names of eligible employees in the division as the number of representatives to which the division is entitled (that is, if the division is entitled to four representatives, he may write four names on the ballot). T h e joint agreement, first adopted in 1 9 1 8 , has continued in effect with a few slight changes which were made necessary by the different conditions in different plants, or which were found desirable as a result of experience. T h e agreement is broad in its terms and does not include by-laws or rules of procedure to cover every case that may arise. It would be difficult to make rules of this kind because of differences in the nature, size, and organization of the various plants and even of the different departments in one plant. T h e first part of the joint agreement for large plants relates to employment and to the duties of the personnel department. These sections outline the work of the personnel or employment office and the general principles under which it operates. T h e routine of the office is carried on under a "book of procedure" which, in harmony with the joint agreement, lays down definite rules under which employees are hired, transferred, laid off, or discharged. In addition to the supervision of employment and training, the personnel office is charged with the duty of maintaining a close relationship with the administration of all the labor policies of the company and with all dealings conducted under the representation plan. Employees are encouraged to consult the personnel office either personally or through their elected representatives on matters connected with employment, training, promotion, and transfer, as well as upon other questions relating to the labor policy of the company. T h e hiring, promoting, transferring, or discharging of employees is a duty of the management, except as this duty is limited expressly in the joint agreement. T h e management also has the responsibility for deciding as to the necessity for layoffs on account of lack of work and for determining which

STANDARD

OIL CO. (NEW

JERSEY)

193

employees should be laid off. I n promotion or transfer or in layoff because of lack of work, the management weighs, among other factors, the employee's demonstrated ability in his work as well as his seniority in the company's service. T h e management necessarily must j u d g e as to these factors. T h e sole responsibility for making these changes, and for the selection of foremen and other officials, rests with the management. T h e joint agreement in all units contains a list of the offenses for which an employee may be suspended or dismissed without notice, and provides that for any offense not included in the list, an employee shall not be discharged without first having been notified that a repetition of the offense will make him liable to dismissal. I t also outlines a procedure for discharges that prevents hasty action and requires final consideration by the general superintendent or branch manager before an employee can be discharged. As a further safeguard of the rights of the employees, lists of all men discharged and suspended, with their names and the offenses of which they were guilty, are sent each month to the president of the company concerned. T h e list of offenses for which an employee may be suspended or discharged without notice is posted throughout the works or field, and, like everything else in the agreement, was adopted j o i n t l y by employees and management. A suspension or discharge in accordance with the terms of the joint agreement is not subject to review or repeal except as to whether or not the dismissed employee was guilty of the offense with which he was charged. I f the offense is admitted or proven, it is entirely within the discretion of the management to decide whether the penalty shall be suspension or discharge. T h e representative is guaranteed by the company against any unfair discrimination or retaliation resulting from his efforts on behalf of the employees. I f he believes that he has been thus discriminated against because of his activities as a representative, he has the right to appeal direct to the general superintendent, to the works branch manager, to the executive council in the larger plants, or to the works joint conferences T h e employees' representative in acting on behalf of the

194

EXECUTIVE

GUIDANCE

men in his division deals with the representatives of the management in various ways, depending upon the nature of the business. Generally, the dealing is personal between the representative and a foreman or other official. Matters which are not settled by this method of personal dealing usually are then taken before j oint conferences or committees. T h e first of these is the division joint conference, made up of the employees' representatives of the division and representatives appointed by the management. A division conference is called whenever occasion requires, and is usually concerned with a specific problem affecting only a particular group. T h e works joint conference in a refinery or the branch joint conference in sales, for example, consists of all the elected representatives of a plant or sales territory and a like number of representatives appointed by the management. They meet at regular intervals to discuss the general problems of the organization. In the larger works, there is also the executive council, which consists of a small number of employees' representatives elected by and from the entire body of plant representatives and of an equal number of representatives of the management. This body regularly meets in the intervals between sessions of the works joint conferences. In addition to these joint conferences at each refinery, there is for the three New Jersey refineries, because of their close relationship and proximity, an annual j oint meeting participated in by all the elected and appointed representatives of the three plants. In all the units, employee representatives meet by themselves if they wish to do so. T o the management, one of the most satisfactory features of the industrial representation plan is that, while a clearly defined procedure of appeal to the higher officials has been provided, yet in actual practice nearly all cases taken up by individual employees or by groups are settled inside the plants in which they originate. Everything is done to encourage the settlement of all such questions by the representatives and the supervisor concerned.

STANDARD O I L C O M P A N Y OF CROCKETT,

CALIFORNIA1

CALIFORNIA

T h e activities of Standard of California are as varied as those of any corporation in the study. F r o m producing oil at Kettlemans H i l l s to operating ships on the Pacific Ocean involves a wide range of crafts and occupations, many of which require long experience. F o r instance, a field superintendent must " b o s s " his men, build roads, buildings, and pipe lines, and attend to leases with all their legal troubles. H e must be enough of a chemist to test oil for gravity and enough of a geologist to understand the drilling of a well. Likewise a pipe line executive encounters technical problems in the fields of hydraulics, electrical, mechanical, and civil engineering as well as the legal difficulties growing out of easements and rights of way. H e must be able to deal with owners of the orange groves through which his pipe lines pass in addition to caring for the technical j o b of pumping and testing oil. And a refining executive is still more of a jack-of-all-trades. I n addition to scores of petroleum products, he must supervise barrel, can, and box factories. I n such a situation, the personnel problem has almost as many variations as there are kinds of business and people. A solution at one point is not necessarily the best solution for all. As in all enterprises, the human relationships existent in this company are determined largely by the thinking and the background of its executives. T h e latter come chiefly from the ranks. T h e ten directors, for example, all started at the bottom. Company activities: the production, transportation, manufacturing, and marketing of petroleum and its products. Marketing areas: California, Oregon, Washington, Nevada, Arizona, Alaska, H a w a i i . In addition, it sells for export. T h e sales organization consists of 1 9 main sales agencies and 2 1 0 sub-stations. Refineries are at Richmond, E l Segundo, and Bakersfield. Number of employees: 1 9 3 2 — 1 5 , 7 2 5 . 195

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EXECUTIVE

GUIDANCE

Place of the Personnel Department in the Organization T h e company has a department of personnel that is associated, either actively or in an advisory capacity, with the administration of employment, promotions, and layoffs; wages, hours, and working conditions; accident prevention, sanitation and housing, lunch rooms, and recreational activities; sick benefits, pensions, and life insurance. T o facilitate its work, local representatives are stationed at various points throughout the field.

Methods of Counteracting Irregular Production and En>floyment This company has been among the leaders on the Pacific Coast in the battle to relieve unemployment, and its experience in spreading work has been useful to others because, on account of the diversity of its work, it has encountered technical problems in many forms. E a r l y in the current depression, in 1 9 3 0 to be exact, the company decided that the difficulty experienced by laid-off employees in securing work elsewhere made it expedient to place some of the employees on half and others on two-thirds time, especially in the producing fields. In assigning employees to this part-time force, the factors taken into account were length of service, marital status, and number of dependents. T h e fact that the company is highly integrated and engaged in a great variety of activities ( f r o m the production of its own raw material to wholesale and retail marketing) means that it has encountered the workspreading problem in diversified forms. Among its employees are laborers, warehousemen, truck drivers, mechanics, shift men, operators, salesmen, and technical and office personnel. T h e first plan evolved to relieve unemployment was to carry on a large amount of maintenance work and rehabilitation of properties, work which normally would not have been done. In addition, the company advanced the time of starting work on several construction projects. A n example of this

STANDARD

OIL COMPANY

OF CALIFORNIA

197

was the building of the Estero pipe line from the San Joaquin Valley to the ocean, which gave work to over 300 men. A s less satisfactory business conditions reduced the need for those in the producing end of the business, men were frequently transferred from one field to another. T o facilitate this transfer, a central bureau was established so that one division of the company needing additional employees would be able to get in touch with employees not needed in other divisions. T h e company has also attacked the problem of surplus labor by utilizing the five, the four, the three-and-one-half and three-day week. Variations of this device are to adopt schedules calling for five days on, one day o f f ; ten days on, two days o f f ; four days on, two days o f f ; two weeks on, one week o f f ; four weeks on, two weeks o f f ; three days on, three days o f f ; one week on, one week o f f ; one month on, one month off. As a result of these efforts, Standard of California kept in its employ 3 , 5 0 0 more people than if it had followed a six-day week schedule.

Financial Provisions to Enhance Employee

Security

F o r its employees, the company provides pensions and death and sickness benefits. T h e plan, adopted first in 1 9 1 8 , was amended in that same year and again in 1 9 2 7 . Employees who have been continuously employed for 20 years, or longer, are pensioned at age 65, if men, and 60, if women. These retirement ages are reduced f o r employees with very long service records ( 3 5 years or more for men). F o r each year of service, an allowance is made of two per cent of the average annual salary during the five years next preceding retirement, except that no pension shall be more than 75 per cent of such average annual salary. T h e death benefits (called by the company " l i f e insurance") provide benefits equivalent to three months' salary if the service is of one year's duration. These benefits increase to an amount equal to twelve months' salary for ten years of service. T h e benefits for sickness equal two weeks' full salary for

198

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GUIDANCE

each year of service, if service is from one to four years; and three weeks additional pay for each additional year of service. The maximum benefit is fixed at 26 weeks' salary. Special allowances are made at the discretion of the board of directors to employees with more than fifteen years of service who become incapacitated. In 1 9 2 1 , the company adopted a stock investment and savings plan which terminated in 1926. The employees paid for the stock by payroll deductions (not exceeding 20 per cent of their salary), and the company added a bonus of fifty cents for each dollar deposited by an employee. At the termination of the plan, some 12,300 employees had invested approximately $26,000,000. These employee stockholders represented about one-fifth of the total number of stockholders, and 46 per cent of the employees. Wage

Payment

Prior to 1 9 1 4 , a considerable percentage of the total personnel (laborers, mechanics, etc.) were employed on a daily wage basis, and were neither entitled to vacations, nor to take a day off on account of illness without loss of pay. In 1 9 1 4 , the company started a new system that provided for the transfer, after one year's service, of a daily wage employee to the monthly salary roll. A laborer, thus transferred to the monthly roll, enjoys the same privileges as his manager with respect to vacation with pay, pension, and other financial protection. In Standard Oil Spirit appears the comment that managers of departments "believe that this policy is more responsible than any other for the fine spirit which prevails in those classifications where employees would ordinarily be merely daywage earners, instead of salaried monthly employees. One very direct result is the increasing of the stability of personnel." As of July 1932, some 6,600 employees (about a quarter of the force) had service records exceeding ten years, at which anniversary the company starts to give special awards for long service.

THE

STUDEBAKER SOUTH BEND,

CORPORATION1 INDIANA

Studebaker is the leading enterprise in what the magazine, Fortune, has described as a manufacturing town typical of the "Golden Age." Its position in the community places upon its shoulders the responsibility for community problems. T o understand Studebaker personnel policies, one must begin with South Bend, and for a portrayal of the town's inner life, one can scarcely improve upon the analysis by Fortune. "South Bend is typical because it is not infinitely awful. It is not simply a pile of industry raspingly flung together, but rather an old town with many trees and local legends of pioneers who settled there on the path of a romantically ancient Indian portage which joined two rivers. Nor are all its industries new. . . . But still South Bend is typical, because so much of South Bend is so new. Its greatest industry is automobiles, which is also the greatest industry in the United States and the most typical of United States genius for mass, volume, speed, change,. . . "Some people will tell you that the First Presbyterian Church was built by a Studebaker. This, however, is not the case. Studebaker gave a third, Olivers a third, and the congregation the balance. This was typical of what happened in South Bend during the half-century between the Civil War and the Automobile. Studebakers got most of the credit; Olivers jealously matched them in fact; both together, but neither separately, were bigger than the rest of the city. . . . "South Bend today is divided into two almost equal halves; those who make things and those who supply the makers with Products: automobiles Plants: South Bend, I n d . ; Detroit, M i c h . ; Walkerville, Canada Number of employees: 1 9 2 9 — 1 3 , 5 0 0 ; 1 9 3 0 — 9 , 4 7 3 ; 1 9 3 1 — 8 , 3 5 5 ; —8,000. 199

1932

200

EXECUTIVE

GUIDANCE

whatever their wages will buy. T h e latter is the visible h a l f ; butchers, bakers, grocers, movie palaces, gasoline filling stations on every other corner, realtors, barbers, candy stores, morticians, trolley cars, 'eat' signs, parks, banks. . . . " T h e other half, the makers, is the army of South Bend. I t has officers and sergeants and corporals and privates. T h e officers are few, relatively much fewer than any military a r m y ; their morale is higher. Studebaker employs 1 5 , 0 0 0 men and commands them with less than 50 men. . . ." 2 In such a town of 100,000 people, the leading corporation must assume responsibilities that it might escape in a large city. South Bend looks to Studebaker, the descendant of the enterprise of the five brothers who once built America's wagons. Its personnel program is therefore significant, not so much for any extremely advanced personnel practices as for its efforts to spread work and to assist its less fortunate employees to " w e a t h e r " the depression by granting loans, providing gardens on company land, canning vegetables, and furnishing other forms of emergency relief. Work-spreading gave about 60 per cent of the 1 9 2 9 force a continued source of income through the low-volume months of 1 9 3 2 . E v e n though an employee may work only two or three days a week, the spreading of such work as is available does much to alleviate the situation in a town, like South Bend, where one concern employs a considerable portion of the wage earners.

Place of Personnel Management in the Organization In the Cooperative Department are grouped the activities of employment, training, safety, recreation, and relief. It is under the supervision of a manager who is responsible for both public and industrial relations and who reports to the vice-president in charge of manufacturing. Consequently, the Cooperative Department deals largely with factory employees and does not provide a completely centralized control over the entire personnel. F o r all manufacturing departments, ' " T h e Unseen Half of South B e n d , " Fortune,

March 1 9 3 0 , page 52.

STUDEBAKER

CORPORATION

201

however, excepting those in the Canadian company, the supervision of personnel activities is coordinated in one office. Aside from matters like employee loans and training on which it deals with the employees directly, the Cooperative Department operates through the foremen.

Methods of Counteracting Irregular Production and ployment

Em-

I t is not considered safe by this company either to manufacture for stock or to " l o a d u p " its dealers with cars, and so it adjusts its production as closely as possible to consumer demand. This policy would result in radical changes in the number employed were it not counteracted by making the working time of the labor force flexible. As D r . J . H . Greene, manager of the Cooperative Department from 1 9 3 0 to 1 9 3 3 , has expressed it: "Since we cannot stabilize our output, and we desire to have our force remain constant, the variable must be the matter of hours and days." T h e company has therefore a method for stabilizing employment which takes into account the fact that the industry is, of necessity, a seasonal one. T h e object is to avoid the employment of a large number of additional workers during the period of heavy demand who would have to be laid off again as soon as demand slackened. When, early in 1 9 3 0 , it became apparent to the management that the depression was more protracted than those which it had faced in the past and that its workers could not expect to obtain employment in nearby concerns, it decided to rotate work among the regular employees and to transfer workers from over-staffed departments to the under-staffed. Previously, the company had found itself laying off workers from one department at the very time it was hiring workers for another. T h e notice to the employees concerning this plan read as follows: " B y nature, the automobile business is seasonal. N o manufacturer can change the buying habits of the public, and uniform distribution of sales, likewise uniform production, are both impossible. Recognizing this situation, we want

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to give to regular employees the opportunity to put in more working hours, with increased earnings, during the periods of larger production, to offset the shorter hours which are necessary in some months of the year, to the end that the total number of hours worked a year will be greater and their total earnings f o r the year will be correspondingly increased. If this plan meets with the support of the employees, for whose interests it has been devised, every effort will be made to regulate operations in such a manner as to advance the average earnings of regular employees by changing the hours of work per day and the days of work per week, by transferring employees from one department to another as circumstances require, and by reducing to a minimum the number of additional men employed at those periods when production is above average." " I t was determined that an adequate working force of direct or productive labor required to produce for reasonably expected demands would be 5,000 men. This figure does not include several thousand people employed in the Power, Maintenance, Stores, Engineering, and Office Divisions. If this force worked eight hours per day for twelve days per month, which is an average of three days per week, it would produce say 3 , 4 5 0 cars per month. If these 5,000 productive men worked 25 days per month, or six days per week, including Saturday as a f u l l day, and worked twelve hours instead of eight each day, they could produce 10,800 cars instead of 3,450, and they themselves could have the larger earnings resulting from increased production. . . . 3 Once having determined the figure at which the productive labor force should be stabilized, no additional employees are added to a department except after consultation with the employment department. If the latter approves the request for additional men, it supplies them from departments which do not require their f u l l force in order to meet their schedules. If the particular department situation requires extra employees for a longer period than two weeks, and if the circumstances indicate that the loaned employees will be re' From statement of M r . N. H . K u p f e r e r , Cooperative Department.

STUDEBAKER

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quired for some time and that the lengthening of working time will not suffice, then a readjustment of the man-assignment of that particular department is made so that additional employees may be transferred to it permanently. Such a system of lending employees involves inconvenience on the part of the foreman and employment department as well as the timekeeping department, but the company feels that the advantages of the plan warrant the extra effort on the part of those affected. In addition to these activities in relieving the stress due to unemployment, the corporation organized a special department for employees whose needs were particularly great and for whom work could not be provided in regular departments. In the early stages of the depression, one hundred men were employed in this department on clean-up work of various kinds such as yard work, rearrangement of stores material and equipment, grading, and odd paint and repair jobs. Most of the work done by this department could have been delayed, and, therefore, as conditions permitted, these men were returned to regular work within the plant. T h e corporation's employment department has also provided employment service to men who were laid off, in connection with the securing of other work of either a temporary or permanent nature. In laying off men, consideration has been given to the family circumstances of employees, and single men with no dependents have been laid off first, but major emphasis has been placed upon efficiency. T h e consolidation of departments forced some foremen to be demoted to assistant foremen, and assistants to hourly rates. T h e company feels that these demotions were accomplished without much loss of morale for the men had been somewhat accustomed to being moved up and down to meet past needs for a flexible number of supervisors.

Financial Provisions to Enhance Employee

Security

A n y employee whose annual earnings for the preceding five years average not more than $ 3 , 0 0 0 per annum, who has been continuously in the service of the corporation for twenty

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years or more, and who has reached the age of 65 years may voluntarily retire, or be retired, on a pension. T h e pension equals 25 per cent of the employee's average annual earnings for the last five years of his employment, with a minimum of $30.00 per month. Approximately one hundred employees who were on this pension roll in 1 9 3 2 drew monthly pensions ranging from $30.00 to $55.00." Because of the distress incident to the depression, the corporation has extended loans without interest to employees who have had no earnings, or who have had insufficient earnings to sustain their families, to be repaid by small payroll deductions after the employee's return to work. T h e corporation informed the township trustee and charitable organizations that its employees would be taken care of so far as food and fuel were concerned. Some 30,000 tons of coal were sold to employees at cost, under an arrangement mutually satisfactory to the company and to local coal dealers, the latter hauling the coal at the expense of the corporation. T h e coal dealers had previously announced to their customers that they would not deliver coal on credit. Groceries were also delivered to employees by the plant cafeteria management at cost. In J u l y 1 9 3 2 , the total amount which had been loaned to employees was about $250,000, of which $ 2 1 5 , 0 0 0 had been repaid. Approximately 90 per cent of the employees at the home office and factory and at the branches are insured under a contributory group insurance plan. This plan, which has been in effect since 1926, provides insurance against death, sickness, accident, and loss of sight. T h e amounts of each are based upon the annual earnings of the employee, the minimum life insurance being $ 1 , 0 0 0 and the lowest accident and sickness coverage being $ 1 0 . 0 0 per week. T h e waiting period for factory employees is one week. In the case of salaried employees, however, the continuance of the salary of an incapacitated * Because of the limitations imposed by receivership, this p l a n has been suspended f o r the time b e i n g .

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employee for two to four weeks increases the waiting period and increases the benefits accordingly. Since 1 9 2 0 the company has from time to time offered to its employees common or preferred stock, but the stock purchase plan, though technically in existence, has been put on the shelf on account of the depression.

Wage Payment T h e company adopted piecework about 1 9 1 7 . T h e incentive plans now in effect include gang piecework where the jobs are inter-related as on a conveyor, individual piece rates where the jobs are independent, and day rates where the work makes the setting of performance standards impossible.

Sup-ply and Maintenance of an Effective Labor Force Applicants for employment are first given an interview to determine whether they are qualified for the positions to be filled. If acceptable, their personal record is secured covering previous places of employment, education, dependents, etc. T h e n a physical examination is given. Before going to work in the plant, factory employees are given instructions with regard to their work, the safety provisions, and the cooperative plans for employees. A foreman does not " f i r e " an employee who proves objectionable or inefficient, but sends him to the employment department with the recommendation, accompanied by his reasons, that he be transferred or discharged. T h e employment department then discusses the matter with the man, and when advisable, gives him an opportunity to work in some other department. This has made it possible, in many cases, to keep men on the payroll who otherwise would have l e f t the organization dissatisfied, some of whom have proven to be excellently placed in the jobs to which they were transferred. Naturally, the employment department works in close cooperation with the foremen in all matters pertaining to the employment, transfer, and exit of employees.

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F o r m a l training is of three types: foreman's training course, an apprentice course, and educational courses. T h e first consists of discussion groups of 3 0 to 3 5 men each. T h e apprentice course is three years in length, so that the boy who enters it takes one " t u r n " as errand boy, another in the tool crib, another on the lathe and screw machines, and then spends four months each at milling, lathe work, machine repair, and tool grinding. Recreational and social facilities are provided by the Studebaker Athletic Association of which more than 50 per cent of the factory and home office employees are members. T h e membership fee is $ 1 . 0 0 per year. T h e association maintains the athletic field and conducts the athletic events and dances. T o a f e w of these major events, the corporation contributes financial assistance. T h e company maintains emergency hospitals with physicians and nurses. It also has general and divisional safety committees directed by the cooperative department. Salaried employees who have one year's continuous service are entitled to a vacation of one week; those with two years' or more of continuous service, two weeks.

W E S T I N G H O U S E E L E C T R I C AND M A N U F A C T U R I N G EAST

PITTSBURGH,

COMPANY1

PENNSYLVANIA

T h e Westinghouse arrangements for meeting its personnel problems are significant because of their completeness and their integration into a well-balanced whole. In short, the personnel relations have reached that maturity in which overemphasis is not placed upon any one feature. Certain highlights, however, command unusual interest: the flexible salary scale because of its uniqueness, the rating of manual occupations, and the pension plan.

Place of the Personnel Department in the Organization T h e director of personnel, as head of the personnel activities, reports to the assistant to the vice-president in charge of industrial relations. H i s relationship to the operating line executives is an advisory one. This is illustrated by the allocation of responsibility for one of the personnel functions: that of interviewing all discharged employees. T h e personnel department has no authority to veto the decision of a line executive but may appeal the case to an adjustment committee, consisting of the superintendent of the works department, the superintendent of employment, and the assistant to the works manager. T h e guiding policies both for the personnel department and the relations between line executives and workers have been defined by M r . A. W . Robertson, chairman of the board. In the preparation of parts of this section, use has been made of a statement written by M r . W i l l i a m G . M a r s h a l l . Products: some 3,000 different types of electrical equipment. N u m b e r of full-time employees: J u n e 1 9 2 9 , parent c o m p a n y — 4 1 , 6 3 1 ; s u b s i d i a r i e s — 9 , 1 2 6 ; J u n e 1 9 3 2 , parent c o m p a n y — 1 8 , 4 2 2 ; s u b s i d i a r i e s — 5 , 1 8 8 In J u n e 1 9 3 2 , there were a p p r o x i m a t e l y 3 1 , 4 0 0 men and w o m e n on the p a y r o l l of the whole c o m p a n y , including subsidiaries, but m a n y of these w e r e w o r k i n g short hours, or were on f u r l o u g h , or on leave of absence without p a y . 207

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GUIDANCE

T h e management proposes: 1 . T o furnish to all those interested in the company as complete information as possible regarding its business. 2. T o be opened-minded in search after all facts, without regard to personalities or previous practices, with every executive officer expected to adopt this attitude toward his work. 3 . T o maintain the same open-minded attitude itself to recognize its o w n mistakes when they are demonstrated by results, and to correct them in the same open-minded manner. 4 . T o stimulate the members of the organization to function as though the company were their own property, by individual incentives to surpass reasonable standard performances. 5 . T o give due credit to subordinates so that subordinates may be recognized and rewarded and so that men of capacity may be promoted and retained in the organization. 6. T o recognize the most efficient organization as a live and growing one, in which some changes are continuously being made. H o w e v e r many changes, particularly in executive control, must be followed by periods of repose, for consolidation of gains and adjustments to new conditions, if they are to produce best results.

Methods of Counteracting •ployment

Irregular

Production

and

Enu-

In order to provide work for its employees through the depression, the company has continued its maintenance program as far as possible, and has rotated its employees. It has also aided in the relief of those who have been in actual distress. T h e long-run stability of the Westinghouse force is indicated by the fact that of the 32,000 employees on the payroll in 1 9 3 2 , more than 3,000, or ten per cent, have been employed over 2 5 years, and 10,000, or thirty per cent, over 1 0 years. Financial

Provisions

to Enhance

Employee

Security

T h e company has provided for the major risks which may cause loss of earnings to the employee and hardship to his dependents: injury, sickness, retirement, death, and unemployment. T h e worker whose earning power happens to be affected by any of these is a problem both for the company and for society in general. Consequently, Westinghouse has

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d e v e l o p e d a p l a n f o r spreading the risk in each case. T h e total cost of the W e s t i n g h o u s e personnel p r o g r a m has a v e r a g e d about 2 . 7 5 per cent of the total p a y r o l l . T h e absolute y e a r l y expenditure has a v e r a g e d about $1,940,000. A relief f u n d , administered by the relief department of the company, is maintained by dues f r o m its members, income f r o m investments, and appropriations by the company. It provides benefits f o r sickness or i n j u r y incurred w h i l e not at w o r k . I n 1 9 3 1 , this f u n d paid benefits of over $750,000 and in June 1932 was p a y i n g disability relief to over 1,000 persons. E m p l o y e e s w i t h less than five years of service are e n titled to benefits f o r a m a x i m u m of 26 weeks in any year, but those with l o n g e r service are entitled to benefits as l o n g as their disability continues. I f an e m p l o y e e u n d e r 60 years of age w h o has ten years or more of continuous service must be laid off because of business depression or changes in production methods, he receives a separation a l l o w a n c e based upon his age, length of service, and rate of earnings. T h e upper range of this allowance is one year's salary or w a g e s . I f such an e m p l o y e e has had 25 years of continuous service, he is also entitled to a d e f e r r e d annuity beginning at his n o r m a l retirement age. T h o s e o v e r sixty years of age laid off f o r these same reasons are granted a premature annuity. T o m e e t the needs of depression, an e m e r g e n c y aid committee was f o r m e d in 1930 to which company and e m p l o y e e s h a v e contributed e q u a l l y . A trusteed savings f u n d , started in 1920, permits e m ployees to accumulate savings t h r o u g h m o n t h l y deductions of any amount f r o m their pay. T h i s f u n d is invested in securities other than those issued by W e s t i n g h o u s e , and is administered separately f r o m the f u n d s of the company. A s an encouragement to save, the company pays four and one-half per cent interest p e r a n n u m compounded semi-annually on all deposits. S o m e 10,000 e m p l o y e e s h a v e on deposit in the f u n d about $3,300,000. T h e savings are guaranteed both as to principal and interest and are available on d e m a n d . A t the c o m p l e t i o n of six months' service, the company pro-

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GUIDANCE

vides group life insurance of $500. In addition, employees who desire to increase the protection of their dependents may increase their life insurance on a contributory basis. Since 1 9 2 0 , $5,950,600 has been paid to some 3 , 3 6 0 employees, or to the families of employees, in settlement of death or total disability claims. T h e annuity plan, established in 1 9 2 9 , which is trusteed, provides an annuity for each employee. T h e amount depends upon his salary or wage classification and his length of continuous service. T h e employees have the privilege of purchasing additional annuity units at group rates: an action which the company encourages by granting a bonus of 25 per cent additional annuity units to each employee who purchases the same number of annuity units which the company provides for him during that year. This plan permits the retirement of employees before the normal retiring age; it also gives an employee the option of having his annuity continued to a specified beneficiary after his death. If his salary were to remain constant throughout his employment, a young employee who entered the plan soon after being hired, and continued to purchase the required additional annuity units until normal retirement age could secure an annuity equal to 90 per cent of his yearly earnings. Seven hundred eighty-three employees, who have retired, receive about $248,358 each year. T h e pension plan was designed by D r . H e n r y E . Jackson of the Social Engineering Institute, whose comments bring out some of the philosophy behind it. "One of the basic faults with many pension plans is that they are organized and operated as a dole or charity, although executives of concerns with plans of this type will probably be the last to admit this fact. Not only is this unfair to the employee, but under the typical 'charity' pension plan almost no concern knows or can know what its present pension cost is. " T h e principal objection to most of these plans, however, is that they are not contractual, and therefore, are not dependable. A plan which is not dependable defeats its own purpose. These further objections may also be cited:

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ELECTRIC

211

1 . T h e y are not cooperative, with the result that the a m o u n t of benefit o f f e r e d is inadequate, and an employee has n o chance to participate a n d provide part of the benefit himself. T h i s is bad financially and m o r a l l y , both f o r the employer a n d employee. 2. T h e y are not on a reserve basis, but pension benefits are paid out of a n n u a l profits, w h i c h is very unscientific financing. T h e only safe a n d proper method is to c h a r g e off each y e a r , as an expense, the pension liabilities arising out of that y e a r . 3 . T h e y almost all embody the ten-year f a l l a c y — t h e method of multiplying the years of service by a percentage of the average w a g e f o r the last ten years of service. T h i s makes the cost depend on a f u t u r e u n k n o w n and increasing a m o u n t , w h e r e a s to relate the benefit to the w a g e f o r the whole period of service w o u l d decrease the cost to the employer approximately 2 7 per cent and help to make a scientific plan financially feasible. 4 . T h e y v e r y often proceed on the banker's method of treati n g a reserve f u n d in terms of principal a n d interest. T h e y have not discovered the annuity method, which m a k e s a v e r y different and much l a r g e r use of money f o r the purpose of retirement systems. T h i s purpose requires not a bank account, but an a n nuity f u n d . F i n a l l y , f e w concerns have even discovered the magic c h a r m of interest on money as a decisive f a c t o r in drafting a retirement system.

" N o compulsion is used to induce employees to take their part in the plan. However, additional annuity units are given as a bonus to any employee who buys as many units for himself as the Company buys for him. Units yield $ 1 . 0 0 a month at the retirement age, and the income from them lasts for life. Their cost varies with the age of the employee, but it is very reasonable. T h e y are available to employees only under the Westinghouse group annuity contract. T h e bonus units are given because the policy of the Company's plan is not to punish men if they do not participate but to reward them if they do. E v e n an employee who is discharged after 25 years of continuous service has a vested right in the annuity units covering his term of service." 2 Wage Payment Under the sliding-salary-scale plan adopted as of January 1 , 1 9 3 2 , the minimum reduction was 1 0 per cent of normal 'New

York Times, November 3, 1929.

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GUIDANCE

base rate salary, but the maximum varied with the size of salary. F o r those receiving $200 per month and under, it was 2 1 per cent j for those between $200-$20$ per month, 22 per cent, and so on, until all above $245 per month were subject to a maximum reduction of 30 per cent. This salary scale was made flexible by relating it to the net income of the business. F o r each $40,000 of net income earned, the salary reduction was decreased by 1 per cent. If net income, after wages and all other deductions, averaged $40,000 for three months, the reduction in the higher class salaries for the fourth month would be 29 per cent. A n average net income of $80,000 for the three months would result in a 28 per cent salary reduction, with similar reductions in the lower classes. At the time this flexible salary scale was introduced, the company reduced its hourly wage rates for the first time in the current depression. T h e " c u t " was ro per cent. T h e significant point is that both salaries and dividends had been decreased previously. T h e unusual element in the payment of the hourly workers lies in the care with which occupations are graded to secure the proper relationship of base rates to the difficulty of the work. This technique applies both to workers paid straight day rates and to those on incentive. In a large organization there are many jobs in different departments, which, although not practically identical, require the same amount of training, knowledge, and skill. In such an organization, comparisons are necessary and this involves standardization and classification of occupations and jobs as to names, requirements, and relative values. T h e objectives of the plan are: 1 . U n i f o r m rates of pay for uniform service 2. T o keep w a g e s f o r each job within a certain range of rates

T h e fundamental steps in the technique are: 1 . T h e determining upon definite names for standard occupations 2. T h e classifying of jobs in accordance with their value to the industry

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ELECTRIC

213

T h e details of the method are as follows: A list of standard names is adopted for the occupations rather than the jobs used in the industry. F o r example "occupation" is used in the broad sense to designate "carpenters," or "milling machine operators," and has no reference to any particular operation or job. A given occupation might embrace all grades of jobs. An analysis is made of each different job and f r o m this information a job specification card is made giving a description of the work on that particular job and a description of the employee desired to do that work. Each job specification card shows the department using that job and the classification authorized for that work. All work is divided into five classes based on its relative usefulness to the company. T h e usefulness varies for the following reasons: T h e work may require knowledge obtained only by long experience j special manual skill which can be obtained only by long practice; unusual physical strength; initiative; or the nature of the work may involve great loss if mistakes are made, thus requiring considerable care; or the working conditions may make the job undesirable. O n the basis of these factors, the management has classified all the work in the manufacturing departments. As an aid to this job analysis and classification, the following general descriptions were used as guides. Class A: Experimental work, model and instrument making; high-class tool work, such as dies and the most exact jigs and fixtures; balancing of high-speed revolving parts; operation of largest machine tools where responsibility is great or extreme accuracy is required; winding of large turbo-generators; high-class blacksmith work. This work demands a general knowledge of machine tools, speeds, feeds, methods and materials; also good j u d g m e n t and accuracy without the use of jigs, and a high degree of skill and dependability.

214

EXECUTIVE

GUIDANCE

Class B: Work requiring accuracy, general ability and experience, but without the thorough knowledge or experience required on Class A work; operation of large machine tools; heavy repetitive work where extreme accuracy is not required; or work on machine tools of medium size where accuracy is required. Knowledge of speeds, feeds, and materials, reading of blueprints, and of the use of gauges is required. Class C: In general, this work consists of performing one or two operations which require some accuracy and involve considerable repetition; repetitive work on machine lathes, boring mills, screw machines; operator should be able to make his own set-up. Class D: Repetitive work on one or two operations where working to close dimensions is not important; low-grade work on simple operations in Class C. This includes some work on drills, milling machines, engine lathes, and turret lathes. The employee does not ordinarily make his own set-up. This class also includes such unskilled work as requires several months' experience. Class E: Work which requires little, or no, previous training, and not much skill, accuracy, or knowledge. This includes general laboring work like material handling, hand trucking, sweeping, or janitor work; also work which can be done by boys or young women who have had no previous training, including some work on milling machines, drill presses, coil winding, and coil pulling. Every job in the shop is put in one of these five classes. A single section of the shop may have engine lathe work in three classes, A, B, and C, because it has three jobs on the engine lathe, all of different relative value. On the other hand, a section may have nothing but engine lathe work of the Class A type. Since several people may be employed in one section of the plant on a job of a certain classification, differences in the ability and effort of these individuals must be provided for. Consequently, a range of rates is assigned to each class of work. In each range, the lower rates are for the less proficient workers and those just hired.

WES TING HOUSE

ELECTRIC

215

T h e key sheet also furnishes an easy means of adjusting rates to c o n f o r m to the prevailing w a g e scale. W h e n e v e r it seems advisable to authorize an adjustment of rates, it is necessary only to issue a new key sheet. T h e classification of occupations and rates in the works is under the supervision of the occupations and rates committees, appointed by the works manager and consisting of the superintendent of e m p l o y m e n t ( c h a i r m a n ) , superintendent of the rate and time-study department, and a secretary. T h i s committee approves the use of new occupations and rates and investigates any unusual conditions that may arise in reference to rates of pay. A similar organization representing salaried office employees reports to the assistant to the vice-president in charge of industrial relations. It is the W e s t i n g h o u s e policy to recognize each w o r k e r as an individual even though his efforts must be m e r g e d with the efforts of others. T h e management believes in stimulating each member of the organization to function as though the plant in which he works were his own property; and, by incentives, to encourage him to surpass ordinary standards of performance. T h e r e f o r e , individual records of performance are maintained, and the management encourages its executive officers to g i v e due credit to their subordinates, so that w o r k ers of capacity may be promoted and retained. A p p r o x i m a t e l y 80 per cent of all hourly employees w o r k either as individuals or as members of small groups on the " s t a n d a r d t i m e " basis. A guaranteed day rate is paid w h e n more than the a l l o w e d standard time is taken. A higher rate is paid to those w h o come up to or surpass the allowed standard time. T h e guaranteed day rate is paid during the training period. O v e r t i m e is paid f o r on the basis of time and a half f o r week days, and double time for Sundays and holidays.

Supply and Maintenance of an Effective Labor

Force

T h e nature of Westinghouse's products places a premium on engineering training. Consequently, it has relied upon the graduates of technical schools to fill its principal executive jobs. T h i s policy, the result of its own experience, has placed

EXECUTIVE

216 m I

M

• Í¡ü8g

GUIDANCE

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SS

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T h e H a r t , Schaffner and M a r x arrangement dates from its 1 9 1 1 agreement with the men's clothing workers now represented by the A m a l g a m a t e d C l o t h i n g W o r k e r s of America. T h i s agreement, which has been renewed at three-year intervals is a so-called preferential union agreement, and all workers are members of the union. It is administered by impartial machinery. U n d e r this arrangement, all disputes are referred to arbitration, and strikes and lockouts are prohibited. T h e judicial machinery covers a wide scope. It is not only a substitute for those crude weapons, strikes and lockouts, but it provides for the orderly settlement of disputes relating to wages, hours, discipline, and matters, like the rotation of work, that affect j o b security. It consists of two trial boards, together with certain deputies representing the interested parties. T h e first of these, the board of arbitration, has final jurisdiction over all matters concerning the agreement, but in practice confines itself chiefly to questions of principle, and to new issues. T h e second, called the trade board, has original jurisdiction over all matters in dispute. Cases brought before it are considered and decided according to the procedure and rules of practice laid down by the board of arbitration. T o its impartial chairman, who is hired j o i n t l y by both sides, is en-

INFERENCES:

COMPOSITE

PROGRAM

285

trusted the responsibility for the successful working of the agreement. H e presides at meetings, investigates complaints, and mediates controversies when possible. If a disagreement occurs, he casts the deciding vote. In case a grievance arises in the shop, it is reported by the workers affected to their shop representative, who takes it up with his shop superintendent. Should these two fail to agree, both report the case to their respective " d e p u t i e s , " as the official representatives of the company and workers are known. 28 T h e agreements between H a r t , Schaffner and M a r x and the Amalgamated, and the impartial machinery created for their administration seem to have had more influence in changing the labor situation throughout an industry than any similar arrangement to which we can point. Not only has the idea spread to the other firms in the clothing markets in Chicago, Rochester, New York, and Baltimore, but the early H a r t , Schaffner and M a r x decisions have established precedents that have been followed throughout the Chicago " m a r k e t . " Consequently, this company represents a real pioneer in the development of industrial law and government—a pioneer not only in point of time but in the extent of new territory explored. Its contribution is significant not only because it has given us a successful example of how judicial machinery and precedents can be established, but because it has demonstrated that, with able and honest leadership, it is possible for an employer and union leaders to substitute constructive tactics for policies of obstruction and negation. Summary T h e foregoing program of thirteen points includes the developments in personnel and in general management that we believe are essential for proper relations between employers *" T h e d e p u t i e s visit the s h o p a n d t a k e such t e s t i m o n y a s they f e e l w i l l cont r i b u t e t o w a r d a s a t i s f a c t o r y decision. I f they f a i l to settle the case, it is sent to the t r a d e b o a r d f o r t r i a l . I f , u p o n a decision b e i n g r e a c h e d , e i t h e r p a r t y s h o u l d wish to c a r r y a n a p p e a l to the b o a r d of a r b i t r a t i o n , the l a t t e r is f u r n i s h e d with a s u m m a r y of the case g i v i n g b o t h the f a c t s a n d the g r o u n d s f o r the decision.

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and workers. With due humility before the truth (in this field, who can be certain of unerring judgment?), we suggest that the selected program represents a standard by which current personnel practice can be appraised. It is put forward, not as work of any individual, but as a reflection of the thinking and experience of many progressive executives. For the successful use of such a program, it must be reemphasized that the last twelve items are meaningless unless the wages paid are liberal and the dealings fair. But fair dealing involves imponderables that defy definition. It must suffice to remark that each of us is such a bundle of feelings and emotions that no manager can be said to have mastered the art of dealing with people unless he can apply the Eleventh Commandment, "Put yourself in the other fellow's place."

CHAPTER

III

AN APPRAISAL OF METHODS AND C O N F L I C T I N G CONCEPTS O , may we for assurance' sake, Some arbitrary judgment take, A n d wilfully pronounce it clear, F o r this or that 'tis, w e are here ? O r is it right, and will it do, T o pace the sad confusion through, A n d s a y : — I t doth not yet appear, W h a t we shall be, what w e are here? ( A r t h u r Hugh Clough ' T h r o u g h a Glass D a r k l y ' )

D o the personnel programs of the twenty-five chosen companies represent merely a sop thrown to labor during the Golden Twenties, or do they reflect a philosophy of human relations that is more enduring? Just as Birrell says of history that it is "a pageant and not a philosophy," 1 one must say that ofttimes the industrial relations of a company are molded by its competitive situation rather than by its labor ideals. Perhaps, then, we have portrayed only the by-products and the relics of a unique period. But we do not believe so. One can scarcely ponder these pioneering efforts without feeling that they are permeated by philosophies of human relations whose application may profoundly affect the conditions under which future generations do their work. Not only has the philosophy of these managements served as a leaven for industrial relations generally, but their explorations have enabled other enterprises to make use of their findings if they so desire. Neither can one doubt that if the labor relationships in all companies were lifted to the best developed by these selected firms, the social gain would be great. 1

Birrell, Augustine, Obiter Dicta, Second Series, page 203. 287

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T h e annual total of the expenses charged against the personnel activities in a dozen of our selected companies ranges f r o m $41 to $102 per capita, the typical amount being about $6o. 2 T h e mere statement that the yearly per capita cost of high-grade personnel management is $60 leads one to speculate, or at least to ask questions. W o u l d the w o r k e r s prefer to have an placed in their pay envelopes?

equivalent

amount

W o u l d they be as w e l l o f f ? I s n ' t such diversion of w a g e s to purposes selected and controlled by the employer highly paternalistic? O r , s w i t c h i n g to the employer's point of v i e w , w h a t is the case for personnel? W o u l d the employer be better off if the m o n e y w e r e spent directly as w a g e s ; or, not at all? I n short, do such advanced programs as these actually " p a y " the employer?

Doubtless most workers would prefer to have the equivalent of the cost of the personnel activities added to their money wages. T h i s is true of the younger employees of both sexes, but especially of the unmarried women. A s for the latter, the expectation of getting married causes them to think of their jobs as temporary. Consequently, they tend to feel that they personally will not benefit from pensions and death benefits. T h e same type of thinking is also found among the younger men. A s men assume the responsibility of a family, however, those w h o are thoughtful and unselfish recognize the need for protecting their dependents, and as they become still older and approach more closely to the age of retirement, pensions take on new meaning. Consequently, it must be concluded that the sentiments of workers toward personnel activities are m i x e d ; that they are influenced by age, sex, extent of union affiliation, and confidence in the soundness of the " p l a n s " and the sincerity of the management. Since the $60 spent to provide personnel activities for a ' A c c o u n t i n g differences and insufficient data render this conclusion unsatisf a c t o r y , but it is better than no i n f o r m a t i o n w h a t e v e r . F o r details, and a more complete discussion of the limitations, see C h a p t e r I I of the Supplement ( p a g e 381).

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worker is, in theory at least, a diversion of part of his annual income, it is pertinent to ask whether he secures "more for his money" through the company than he could secure as an individual. 3 E v e n if it be assumed that individual workers possess the necessary foresight, knowledge, and will power to provide equivalent protection, there can be no doubt that they obtain "more for their money" when they secure their life and sickness insurance through their employer unless these devices are used to reduce union activity concerning wages. T h e same reasoning applies to pensions, provided workers separated from the payroll before retirement age receive pension rights equivalent to their own contributions, plus interest, and what the company has set aside for them. Such a policy, found altogether too rarely, is followed by the California and Hawaiian Sugar Refining Corporation. T h e fact that workers have little discretion as to the spending of this $60 leads, however, to the moot question as to what is paternalistic. It is argued by strong individualists that the more safeguards employers provide the less self-reliant workers become; that life's dangers cannot possibly be eliminated in their entirety; and that consequently, workers are rendered a disservice if too much is done for them. Such an argument is punctuatcd with frequent reference to "American principles," and "old-fashioned virtues." Workers, from their point of view, find the condescension with which many plans are initiated to be extremely galling. And so the existence of paternalism turns, apparently, on the attitude of the employer. If he thinks of his workers as his wards and inferiors, whatever he does seems objectionable to them. In contrast, his neighbor may take the identical action in a way that makes everyone affected feel that he is working as part of a group of fellow human beings in the mastery of a common problem. " It m a y , of course, be a r g u e d that w e r e these companies to a b a n d o n their p r o g r a m s , they w o u l d not increase a n n u a l e m p l o y e e e a r n i n g s b y $ 6 0 . It is also true that they a c t u a l l y p a y better than a v e r a g e w a g e s . C o n s e q u e n t l y , e x p e n d i tures f o r personnel activities m a y not a c t u a l l y represent a d i v e r s i o n of w o r k e r s ' income.

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Although one would like to find mathematical proof of the financial advantage of sound personnel, such a demonstration is impossible because the morale of workers and their fitness for their jobs represent but a few of the factors affecting output and profits. 4 Nevertheless, the fact that so many companies have decided more or less independently to adopt one after another of the points in our composite program compels one to believe that their several managements foresaw definite advantages in their adoption. N o r are these so intangible as to defy analysis. For instance, a death among the workers presents to the employer the problem of "doing something" for the dependents, if any. T h e argument that the employer has no direct obligation to help is beside the point, because in practice both the employees and the community expect something to be done. Unless the management has made provision for disposing of such cases systematically through group insurance, or death benefits, the company will find itself contributing as the "hat is passed," only to discover that the final result is unsatisfactory to all parties. Except that the financial responsibility is heavier, the situation presented when old employees reach the age when they no longer work is identical. T h e problem is to be able to release ineffective people without destroying employee and community goodwill, but its satisfactory solution requires definite preparation in advance, i.e., a pension or annuity plan initiated before the burden becomes unduly heavy. T h e gains from such devices as training and financial incentives are still more direct. If properly applied, they all tend to produce more capable workers with the resultant lowering of costs and raising of quality. In short, personnel " p a y s " in a myriad of ways, but to prove it we must rely, not upon objective data, but upon the indirect evidence of numberless deci4 " T h e fact is that, in connection with such industrial reforms as we are here considering, we are inclined only to emphasize one side of the account. T h e gross cost of improvements can be accurately gauged, but we cannot demonstrate, in uncontrovertible figures, the value of the various items which appear on the credit side." ( B . Seebohm Rowntree, The Human Factor in Business, page 149.)

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sions of executives in a position to evaluate its effect in their own plants. What are the specific attainments of which our cooperating companies, representative of advanced personnel management, may be most proud? In general, they apparently pay annual wages higher than the averages of their respective industries.5 About 60 per cent of them had some means long before the advent of works councils of the N R A vintage of giving their employees a voice, either through trade or company unions, in the discussion of matters of mutual concern. T o the extent that this voice is listened to the workers achieve status, for it implies a recognition that the relation of employer and employee is not strictly one of master and servant. Some of the firms have been able to convert the relationship from one purely of bargaining or higgling over wages and conditions to one of cooperation to reduce costs and increase sales. A decade ago the need for effective workers placed the emphasis upon their procurement. Now it is upon the maintenance of an efficient staff and the bolstering of its morale in the face of depression and unemployment. It must also be noted that these leading companies have kept pace with the widespread reduction in the frequency of accidents during the last decade, and that many have helped to lead the advance. T h e physical surroundings in which their men and women work have also improved strikingly, a fact that is too evident to need proof. Prosaic as they may be, such physical betterments have a tremendous influence on safety, health, and happiness. Much more costly are the financial provisions that have been set up against the hazards that surround workers and their families. Of the twenty-five cooperating companies, twenty-two make available some protection however modest against the death of the wage earner, nineteen against his old age (of which thirteen have funds * Where obtainable, w a g e rates were secured f o r such occupations as had not changed substantially since 1 9 1 3 either through mechanization or alterations in process. A detailed comparison with the industry averages of the Bureau of L a b o r Statistics is not considered worth presenting because there is no measure available as to the difficulty and amount of w o r k done in exchange f o r the money wages.

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either trusteed or funded, or both); twenty against sickness and non-occupational accidents of which five are paid for by employees only. T o facilitate the accumulation of a "rainy d a y " fund, savings banks or savings funds invested in mortgages, bonds, or in the company itself are provided in thirteen cases. T w o other firms foster credit unions; and five, building and loan associations. In addition, more than a third of the firms have used stock ownership to stimulate employee savings, a step that several now regret. T h e care and expense represented by the foregoing plans are a credit to our cooperating firms. Despite the wreckage of hopes and promises during depression, only the most rabid of critics would deny that, within the limits set by competition, the tangible accomplishments of these companies, and of many others, have been distinctly worth while. 8 Y e t the case for personnel management, that part of the management of an enterprise which is directly concerned with employer-employee problems, must rest upon somewhat different grounds. Its quality cannot be measured by figures, nor can its final contribution to society be appraised objectively. Its essence is a matter of spiritual values whose presence is reflected in esprit de corps, and whose absence leads to a lackadaisical and sometimes sulky performance just good enough to prevent discharge. These imponderable influences have infinite power. W e know the force of patriotism in war time; of the will to win on the football field; and of the superhuman effort put forth when lives are in danger. Personnel management has made it possible to create the attitudes of employers and employees toward each other that make for high morale. It stands forth as the best antidote yet found to the lack of contact and understanding inherent in large producing, distributing, and financial units. At its best, it is free from war-like trappings and emphasizes the unity of the individual enterprise. It directs attention to those matters in which workers and management have a common interest, but recognizes that on questions like wages their interests diverge. Consequently, ' F o r an analysis of personnel functions found in i 89 plants, see Appendix D .

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it insists upon the utmost care and integrity in wage adjustments. It is not only an antidote to the increasing size of business units, but a palliative for the militancy that is characteristic of many industries. Being an integral part of the general management, however, personnel departments cannot provide effective protection for employees against greedy or misguided employers. Since the latter do exist, workmen need the power to bargain collectively even though they may choose not to exercise it. As long as some manufacturers insist upon exercising their human frailties to take advantage of their workers when opportunity allows, unionism will have a place. E v e n those employers who have succeeded in providing high wages and the best of conditions will, if honest with themselves, remember that a change of management may cause their employees to need union support. On this theory, no liberal-minded person can deny workers the right to organize and to strike, either in a single enterprise, or throughout an industry. Violent and destructive though strikes may be, this weapon cannot fairly be taken from the hands of workers until they have recourse to some other protection equally effective. Y e t from the social point of view, the more differences are adjusted within the firms where they originate, the greater the flexibility so essential to a smooth-working economic order. Flexibility seems to be a prerequisite to increasing society's productivity. It is a trite remark that times change, and with them change prices, products, managers, and national policies. T o illustrate the point with respect to prices, whose influence upon industrial relations has been shown to be fundamental, the demand for and the prices of products shift so rapidly from year to year that one doubts whether even the general price level can be kept uniform, let alone the prices of its constituent products. T h e i r prices shift with demand and scarcity; one year wheat crops fail and fruits become frostbitten, the next one is a year of plenty. E v e n though freedom of enterprise were greatly restricted, given products would not long continue to exchange for uniform amounts of others.

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If we assume, therefore, that prices will continue to rise and fall just as they have for some hundreds of years, then business activity must be sufficiently flexible to be adjusted accordingly. 7 T o the extent, therefore, that agreements between employer and employee are on an industry-wide or nationwide basis, they sometimes add to our perplexing social dilemmas because they tend to enforce the maintenance of rigid standards, and make less possible the adjustment of production methods and labor costs. T h e path of safety lies not in rigidity, but in adequate flexibility.8 Apparent Weaknesses in the Selected Programs It is scarcely fair for one to single out companies because their industrial relations are well known, and then to criticize them as individuals. Yet, as a group, their position is sufficiently clear that their reputations will not suffer from an appraisal of their group accomplishment to date. Moreover, these companies include among their managers many of the outstanding industrial thinkers of the country, who would be the last to ask that constructive criticism be withheld. What, then, are the weaknesses of personnel management as practiced by these leading exponents? T h e most serious flaw is their inability to provide job security. Although unemployment has been as universal as a plague (in 1 9 3 3 , two of five who desired work could not find it), it is disturbing to find that only one-fourth of our chosen companies were able to provide reasonably stable employment, and that sincere efforts by the others did not prevent layoffs in considerable number. Such a calamity induces an honest skepticism as to how far a single enterprise can protect those dependent upon * American prices, both wholesale and retail, had the same tendency to vacillate in the decades prior to the Revolution as at present according to an exhaustive study made by D r . Anne Bezanson of the Industrial Research Department of the University of Pennsylvania (not yet published). * One cannot ignore, of course, the argument that society needs a certain stability to prevent back-sliding and unwise adventures. Y e t the laws and customs that provide this function (called by Walter Bagehot the "cake of custom") tend to make economic maladjustments more severe.

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it. T h e cause is neither lack of sympathy nor of managerial capacity, but impotence to control the economic forces affecting their enterprises. T h e conclusion is inescapable that j o b security is at present impossible save in those industries blessed with a stable demand. Although a few pioneer companies assume the burden of cushioning their own regular employees against layoffs, it is evident that the social problem is not likely to be solved by the voluntary adoption of unemployment reserve plans by individual companies. Consequently, there is reason for the leading companies to urge compulsory minimum protection by the State, and to participate in framing the necessary legislation. N o one will argue the fundamental truth of the trite comment that the only cure for unemployment is work. But the friction that appears throughout our economic machine makes it almost impossible for a given firm to provide employment that is absolutely steady. T h e exceptions are lamentably scarce, and are confined to industries of certain types, such as utilities and other producers of consumer necessities. Consequently, financial reserves are needed to cushion the effect of l a y o f f s ; on the one hand, to defend employees and their families against the " w o l f , " and on the other, to help sustain national purchasing power. W h i l e unemployment reserves are in the experimental stage, the ideal plans from the standpoint of employers would be those of the individual voluntary type. Y e t the adoption of the latter has been entirely inadequate to meet the need. 9 Another patent flaw in the programs themselves can be detected from a cursory examination. It is that many are not yet well-rounded and integrated. T h e y contain weak spots that need to be strengthened before they represent programs that approach the best known practices in all respects. A common example of such unbalance is lack of attention to the personnel of the official staff. Most programs apply to execu* F o r a statement of the p r i n c i p l e s that an e m p l o y e r m i g h t find h e l p f u l in g u i d i n g the initiation of a p l a n of u n e m p l o y m e n t reserves, see A p p e n d i x B .

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tives with respect to the insurance and pension provisions only. Yet the proper matching of men to executive jobs involves systemic attention to individual training and accomplishment. T o leave it to the general care of the entire group of top executives means a haphazard approach to this aspect of organization development. Among managers, there arise personal and family problems (often financial) that worry the individual and are reflected in his manners and his effectiveness. N a t u r a l l y , lack of efficiency among executives is infinitely more serious than among the rank and file, and their personnel problems, touching as they do, the most intimate and delicate of organization relationships, can be properly attended to only by an officer of high standing who enjoys the respect and confidence of his fellows. T h e requisite procedure is fairly evident. Adequate records are needed covering each present and prospective executive to permit the analysis needed to decide questions of training, transfer, promotion, and pay. T h e systematic appraisal of executive performance is essential for equitable treatment both in fixing salaries and bonuses, and in promoting to responsible positions. One large corporation (not included herein) will undoubtedly suffer for many years to come because its minor executives have lost heart. T h e y know that in their company promotion depends on " p u l l " rather than upon performance. T h i s leads to a weakness that is frequently not evident to an outside observer, but which is often so serious as to destroy the usefulness of programs that appear on the surface to be excellent. I t has its source in supervisors who are either unsympathetic with the personnel policies of the top management, or whose backgrounds make them ineffective interpreters. F a u l t y supervision is so pervasive that we can be fairly certain that it affects even those companies which are leading exponents of good personnel. F o r example, the Western Electric Company, whose personnel relations are outstanding, discovered in the course of certain well-known experiments that the manners of the "boss" and his method of dealing with his workers was a matter of grave concern to

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the latter. 10 It gave the clue to many of the pent-up feelings about the company which affected the reactions of workers, and showed that a feeling of restriction from rigid supervision leads, in many workers, to exasperation and a sense of futility. Such findings confirm the fact that even in the best run companies, the quality of the immediate supervision is a vital spot. It has been said that each foreman should be considered as an assistant personnel manager, and so developed by systematic training that the personnel policies are not negatived at the point where they touch the workers. It is as a defense against unsympathetic supervision and unscrupulous owners that workers need protection through some form of joint dealing. If they belong to a trade union, their protection is dependent upon their solidarity and the quality of their leadership. W e have presented three instances (Baltimore and Ohio, H a r t Schaffner and M a r x , and Rocky Mountain F u e l ) where such protection is apparently effective and satisfactory to both parties. Among our companies that have company unions, the record is not so clear. T h e r e is evidence that some of these employee representation plans are actually all that they appear to be on paper. Not only do the best of these plans typify the form of representation that the employees desire, but are quite evidently satisfactory in securing the action desired by them. In contrast, there are other company unions among our selected firms whose design seems to have been unduly influenced by management, and which have been ignored upon occasion when vital matters like wage reductions were under consideration. Such representation needs to be strengthened if it is to be more than a poor " f i r e - b r e a k " for unionism. A mere convenience for the management in time of trouble is scarcely good enough if industrial relations are to be kept on a high level. Neither can the criticism be overlooked that the burden of proof is upon the 10 See Elton M a y o , The Human Problems of an Industrial Civilization. Of the 4,662 comments on supervision 1,892 were favorable and 2,770 unfavorable. Yet careful analysis of the results of these interviews shows that comments on people were less reliable than on material conditions of work, and that "supervision" is a word "which meant so many things that it meant nothing."

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40 per cent of our cooperating companies who have no employee representation at all, however excellent may be the remainder of their personnel programs. Still another hidden defect in some concerns is that, in the selection of workers and executives, there seems to be no clearly defined policy. Perhaps the copying of other concerns is substituted for a dispassionate analysis of the type of employee and executive needed. Sometimes the manufacturing process calls for employees with a minimum of skill to work under close, intelligent supervision; sometimes for the artistry of those who can work independently with little or no supervision. It is obviously important to decide whether the business requires a combination of skilled workers and high-grade supervision, or one of the extremes mentioned above. So far we have dealt chiefly with errors of omission ; we will now consider some of the opposite sort. T h e most flagrant of these is the purchase of stock by employees, a matter on which both they and their employers have suffered disillusionment. 11 T h e general sentiment seems to be that to sponsor the sale of common stock to rank-and-file employees is unwise. In spite of the loss of money and morale, however, some executives still believe in the principle if hedged around with enough protective features. These executives would either limit the purchase to a selected group, guarantee the payments until the expiration of the plan, or limit the offerings to preferred stock or to selected years. One senses that managements which did not embark on a plan of employee stock purchase when such things were in their heyday are now devoutly thankful in view of the abandonment of many plans at heavy financial sacrifice to both company and participants. T h e writer feels that employee stock ownership is too dangerous except for the most restricted use. It is both ill-advised for the employees, and a questionable policy for management. In defense of this position, there are two considerations. 11 See D a v i s , Eleanor, Emfloyee Stock Oumershif and the Defression. Of 50 plans analyzed in detail, 30 had become inoperative before the end of 1 9 3 2 .

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1. I t is poor advice to ask any workman to invest his savings in the same company from which he draws his pay check. I f that company meets financial adversity, he not only loses his source of current income, but the savings on which he should be able to rely in emergencies. 2. I t is poor financial advice to suggest to a workman, let alone to urge him, to invest in the common stock of any one company unless he has first accumulated a "rainy day" fund, the principal of which can be realized at any time.

T h e problem of employee savings and investment involves some risk to the employer because of the obligations, implied or otherwise, which are entailed by the mere installation of a plan. T h i s responsibility can scarcely be evaded by a statement to the effect that the company is not responsible for the security of the principal. T h e provision of facilities to assist employees with their savings involves both l o n g - and short-run investment. T h e former obviously lends itself to still other devices such as the building and loan associations so popular in the E a s t . T h e s e are fraught with so much danger, however, that they will not be discussed herein. M a n y companies feel, however, that it is essential to provide some sort of " r a i n y d a y " fund, upon which employees can rely in emergencies. Savings plans usually consist of arrangements with savings banks to facilitate the making of periodic deposits through payroll deduction, or similar investment in the company itself, or the establishment of a credit union. Because of its advantages and rapid growth, the ensuing discussion will be confined to the last of these. A credit union is designed to serve a dual purpose: to provide facilities for accumulating savings so that they will have a high degree of availability; and a source for borrowing at reasonable rates. I t has to do, therefore, with both thrift and credit, and the latter is quite as important as the former. F o r this reason, it is important that membership be limited to groups of people that have a common interest, such as e m ployment by the same concern. I n fact, " m o s t States require that credit unions be formed within groups that have some

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common interest, either economic or social. . . . It may be a neighborhood. It may be common occupation, employment by the same establishment or membership in the same church, club, lodge, labor union or other organization." 12 In the organization of a credit union, the credit committees and the treasurer occupy critical positions. T h e former, which usually consists of three members, passes on loans, determines the security for each, and fixes the terms of repayment. T h e treasurer, whose official duties are more important than those of the president, vice-president, or secretary, manages the credit union in addition to keeping the books. T h e condition best suited for the use of credit unions in industrial establishments is where labor turnover is low and where the number employed in each producing unit is sufficiently small so that they are well acquainted with each other. Such a situation is to be found, for example, among postal, telephone, and railroad employees. Although our selected programs include some excellent pension plans, the group as a whole has tended to delay the actual accumulation of the reserves necessary to place their plans completely on a funded basis. If action is delayed until the number of old employees reaching retirement age is considerable relative to the total force, then the current burden is a heavy one, and the meeting of the accrued liability may be well-nigh impossible. Only companies that are exceptionally prosperous, or that recognize the problem early enough in their history, are able to provide pension arrangements that will stand searching examination. F o r one's conclusions as to sound principles for employers to follow with respect to the problem of pensions, one may well accept those set forth by Miss Margaret Loomis Stecker as a result of the exhaustive studies of Industrial Relations Counselors, Inc. 1 3 13 Ham, Arthur H., and Robinson, Leonard G. A Credit Union Primer, Russell Sage Foundation. See also the useful analysis of the Industrial Relations Section, Princeton University, 1 9 3 2 , revised 1 9 3 3 , The Use of Credit Unions in Company Programs for Employee Savings and Investment. See pamphlet of the American Management Association, General Management Series, No. 1 2 1 .

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1. Pensions should never be paid as current charges. Inasmuch as the liability assumed occurs each year of a man's employment, provisions for meeting this w h e n due should be made each year by setting aside such funds as, with interest earnings, will provide the value of the promised annuity. Until the liability which had accrued for service rendered prior to the adoption of the plan is covered, a program for funding this should also be set up which will extinguish the debt at the earliest m o m e n t — i n twenty or thirty years at the outside. In order actuarially to value a pension plan, the benefits payable should be based on each man's earnings each y e a r — t h a t is, on aggregate rather than on final salary, for at the end of each year the liabilities are shown, whereas no one can estimate accurately liabilities twenty, thirty, or forty years in the future as is necessary where final salary is the base pay. W h e n pension costs are regarded as are other fixed charges and not as requirements to be met as conditions permit on the basis of profits, a long step toward a financially sound pension plan will have been taken. 2. Sharing the cost of the pension system with the employees is necessary in most companies if worth-while benefits are to be provided on a sound financial basis. It is rarely feasible, however, to ask employees to assist in funding the accrued liability and in some recently adopted contributory plans benefits are not based on the entire period of service but only on that which occurs after the scheme is established. In most states there is nothing to prevent compelling employees to join a pension system but this is rarely feasible from a practical viewpoint. Participation can be set up, however, as a condition of employment. T h e i r voluntary cooperation can be secured much more readily where contributions are on a savings bank basis, returnable on withdrawal with interest, than where only their deposits are refunded. 3. Employee confidence in the plan is also a sine qua non of its success. T h i s will not be assured unless accumulated funds are safely invested and pension rights are legally secure. T h e former condition may be attained only through practice of the most conservative investment policy, putting pension funds in prime liens entirely outside the business and insuring that under no circumstances can they be used for anything but pension purposes. 4. L e g a l rights of the employee to his pension when earned and to its continued payment according to the terms of the plan should be safeguarded under all circumstances, not only by definite statements in the plan itself but also by having the plan ratified by the stockholders of the company. Evidence of the contractual status of the plan and of the employee's right under it

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should be readily a p p a r e n t , w i t h o u t the necessity f o r c o u r t i n t e r pretation. 5 . T h e plan should provide f o r flexible retirement ages, c o n tingent on the needs of the c o m p a n y as w e l l as on the volition of the e m p l o y e e . S e r v i c e r e q u i r e m e n t s w h i c h i n t e r f e r e w i t h the operation of this principle h a v e n o place in the set-up of a pension system. 6 . I n no w a y w f l l the succesful operation of a pension system be m o r e surely j e o p a r d i z e d than t h r o u g h such t e r m s a n d practices as seem to operate against the rank a n d file, or in f a v o r of one g r o u p as against a n o t h e r . D i s c r i m i n a t i o n s as to relative benefits payable u n d e r c o m p a r a b l e conditions, as to cost s h a r i n g , a n d as t o d e m a n d s on the pension f u n d s , are definitely to be a v o i d e d . important item in this connection is the necessity f o r

An

limiting

m a x i m u m benefits w h i c h will be paid in order that a f e w l a r g e pensions m a y not use up most of the available f u n d s . 1 4

The Effect of Depression T h e depression of the 1 9 3 0 ' s brought many changes in detailed technique, but few in fundamental policies. T h e personnel departments of our chosen companies were adjusted to the shift of emphasis from the building up of a force to keeping it efficient even while it was being decimated by layoffs. Among the more obvious changes were the increased attention paid to industrial relations by ranking executives, the greater emphasis upon relief activities, including dismissal allowances and work-spreading, the reduction or elimination of company contributions to athletic and social activities, the shrinkage of personnel records to the bare essentials, the dropping of stock ownership plans, and the elimination of training courses and company magazines. Of the twenty-five firms in this sample, fourteen once had company magazines devoted to the employee interests. Of these, five have been discontinued at least temporarily. 1 8

" Ibid.,

page 1 5 . " Of 42 companies responding in 1 9 3 3 to a questionnaire sent to them by M r . E . S. C o w d r i c k ( N e w Y o r k C i t y ) , 31 reported that they had retained all or nearly all of their programs, and others had kept substantial portions. T h e number of companies which dropped or curtailed given activities is indicated by the f o l l o w i n g figures:

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T h e retrenchment made necessary by depression has obviously not led to excessive mortality among employee activities. What is more ominous is the weakening of morale among those who retain their jobs, because of the feeling of futility that arises when no advancement is possible. Still more serious for the future may be the destruction of skill and usefulness among the forty per cent of our workers who have gone stale through unemployment.

Conflicting Concefts concerning Personnel

Relations

As stated in the Introduction, this study has a two-fold purpose: to describe the manner in which well-known companies conduct their employee relations, and to analyze their methods and experiments in the light of differences in competitive situation and philosophy. So far our inferences have been related to the more tangible aspects of personnel management; there remains the problem of delineating certain essential differences in point of view. It is necessary to reiterate, perhaps, that the field of industrial relations is one in which the analysis of objective data leaves untouched those imponderables that are the v e r y essence of the relationship. H e r e , a study that is factual only is not complete. Y e t it has not seemed practicable to attempt to reflect the exact point of view of each company's management; often it is a conglomerate of individual attitudes. Instead, we have derived from our discussions with the executives of the cooperating companies a series of points about which they have differed and argued. T h e n , to illustrate the pros and cons of each issue, we have resorted to statements that appear in the literature of personnel to avoid the impossible task of portraying accurately the beliefs and attitudes of those whom we have interviewed. It is even more important not to be dogmatic in setting Dropped

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Vacations with pay Company magazines Athletics Educational work Social activities

Economy

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because of Doubtful

Value

Stock subscriptions 6 Employee magazines j Social and recreational activities . . J Savings bank plans 3 Training 3

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forth these differences in philosophy that color the thinking and decisions of executives, than when dealing with more tangible aspects of the subject. T h e problem is intrinsically difficult, and is not susceptible of any simple and easy, nor of any single and final solution. One cannot be certain that he knows which of these conflicting concepts will ultimately find acceptance. In fact, the choice will depend upon circumstances and personalities. Consequently, one is frequently forced to straddle, and to remark timorously that both points of view have their merits. It is far safer to describe these differences than to pass final judgment upon conflicts that bid fair to endure for generations to come. It is natural that industrial relations should be a fruitful source of differences in opinion. T h e mere fact that they deal with human beings offers a ready explanation to which must be added the observation that the employer-employee problem is complicated because it is inherent in the specialization and in the round-about process characteristic of our productive economy. T h e fact that there is a wide separation in time and distance between the producer and the consumer, that the division of labor among specialized workers introduces the problem of valuing the contribution of each, and the necessity for coordinating large numbers of these workers for the achievement of a common purpose, all introduce complications. Out of the many differences in point of view thus created, we have chosen seven for examination. 1 . T h e three approaches to e m p l o y e r - e m p l o y e e relations a. T h a t of executive control b. T h a t of the defense of w o r k e r s ' rights c. T h a t of the objective student. 2.

Opposition vs. c o m m u n i t y of interest b e t w e e n employer a n d employee.

3.

T h e sharing of m a n a g e m e n t vs. its concentration in leaders of proven ability.

4 . C o m p a n y unions vs. union m a n a g e m e n t cooperation. 5.

C o m p u l s o r y vs. voluntary contributions to plans f o r employee protection.

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6. W h o is responsible for providing economic s e c u r i t y — t h e individual w o r k e r , industry, or the state? 7. E c o n o m i c determinism as applied to w a g e s vs. the

human

approach to w a g e setting.

The Three Approaches

to Employer-Employee

Relations

In the literature dealing with the relations between e m ployers and employees are a series of terms the use of which signifies whether the approach taken is that of management or of workers. If the former, the phrases used are industrial relations, or personnel, or employment management ; if the latter, labor economics. T h e former represent the phraseology used by those connected with the field of human relations in a professional or managerial capacity. Consequently, as D r . W i l l i a m M . Leiserson points out, 16 these terms have been used generally in colleges and universities as captions for courses dealing with employee relations. T h e labor colleges, however, approach the subject from the opposite point of view, namely the policies and methods that wage earners and trade unions use when dealing with employers. T h e latter courses are dubbed labor economics. T h e r e is still another approach possible, that of the objective student interested in describing and interpreting personnel phenomena as objectively as possible. If one is to be completely objective, he must agree with Professor Leiserson that the goals for which employers strive cannot be assumed to be better or worse than those of workers. N o r can he concern himself solely with one party to the relationship. Consequently, in talking about or writing about dealings between employers and employees, confusion can scarcely be avoided unless one distinguishes between three possible points of view: the control of workers to achieve the objectives of the employer; the bargaining with employers by workers to attain the goals of the latter; and the interpretations of disinterested scientists. M Leiserson, W i l l i a m M . , " C o n t r i b u t i o n s of Personnel M a n a g e m e n t to I m p r o v e d L a b o r R e l a t i o n s , " Wertheim Lectures on Industrial Relations, 1928, page 125.

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Of position vs. Community of Interest between Employer and Employee It is an unusual labor argument if at least one party to it does not voice opinions that are colored by the assumption either that the fundamental interests of workers and e m p l o y ers are diametrically and perpetually in opposition, or, that they are in complete harmony. T h e second position is one that m a n y liberals w o u l d like to take were they not forced in more sober moments to question its tenability. A n illustration of the first of these concepts appeared in the D e c e m b e r , 1 9 3 3 , issue of Fortune in an article dealing with the leadership of organized labor in the U n i t e d States. " T h e G r e e n Policy is a logical and inevitable conclusion to the trend of the Federation's economic and social ideas. It has f a i l e d and they have f a i l e d because they do not recognize the basic conflict of interest between capital and labor. It is unfortunate that such a conflict exists. W h i l e it may be to the immediate interest of the individual e m p l o y e r to reduce wages, it is u n questionably to the long-range interests of his class to raise wages. B u t as industry is organized today, the capital-labor conflict is inevitable. T h e leaders of the Federation are wont to r e g a r d themselves as hard-headed practical men and their radical opponents as visionaries, but the M a r x i a n theory of the class s t r u g g l e is closer to reality than the A . F . of L . fantasy of the capitalist lion lying down with the working-class l a m b . " A t the opposite extreme is the sentiment expressed by M r . J o h n D . R o c k e f e l l e r , J r . " I t is f r e q u e n t l y maintained that the parties to industry must be hostile and antagonistic; that each must a r m itself to wrest f r o m the others its share of the product f r o m the common toil. T h i s is unthinkable; it is not t r u e ; the parties to industry are in reality not enemies, but partners; they have a common interest; no one can get on without the others. L a b o r must look to capital to supply the tools, machinery, and working capital, without which it cannot make its vital contribution to i n d u s t r y ; and capital is equally powerless to turn a wheel in industry without l a b o r . " 1 7 " Rockefeller, John D . , J r . , The Personal Relation in Industry, page 1 4 .

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One must conclude that the truth lies between these two extremes. T h i s fact was seen clearly by Ruskin, who comments in The Roots of Honor that " I t can never be shown generally either that the interests of master and laborer are alike, or that they are opposed; for, according to circumstances, they may be either. It is, indeed, always the interest of both that the work should be rightly done, and a just price obtained for it; but, in the division of profits, the gain of the one may or may not be the loss of the other. It is not to the master's interest to pay wages so low as to leave the men sickly and depressed, nor the workman's interest to be paid high wages if the smallness of the master's profit hinders him from enlarging his business, or conducting it in a safe and liberal w a y . " Obviously, the well-being of both employer and employees depends upon the profitability and continuity of the enterprise. Anything that either side contributes toward the success of the company, therefore, helps the other, provided it does not impinge upon the latter's rights or income. Professor Frank W . Taussig points out that the picture is not one of pure blacks and whites. 18 People are not just good or bad, hard-boiled or soft-boiled; they are creatures whose motives are mixed. M o r e o v e r , there are questions like wages upon which there is a sharp divergence of interest between the individual employer and his workers. T h e phrase, " h i g h wages and purchasing power," may epitomize an employer's hopes that other companies will pay liberally in order to sustain a market for his products, but he must recognize that there are limits set by competition to the wages that he can pay to his own employees. Perhaps the philosophy that gives the most hope for a constructive relationship in the face of the difficulties compounded by reality is that expressed by M r . H e n r y S. Dennison. 1 8 " I f anything two parties want is different, if a labor union, for example, wants high wages and favorable conditions and the employer wants only low wages and pro18 T a u s s i g , F r a n k W . , " T h e Opposition of Interest between E m p l o y e r and E m p l o y e e : Difficulties and R e m e d i e s , " Wertheim Lectures on Industrial Relations, 1928, p a g e 1 9 7 . " Organization Engineering, page 131.

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duction, nothing is possible but conflict. . . . Organization engineering must always be trying to make the most of the areas of mutual interest that exist and attempting constantly to increase them in size."

The Sharing of Management vs. Its Concentration in Leaders of Proven Ability One of the most fundamental questions in the field of both political and industrial government is how far the masses or the rank and file can participate without impairing efficiency. In the field of politics, this question was argued a century ago by J o h n Stuart M i l l in his chapter on the limits of the province of government. It is now coming to the fore in the internal management of business enterprises because of the emphasis upon employee representation. T h e dilemma is to secure the psychological benefits of sharing management as widely as possible without sacrificing too much of the precise coordination that is achieved when control is concentrated in the hands of a few. In short, the problem is to secure the best fruits of both democracy and autocracy. Perhaps the leading proponent in this country of sharing management with workers is M r . William P . Hapgood, president of the Columbia Conserve Company. H e argues that " J u s t as in political government the making of laws is a human right and not an economic right, so in industrial government the control and direction of business should be vested in the industrial citizens, the workers. These laws should deal with all matters concerning those who work. Not only would the workers determine the length of time they should work, but they would also determine their incomes, their share of the total production, choose their own associates and release them, elect their own leaders, promote and demote them, and decide upon all the policies of the business." 20 H i s b r o t h e r , N o r m a n H a p g o o d , m a k e s the f o l l o w i n g incisive c o m m e n t : " I f a n y d e m o c r a t i c enterprise is to w o r k , it must recognize the d i f f e r e n c e between l e g i s l a t i v e p o w e r a n d e x e c u t i v e p o w e r . T h e l e g i s l a t i v e side of things should represent mass o p i n i o n . T h e w h o l e b o d y should choose its leaders and also consider a n d decide v e r y g e n e r a l matters a f f e c t i n g the w e l f a r e of e v e r y b o d y . T h a t

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It seems strange to find the Webbs, great interpreters of the struggle of down-trodden wage earners giving testimony to the weaknesses of the point of view that M r . William P. Hapgood urges. " N o self-governing workshop, no trade union, no professional association, no cooperative society, and no local authority—and no office or industrial enterprise belonging to any of these—has yet made its administration successful on the lines of letting the subordinate employees elect or dismiss the executive officers or managers whose direction these particular groups of employees have, in their work, to obey. This, again, has not been for lack of trial. Innumerable self-governing workshops in different industries and in different countries have experimented in electing their own foremen and managers and their own executive committees, with an invariable result." 21 One finds an exposition of the virtues of autocracy in Ortega y Gasset's Revolt of the Masses: "Command is not exercised in the void. It implies a pressure exercised on others. But it does not imply this alone. I f it were only this, it would be mere violence. W e must not forget that command has a double effect—someone is commanded, and he is commanded to do something. And in the long run what he is ordered to do is to take his share in an enterprise, in a historic destiny. Hence there is no empire without a programme of life; more precisely, without a programme of imperial life. As the line of Schiller says: ' W h e n kings build, the carters have work to do'." 2 2 is the function of legislation. But the men who wrote our constitution, or those who have written any successful free constitution, know that the executive, or action side, cannot be like the deliberative side. Y o u cannot run an army as a debating society, nor can you run the action side of any business like a debating society. . . . " . . . It is as a protection against irrational and constant interference that executives in any strong organization, political or economic, are always given the power to make decisions and have them obeyed. If the person not liking an order wishes to appeal, there should be convenient appointed times for doing so, but if he is free to rebel on the spot, and be supported in his rebellion, then discipline is at an end and the danger is serious." 31 Webb, Sidney and Beatrice, The Consumers' Co-operative Movement, pages 467-468. " O r t e g a y Gasset, Jose, Revolt of the Masses, page 1 5 5 .

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Perhaps one may find a middle ground in the observations of M r . Sam Lewisohn, vice-president of the Miami Copper Company,—that for the defects of the democratic principle, there are compensating advantages. " A n y other system is incompatible with the modern conception of the dignity and self-respect of the individual. But enonomic life is a field in which sterner discipline is necessary than in political life. Production of goods must not be endangered for the sake of shifting power along doctrinaire lines. . . In industrial activities, the principle of self-determination must be harmonized with the principle of efficiency. " A large measure of autonomy and self-expression for workers in industry is not only compatible with efficiency but actually conducive to efficiency, as many experiments in employee representation and management-union cooperation have demonstrated. T h e point is, however, that this factor of efficiency, in the present state of the industrial world, must be the most prominent if not the determining consideration in evolving new principles of organization." 28 " N o w the moral of these contrasting opinions is that this question of how far the workers in a particular industry or plant should be permitted to help direct that industry, and similar questions, should not be treated primarily as partisan issues. They also involve the problem of what constitutes sound organization, from the standpoint of achieving efficiently the social aims of industry." 24 Whatever be the final solution, it is an issue that will perforce puzzle industrialists during the decades ahead. T h e issue, as already stated, is to secure the best that democracy can offer without loss of efficiency at those points where autocracy is superior. In industry, democracy has so far been achieved principally through the development of trade agreements and of employee representation. F o r some years, it seemed that the second of these had "stolen the show" from the former. This fact has led Professor William M . Leiserson ** Lewisohn, Sam, " Ibid., page 15.

The Ne5 Q I ,775

1934.

Consequently, specialized departments have serious problems of seasonality. A n analysis of the group of 755 banks previously mentioned offers a rough idea as to the relative importance of payroll and interest. T h e former requires about 2 2 . 5 per cent of the gross income and the latter about 40 per cent. I n large banks, however, the percentages are likely to vary from these figures. American banking is now characterized by a large number of separate units, of which in 1 9 3 0 about 3 5 per cent were members of the Federal Reserve System. In J u n e of that year, there were in the United States 24,939 incorporated banks of which 7 , 5 3 6 were national, 1 4 , 4 3 7 w e r e s t a t e banks and

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the remainder were loan and trust companies.7 H o w rapidly these unit banks will be welded into one or more centralized banks as a result of the depression of the 193o's cannot yet be foretold. T h e effect of the American banking system upon bank personnel has been marked. T h e men trained in small banks have become versatile, because of their contact with all phases of the work. As banks have increased in size, the training of bank clerks and exectives has become less wellrounded unless the management has taken unusual measures in this regard. Moreover, the mechanization of bank operations has rendered obsolete the skill of relatively young clerks who lacked ability to adjust themselves. T h e ranking of the largest banks of the country according to their total resources is shown in Table 1 2 . CANNING

T h e canning industry is made up of a large number of small units scattered wherever vegetables and fruits are grown. 8 In 1 9 2 9 , there were 3 , 3 4 5 of these canneries, with an average number of wage earners per cannery of only 3 3 . As a result, the industry is plagued by a lack of organization that tends to create over-production in years when there are " b u m p e r " crops—a situation that makes for price instability. One would gather from the aggregate earnings of some 16 companies for the decade 1 9 1 9 - 1 9 2 8 that the industry was fairly profitable. Its ratio of net income to capitalization for that period as computed by Professor Epstein, was 13.8 per cent.9 H o w e v e r , there are a large number of units in the industry that are much less profitable than this percentage would indicate. In fact, from 34 to 48 per cent of the canneries pre* National Industrial Conference Board, The Banking Situation in the United States, page 8. " I n 1 9 2 9 , the principal vegetable and fruit canning states were: California with 389 establishments New Y o r k " 279 " Maryland " 264 " Wisconsin " 171 " Indiana " 156 " "Epstein, Ralph C., Industrial •93

Profits in Prosperity

and Depression,

1919-

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serving products of all types (fish, fruit, vegetables, etc.) reported to the government in the years between 1 9 2 6 and 1 9 3 0 that they earned no net income. T h e industry is one in which material costs are high and labor costs relatively low. In 1 9 3 1 , the costs of materials (i.e., vegetables, fruits, etc.) and power represented 62.8 per cent of the product, whereas the wages paid to the relatively unskilled labor used in this industry amounted to 10.5 per cent. Salaries, if available for that year, would add about 3 per cent more. T h e item of overhead is of great concern to the management of a cannery because of the short season during which a cannery can pack any given product. T h e packing season for corn is about six weeks at the longest; for peas, from two to four weeks; and for tomatoes, from six to eight weeks. M a n y canners hire about six times as many employees during the summer peak as during the slack winter months of February and March. One remedy employed to meet this situation is to diversify the products packed. This policy permits canners to operate during a larger part of the year and thus distribute their overhead over a larger volume. Such unusual seasonality renders the accomplishments of the Columbia Conserve Company (described in Part I ) all the more striking. T h e extreme seasonality just referred to is of course the outstanding factor affecting the labor situation within the industry. Canning dates from the publication in 1 8 1 2 by Nicholas Appert of his discoveries in response to a prize offered by the French government to improve the methods of keeping food. About 1 8 3 9 , the advent of tin canisters, from which the word " c a n " is derived, marks a notable step in the development of the industry. During the Civil W a r , the processing time was reduced by using calcium chloride to raise the temperature of the boiling water in which the goods were cooked. By 1 8 8 0 , the concerns used so many cans that the volume warranted the establishment of separate and independent companies for their manufacture. Since the W o r l d W a r , canned goods have encountered a popular substitute, or competitor, in the shape

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of fresh vegetables that are now brought to the metropolitan markets in refrigerated cars. T o this competition, the canning industry must adjust itself. C L O T H I N G ( M E N ' S , Y O U T H S ' , AND B O Y S ' )

T h e men's clothing industry is one of the most highly unionized in this country. T h e preponderance of its workers in the leading centers of Chicago, New Y o r k , and Rochester are said to carry the card of the Amalgamated Clothing Workers of America. Its high degree of unionization was caused originally by intolerable sweatshop conditions, and later developed into highly constructive trade agreements in various clothing markets. It may be said to lead all other American industries in the provision of machinery for the judicial settlement of grievances and the establishment of greater employee security of which that of H a r t , Schaffner and M a r x is the best known example. This achievement is all the more remarkable when viewed in the light of the industry's seasonality, and the large proportion of female employees ( 5 0 per cent of the total), and of workers of foreign birth or at least of foreign extraction. Those races which predominate are the Jewish, Slavic, and Italian, of which two at least are scarcely noted for placidity. T h e racial characteristics of the workers of this industry are to be explained by the fact that it is one of the most convenient methods of earning a living open to immigrants. It was so used by the Irish and the Germans in the early 1880's, and then in turn by the Russian Jews who settled chiefly in New York 5 by the Bohemians who located in Chicago and Baltimore 5 by the Poles who settled in Chicago; by the Lithuanians in Philadelphia and Baltimore; by the Germans in Rochester; and by the Italians in N e w Y o r k and Philadelphia. T h e profitability of men's clothing firms is about the same as that of industry generally. T h e ten-year ( 1 9 1 9 - 1 9 2 8 ) aggregate earnings for 25 companies was 1 2 . 1 per cent of their

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capitalization, excluding funded debt, whereas the median f o r 1 0 4 industries was 1 2 . 5 5 per c e n t Materials, f u e l , and electrical energy are equal to about 49 per cent of the value of the industry's products, and wages and salaries to about 2 5 per cent. T o the latter must be added, however, 9 or 1 0 per cent f o r work " l e t o u t " on contract, a system vigorously opposed by the unions. T h e wages in this industry rose steadily f r o m 1 9 1 4 to 1 9 3 0 , the earnings per hour and per week in 1 9 3 0 being respectively 2 7 2 per cent TABLE

13

H O U R L Y A N D W E E K L Y E A R N I N G S OF C L O T H I N G

Year 1914 1919 1922 1924 1926 1928 1930

Average Earnings per Hour $0.256 0.446 0.728 0.760 0.750 °-73I 0.701

WORKERS*

Average Full-Time Earnings per Week $13.06 21.08 3 1 -9 1 33-52 33-^3 32.16 31 - °5

* Biennial Census of Manufactures. and 2 3 5 per cent of the 1 9 1 3 amounts. In the meantime, the full-time hours worked per week declined about 1 5 per cent ( f r o m 52 hours in 1 9 1 3 to about 4 4 over the period 1 9 2 2 1 9 3 0 ) . T h e average earnings per hour and per week f r o m 1 9 1 4 to 1 9 3 0 in 2 1 2 establishments located in twelve large and two small cities are shown in T a b l e 1 3 . T h e s e figures are based on the earnings of over 3 3 , 0 0 0 wage earners. I n 1 9 3 0 , the average hourly earnings of male employees in all occupations of the industry was $ 0 . 8 8 5 , and f o r female, $ 0 . 5 0 4 . T h e respective full-time weekly earnings were $ 3 9 . 2 1 and $ 2 2 . 2 8 . T h e most highly paid occupations are the cutting, which is done by men (average hourly rate in 1 9 3 0 was $ 1 . 1 4 ) , and the shaping of coats on which the men earn $ 1 . 0 1 . M a l e operators on coats, vests, and trousers earn almost as

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much, the average being $0.93. Female operators averaged in 1 9 3 0 about $0.56. In 1 9 3 0 , the highest earnings per week, $40.26 to $ 4 5 . 2 8 , were found in Chicago, Newark, New York, and Rochester as compared with an average for 1 4 cities of $ 3 9 . 2 1 . T h e " s p r e a d " among the earnings of female operators was even greater, the earnings in Chicago being $ 3 3 . 3 8 and Rochester $ 2 5 . 5 2 against an average for 1 4 cities of $22.28. T h e industry has suffered both from a downward trend in the demand for suits, at least for those of higher grade, and also from seasonality. T h e former has necessitated the permanent layoff of many who used to look to the industry for their source of livelihood; and the latter, though less in the men's industry than in the women's, has created problems for both company executives and union leaders. Because the demand for clothing is affected by style, manufacturing for stock is considered unwise. Consequently, the unemployment insurance system in the Chicago market has filled a great need. Although the industry was formerly characterized by small shops, the number of units in the industry has been diminishing and their average size increasing. In twenty years, the latter has grown from about twenty employees per shop to over forty. Actually, the industry consists of a mixture of large shops with highly advertised lines, and small ones with lower overhead that enjoy the flexibility of being able to take whatever work can be found. Historically, the industry dates from the invention of the sewing machine by H o w e in 1846. Between 1850, when the machine was first put on the market, and 1 8 5 9 , there came into being some 4,000 establishments. However, there were as yet no factories in the ordinary sense, for garments were cut and sent out to the country districts to be made up by farmers' wives during their spare time. T h e better grades were kept in the city to be worked on by city workers or by custom tailor employees during their slow seasons. T h e clothing trade received a tremendous impetus through the manufacture of

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uniforms during the Civil War. One manufacturer received an order for $ 1 , 2 5 0 , 0 0 0 worth of uniforms. T h e large factories, of which H a r t , Schaffner and M a r x is typical, began about 1 8 9 5 , and the tailor-to-the-tradehouses about 1907. Prior to the development of these institutions, the clothing business had been characterized by the task system that had been introduced by Russian Jewish contractors. This system made use of a " t e a m " of three, one who did the basting, another the machine sewing, and a third the finishing. These individuals were paid only for the units completed during the week so that they were essentially on a piecework basis. T h e fact that this contract system involved home work and the labor of the women and children of each family, created unsanitary sweatshop conditions in cities like N e w York. Although the manufacture of men's clothing is still relatively centralized in the cities of New Y o r k , Chicago, Philadelphia, Rochester, and Baltimore, there has been a tendency for small shops to seek cheaper labor costs in small towns. 10 This decentralizing movement has been less evident, however, in the manufacture of men's clothing than in the production of women's wear. BITUMINOUS COAL

MINING11

T h e bituminous industry has been sick for many years—so sick that it is among the least profitable of the sixteen represented here. In fact, it has long been the problem child among the industries of the United States. M a n y of its operators (i.e., employers) have been "in the r e d " since 1 9 2 3 , and its workers have been exposed to chronic unemployment of " R a n k e d according to the number of their men's clothing workers in 1 9 1 9 , the percentages are as f o l l o w s : New Y o r k 19.0 Rochester 7.1 Chicago 11.8 Baltimore 6.3 Philadelphia 7.2 11 T h e product of our cooperating coal company is lignite not bituminous coal, but its characteristics are similar. Unfortunately, no worth-while data can be presented relative to lignite alone.

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serious proportions. U n e m p l o y m e n t , strikes, and lack of prosperity, which make its industrial relations notorious, have as one of their primary causes an excess of capacity. According to the Bureau of M i n e s , the percentage of capacity at which the bituminous coal industry operated for the i o - y e a r period i 9 2 0 - 1 9 2 9 averaged 68 per cent. T h e capacity of the existing mines, based on 308 days' operation per year averaged 841 million tons, whereas the average production was only 5 1 0 . T h e increased capacity came from the opening up of mines, chiefly high-cost ones under the stimulation of high prices during the W o r l d W a r , but it was accentuated by the shift of the industry f r o m the old Central Competitive F i e l d (reaching from Pennsylvania to Illinois) to the nonunion southern area. In the meantime, the growth in demand stopped because of the substitution of oil and natural gas, and, still more important, the technical improvements in the utilization of coal. T h e railroads, for example, although they used 20 per cent of the 1930 output, required only about 70 per cent as much coal per ton mile as in 1 9 2 0 ; during the same period, the utilities, which take 10 per cent of the output, reduced their consumption per kilowatt hour f r o m three pounds to less than 60 per cent of that figure. 1 2 O n e effect of the increasing competition which in turn has affected wages is the steady decline in selling prices. Since 1923, the pressure of competition has kept the price at the mine mouth at $2.00 or under. O n l y for a short time at the end of 1926 did it rise to $3.00 a ton. Coal mining ranks highest of all in the proportion of its income paid out to labor, a fact that intensifies the wage bargaining. In 1921 the percentage varied from 64.8 at Pittsburgh to 76.9 in Central Illinois. N o t only does the miner hold tightly to his independence but he works in a chamber separated f r o m most of his fellows so far from the mine boss that he sees the latter only occasionally. Labor turnover tends to be high: that in the Consolidation Coal " C o m p u t e d by Fraser and D o r i o t f r o m data of the United States G e o l o g i c a l Survey and Bureau of R a i l w a y Economics.

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341

Company varied from 263 per cent in 1 9 2 5 to 98 per cent in 1 9 2 9 . 1 3 T h e danger of death or serious injury in this industry is well known. T h e accident tables in Chapter I I of Part I I I show that its workers are subject to accident as frequently as in any industry, and that the severity is much greater than in other dangerous ones like construction. T h e bituminous coal industry had a steady growth from the beginning of the century until 1 9 1 8 , the rise being from about 200 to about 5 7 5 million net tons, but since that year the growth in actual output has been nil. Not only is it plagued by cyclical fluctuations, of which the 1 9 2 1 decline of about one-fourth of the 1 9 2 0 production is typical, but it has seasonal swings which tend to keep in the industry the excess number of mines and miners already referred to. During the years 1 9 2 9 - 1 9 3 0 , according to the United States Geological Survey, the production in the high months, January and October, was nearly 50 per cent larger than that of the low months of April, M a y , and June. In the 25 years from 1 9 0 2 to 1 9 2 6 , the average number of days worked per year per miner exceeded 2 2 5 only five times, and fell below 200 eight times. Between 1 9 2 1 and 1 9 2 6 , the average annual loss of time for reasons other than strikes was 1 1 7 days. 14 T h e notoriety which the industry has secured may be explained in part by its division into union and non-union fields, and in part by the traditional independence of the miner and by his physical environment. In 1 9 2 1 , the unions were powerful enough to secure a single or unified agreement with a group of operators producing two-thirds of the country's bituminous coal, but by 1 9 2 8 , the operators covered by such union agreements produced only one-fifth. T h e non-union areas undersold the Central Competitive Field to such an extent as to cause widespread unemployment in the latter and to undermine the union strength. This process resulted in u "Industrial Relations at Consolidation Coal Company," Coal Age, October 1 9 3 0 , pages 619-620. " Willits, Joseph H., "Industrial Relations in the Bituminous Coal Industry," Wertheim Lectures on Industrial Relations, ¡928, page 37.

EXECUTIVE

342

GUIDANCE

three serious strikes in 1919, 1922, and 1927, each of which lasted several months. DEPARTMENT

STORE

T h e personnel relations of department stores are accentuated by the need of the latter for friendly relations with customers. T h i s accounts for the emphasis placed by R . H . M a c y and Company upon selection and training. From the standpoint of those employed, department store work, at least in the selling departments, is characterized by the nervous tension of the "Christmas rush." T h e latter's pace affects even those employees (and they may be in the majority) who do not come in contact with customers. Of sixty industries for which data are available, department store retailing is in the lower half as to profitability, falling slightly below the median industry. In the years 1927 to 1930, only 44 to 61 per cent of the department stores reported to the Federal government that they had made net income. In department stores selling more than $2,000,000 annually, merchandise sold for one dollar costs about 66 cents. Seventeen per cent is required for payroll, which makes the close supervision of workers important. Retailing is an industry of outstanding seasonality. In the December peak, over twice as many people are needed as in the low month of July, as is shown by the seasonal index of employment of the Federal Reserve Board. TABLE

14

SEASONAL INDEX OF D E P A R T M E N T STORE E M P L O Y M E N T

January February March April May June

86 83 93 1o1 102 97

July August September October November December

74 76 95 111 117 165

During depressions, the number of transactions does not fall as rapidly as the volume of most manufacturing concerns,

SUPPLEMENT:

INDUSTRIES

REPRESENTED

343

but the decline of retail prices creates serious problems. Not only do net sales tend to decline faster than operating expenses, but losses result from the frequent and severe markdowns required to move stock on a falling market. In addition, there is a tendency for the expense of customer privileges, such as the returning of merchandise, to increase. T h e birth of retailing occurred so long ago as to balk the accurate determination of the date, but the grouping of separate stores into department stores may be said to have started about the middle of the nineteenth century. T h e Equitable Pioneers' Society, L t d . , is said to have been launched at Rochdale, England, in 1844. 1 5 T h e Parisian Bon Marché and the Louvre were both opened in 1 8 5 2 , and in the United States, the Jordan Marsh Company (Boston), R . H . Macy ( N e w Y o r k ) , and John Wanamaker (Philadelphia), began in 1 8 5 1 , 1 8 5 8 , and 1 8 6 1 respectively. However, the last three originated not as department stores, but as specialty stores to which other departments were added. T h e same is true of L o r d and T a y l o r ( N e w Y o r k ) which opened as a dry goods store in 1826. 1 6 E L E C T R I C L I G H T AND P O W E R

T h e electric light industry is featured by high capital requirements and by the stability of its profits and employment. In fact, the steady use of energy by domestic customers places this industry among those which can offer the most stable employment, and the latter fluctuates little either from seasonal or cyclical causes. Because of the tremendous investment required, the rate of capital turnover is exceedingly low in comparison with manufacturing and merchandising establishments. T h e total investment in plant and equipment, estimated at about 1 2 billion dollars at the end of 1 9 3 0 , turns over once in four or five years. This large investment in plant emphasizes the need " " R . H. Macy & Co., Inc.," Fortune, April 1 9 3 3 , page 24. " Glover, J . C., and Cornell, W. B., The Development of American tries, page 803.

Indus-

344

EXECUTIVE

GUIDANCE

f o r carefulness and responsibility on the part of those tending equipment, and, together with the importance of customer contacts, explains the emphasis placed by several electric companies upon personnel. Moreover, the control over rates by public service commissions may encourage liberality to employees. T h e original ancestor of the "central station," so-called, was the Pearl Street station erected by Thomas Edison in New Y o r k City in 1 8 8 2 . T h e economies in the use of coal by the large central stations have caused them to grow in favor for supplying energy for industrial uses and to supplant many of the so-called isolated plants (those owned by users). TABLE

15

I N D E X OF P R I C E OF E L E C T R I C I T Y TO D O M E S T I C C O N S U M E R S *

(1913 = 1 0 0 ) 1890 1900 i9°5 1910

218 166 133 106

1915 1920 i9 ? o 1930

92 86 84 70

* National Electric Light Association, Statistical Supplement to the Electric Light and Power Industry in the United States, 1931, page

27.

Because of the high investment in lines and in generating and transformer equipment, the power company must charge for unused capacity that customers force it to carry to supply their peak needs. Most companies accordingly have rates that combine a charge for the energy actually consumed with a " d e mand charge" covering the customer's share of the idle capacity. This "demand charge" is a minimum monthly amount which tends to penalize customers with low (i.e., poor) load factors. A s volume has increased year by year, the wider spreading of the heavy investment already referred to has caused total costs to decline, and consequently the price per kilowatt hour has tended downward. T h e rate of decrease to domestic users is indicated by T a b l e 1 5 .

SUPPLEMENT:

INDUSTRIES

ELECTRICAL

REPRESENTED

345

EQUIPMENT

T h e manufacture of electrical machinery and equipment has been consistently profitable from its inception in the 1880's. Over the ten-year period, 1 9 1 9 - 1 9 2 8 , 54 companies earned 15.2 per cent according to the study of Professor Ralph C. Epstein. ( T h e median of 106 industries equals 1 2 . 5 5 P e r cent. 17 ) In 1929, the National City Bank figures show that 47 companies earned 19.2 per cent; in 1 9 3 0 , 9.4 per cent; and in 1 9 3 1 , 4.1 per cent. Only in 1 9 3 2 did the industry as a whole go "into the red." This type of manufacture is one in which neither materials nor wages require an unusually high proportion of the sales income. In 1 9 3 1 , about $0.34 of each $1.00 received was required for materials, and $0.21 for wages. T o the latter figures must be added about $0.07 for salaries, making a total labor cost of approximately $0.28 of each $ 1 . 0 0 of income. T h e proportion going to material is lower than in most industries included herein, and that going to labor is not far removed from the average of all American manufacturing industries (about 24 per cent). The fact that a high proportion of this labor is skilled may account in part for the apparent success of the personnel programs in this industry, which has furnished four of our twenty-five cooperating firms. T h e overhead of most electrical manufacturing companies is high on account of the engineering and sales expense. T h e former is increased by the fact that the companies must emphasize research in order to develop new products, to improve their existing ones, and to adapt them to the special needs of their customers. T h e products of this industry vary from generators, motors, and other heavy equipment that go into capital improvements to electric refrigerators and light bulbs that go direct to the customer. T h e sales of the former decline sharply in depression so that during such periods, the payrolls are greatly contracted. In common with other producers of capital equipment, these manufacturers and their employees suffer from wide " Epstein, Ralph C., loc. cit.

346

EXECUTIVE

GUIDANCE

fluctuations in demand because buyers of capital goods tend to buy heavily at the climax of a boom period, and little, if anything, when depression is at its worst. T h e products of the industry include not only machinery and equipment used in the generation, distribution, and use of electric energy, but telephone, telegraph, radio, medical, automobile, and other types of apparatus. In one class might be placed prime movers, generators, transformers, station equipment, and distribution-line equipment, all of which are essential to the generation and distribution of electrical energy. In another class belong household appliances, industrial motors, and similar products. In a third class might be grouped telephone, telegraph, and signal equipment and electric furnaces and ovens. In this country, the manufacture of electric power machinery and apparatus is carried on by a few large companies that make a large number of products. T h i s situation makes possible cooperative action and exchange of information on labor as well as other questions. T h e manufacture of large apparatus, like turbo-generators, involves difficult engineering and design, and requires a heavy investment in special manufacturing equipment. In addition, it "ties u p " working capital during the long construction period. Such special apparatus, obviously, must be made to customers' orders rather than to stock which may help to explain w h y , in the apparatus used in the generation and distribution of electric power, there is almost no direct foreign competition. 18 As a result of the aforementioned influences, there is strong leadership on the part of a few companies. F o r example, the development in manufacture of very large generators is confined to the General Electric, Westinghouse Electric and Manufacturing companies, and of the smaller generators, to the A l l i s - C h a l m e r s Company. Seven hundred companies producing electric light and power reported to the F e d e r a l T r a d e Commission in 1925 that about 64 per cent of their generator u Electric Power Industry—Supply of Electrical Equipment and Competitive Conditions, United States Federal T r a d e Commission, 1928, page 137.

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REPRESENTED

capacity had been installed by the General Electric pany, 25 per cent by Westinghouse, and 8.7 per cent by Chalmers. T h e relative importance in the past of the General tric and the Westinghouse companies in certain lines of uct is shown by T a b l e 16, compiled by the Federal Commission for 1923. TABLE PERCENTAGE

OF

EQUIPMENT AND

ComAllisElecprodTrade

16

INSTALLED

BY

GENERAL

ELECTRIC

WESTINGHOUSE 2

(i9 3)

T y p e of Equipment G e n e r a t o r s , exclusive o f self-contained^ p o w e r and lighting units Transformers, synchronous condensers, etc M o t o r s , motor parts, and supplies, includ ing r a i l w a y , b u t e x c l u d i n g fractional horse-power m o t o r s C o n t r o l and electrical m e a s u r i n g apparatus S w i t c h b o a r d s , panel boards, circuit break ers, switches F r a c t i o n a l horse-power m o t o r s A u t o m o t i v e generators and small self-contained power and l i g h t i n g units, etc I n s u l a t e d wire and cable, telephone and radio a p p a r a t u s L a m p s and v a c u u m t u b e s

General Electric

Westinghouse

51.6

25.2

49-7

2 7-3

46. I

23.8

35-5

25.2

30-3

16.4

34-3

15.4

2.8

3-i

4-1

48.9

10.0-15.O

T h e control of the large electrical companies over their operations is increased by their method of distribution. T h e y have company-owned branch houses, which carry warehouse stocks of standard products, and which sell all of the lines manufactured. Also, they own or control distributing agencies that handle the lighter lines produced. In addition to these controlled outlets, there are independent distributing agencies that stock and handle the lighter products only. T h e

348

EXECUTIVE

GUIDANCE

fact that heavy equipment is sold to operating power and light companies on specification means that these are sold direct to the ultimate users. Consequently, the sales force for such equipment as turbo-generators must be separate from that which handles such merchandise as fans and electric irons. ICE

CREAM

Although figures are not available as to the profitability of ice cream manufacture as distinct from that of other dairy products, the dairy industry as a whole is noted for the stability of its profits. Nine corporations earned 20.8 per cent on their net worth in 1 9 2 9 ; 1 7 . 1 per cent in 19305 1 2 . 2 per cent in 1 9 3 1 j 6.2 per cent in 1 9 3 2 ; and 4.2 per cent in 1 9 3 3 . D u r i n g the first years of depression ( 1 9 3 0 - 1 9 3 2 ) , the dairy industry was in the most profitable quarter of some 60 industries for which profit figures are made available by the National City B a n k . " In 1 9 3 1 , about 34 per cent of each dollar of total expenses was needed for the purchase of milk products, and an additional 1 0 per cent for supplies, including ice and carbon dioxide. These percentages fluctuate, however, from year to year. T h e percentage of labor cost approximates that of the average manufacturing industry. In 1 9 3 1 , 1 0 0 plants, producing 2 1 per cent of the commercial output in the United States, reported that salaries and wages amounted to 24.5 per cent of their total costs. T h e equivalent percentage for 1 9 2 9 was 2 1 . 7 . T h e fact that vanilla is a popular flavor, representing 48 per cent of all ice cream made, gives manufacturers an unusually standardized product which lends itself, in large plants, to continuous manufacture. 20 Aside from the actual filling of the containers, the packing with ice or carbon dioxide for shipment, and the delivering of it to the retailer, the making of ice cream requires little actual labor. F o r example, after u

National City Bank, loc. cit. * Chocolate, second in popularity, is used to flavor almost 17 per cent of the total output.

SUPPLEMENT:

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REPRESENTED

349

the various ingredients are measured out, mixed, and heated, the mixture moves to the Pasteurizer, and then by gravity or pressure into a homogenizer in which the fat globules are broken up. Thence it flows over the cooling coils into glasslined tanks ready for the freezers. From this description, it is evident that the process is highly mechanized. Nevertheless, the fact that the product is a food makes it essential to supervise the health and cleanliness of those tending the equipment. Since ice cream is a food, one would expect its sales volume to fluctuate less than that of producers' goods. Nevertheless, that it is still considered by many as a luxury is evident from the 1 9 per cent decline between 1 9 2 9 and 1 9 3 1 , and the additional 20 per cent decline between 1 9 3 1 and 1 9 3 2 . T h e heavy demand for ice cream during the summer months from M a y to August causes a concentration in these months of more than 50 per cent of the year's production, and in the six months from April to September, 75 per cent of the annual amount. This seasonality is typical of the country as a whole, and does not correctly portray the situation in areas like California that boasts an even climate. Consequently, it is more practicable for Samarkand, a West Coast firm, to guarantee employment than would be the case if it were located elsewhere. Ice cream, as a product, is said to have been mentioned by Marco Polo. T h e first retail selling in this country of which there is record occurred in 1 7 7 7 , and wholesale production started in Baltimore in 1 8 5 1 . B y 1 9 0 0 the yearly commercial production in the United States is estimated to have been between 25 and 3 0 million gallons; it is now about 1 0 times as large (in 1 9 3 1 , estimated at 208,000,000 gallons). Although ice cream consumes only 8 per cent of the milk going into manufactured milk products, it serves as one of the balance wheels of the milk industry since its peak production occurs during the summer months when the dairy farmer has the most milk to dispose of. T h e r e tends to be an increased concentration of control in the ice cream business on account of the growth of large cor-

350

EXECUTIVE

GUIDANCE

porations, such as the National Dairy Products Corporation and the Borden Company, but there are, in all, some 4,500 manufacturers throughout the country. Concentration is furthered by the cost of advertising and of the electric refrigerators which are now furnished to the retail outlets. These items form a considerable part of the fixed investment required. One factor which militates against extreme concentration in the industry is the widespread consumption of the product. T h e consumption per capita, however, is by no means uniform, for each Pennsylvanian buys about five gallons each year ( 1 9 3 0 figures), whereas residents of Alabama, Arkansas, South Carolina, and Georgia eat less than 0.7 of a gallon. T h e tendency of ice cream prices to remain fairly stable may be explained in part by the ability of the manufacturer to change both the percentage of butter fat and the extent to which the ice cream is beaten up. Of course, the butter fat must be kept above the legal minimum in each state (in many cases 1 2 per cent), but the same weight of milk, cream, flavoring, and gelatine can be beaten up to a greater or lesser degree. Considerable state legislation has been enacted, however, controlling the relation of the weight to the quantity. OIL

When one speaks of "money in oil," most people envisage the forest of derricks at Oil Creek and Kettleman's Hills. Actually the consistently "big money" has not been made in these strikes, on which M r . John D . Rockefeller early turned his back, but in the refining and marketing. Yet among the leading Standard companies, there are some, such as New Jersey, California, and Indiana, which have secured oil lands for protection. Although the oil industry as a whole earned 8.7 per cent on its net worth during the decade 1 9 1 9 - 1 9 2 8 , the refining and marketing specialists have earned more, it is said, than those whose chief emphasis was upon producing. That the relative profitability of the industry was affected adversely during the depression of the 1 9 3 0 ' s is shown by its fall from

SUPPLEMENT:

INDUSTRIES

REPRESENTED

351

the second quarter of 60 industries in 1 9 2 9 to the last quarter in 1 9 3 1 . T h e labor relations of part of the oil industry are improved by the stability of the demand for its chief product, gasoline. Only the refining and marketing activities of the industry are stable, however, for the men scattered through the producing fields are subject to irregular employment because of the fickleness of Nature. It is also possible that management gives them greater attention because the marketing of petroleum products is so dependent upon proper personnel and public relations. H o w e v e r , labor cost is a small proportion of the sales. Of each dollar received for their products, refineries paid out, in 1 9 3 1 , about $0.79 for material, and only $0.084 for wages and salaries. 21 In 1 9 2 8 , the average earnings per hour ana per week in representative plants engaged in the drilling and operation of oil wells ranged from $0.52 in northern Louisiana to $0.92 in California, and the average full-time weekly earnings from $34.62 in Oklahoma to $44.02 in California. T h e weekly earnings of employees of pipe lines ranged from $ 3 1 . 8 5 in the Gulf District of Texas to $ 3 8 . 5 4 in California. T h e workers represented in these figures are some 43,000 male employees of companies in California, Louisiana, Oklahoma, and Texas, which states produced in 1928 more than four-fifths of the petroleum output of the United States. 22 Between the discovery of oil in 1 8 5 9 an< ^ the beginning of the century, the growth was relatively slow. In the United States, which produces about two-thirds of the world's crude petroleum, the yearly output jumped from 100,000,000 barrels in 1903 to a volume of approximately 900,000,000 barrels in the period 1 9 2 7 - 1 9 3 0 . This nine-fold increase, however, does not represent the growth in gasoline consumption because technical improvements in refining, such as cracking, 11 Biennial Census of Manufactures, 1929 and 1 9 3 1 . " " O i l Wells and Pipe Lines: Hours and E a r n i n g s , " Handbook of Labor Statistics, 1 9 3 1 Edition, Bulletin No. 5 4 1 of the U. S. Bureau of L a b o r Statistics, page 8 0 1 .

352

EXECUTIVE

GUIDANCE

have expanded the amount of gasoline obtained per barrel of crude. I n 1 9 1 6 , the percentage yield of gasoline was 19.8 per cent of the crude, whereas by 1 9 3 0 , it had risen to 46.6 per cent. It is obvious that had the refiners not increased the yield of gasoline f r o m crude petroleum, it would be necessary to refine more than twice the amount of crude now used. TABLE 17 PRODUCTION OF L E A D I N G U N I T E D S T A T E S O I L C O M P A N I E S ,

Company

R o y a l D u t c h Shell G r o u p S t a n d a r d Oil C o . ( N . J . ) G u l f Oil Corporation S t a n d a r d Oil C o . of Ind S t a n d a r d Oil C o . of Calif. T e x a s Corporation S t a n d a r d Oil C o . of N . Y Continental Oil C o m p a n y T i d e W a t e r Associated Oil C o m p a n y . Union Oil C o m p a n y of California . . . . Sinclair Consolidated Oil C o m p a n y . . P u r e Oil C o m p a n y Richfield Oil C o m p a n y Phillips Petroleum C o m p a n y Transcontinental Oil C o m p a n y Barnsdall Corporation Total P e r C e n t of U . S . T o t a l . * Fraser, C . E . , and Doriot, G . F . , Analyzing Our pages 4 1 9 and 4 2 7 . t Estimated. t N e t production exclusive of royalty payments.

1929*

Production in the U . S . (000,000 bbls.) 54-4 5 1 -7 58.0t 12.of 51.5* 50.4 43-2 2 3-9t 23.2 22.6t 16.2Î 16.7 14.5 l

S-l

10.7 10.1 474.8 47.0 Industries,

T h e refining capacity of the industry has been increased by the excessive production of crude which seeks a market at any price. A second factor has been the rapidity of technical change and the influence of large-scale operations upon production economies. In 1 9 3 0 , the plants operated at about 70 per cent

SUPPLEMENT:

INDUSTRIES

353

REPRESENTED

of capacity, with an actual production of 2 , 5 4 1 , 0 0 0 barrels against a capacity of 3 , 3 6 7 , 0 0 0 barrels. T h e production of the l e a d i n g companies is shown by T a b l e 1 7 , covering almost onehalf of the domestic oil. T h e industry is characterized b y considerable concentration of control and by a high d e g r e e of integration. O f the 4 4 5 refineries k n o w n to exist in the U n i t e d States, the 246 that are listed in M o o d y ' s did 9 3 . 4 per cent of the A m e r i c a n crude oil refining in 193 r. T h e s e 246 refineries were owned b y 1 1 3 companies whose control, in turn, was centered in 67 corporations. O f the 67 corporations mentioned, 40, which h a v e 88 per cent of the refining capacity, were c o m p l e t e l y integrated, i.e., they owned producing, pipe line, refining, and m a r k e t i n g facilities. 2 3 TABLE

18

P E R C E N T A G E S OF I N C R E A S E IN G A S O L I N E C O N S U M P T I O N OVER THE YEAR

PRECEDING,

1918-1930*

Year

Percentage

Year

Percentage

1918

32.0

1924

18.1

1919

10.o

1925

2. i

1920

23.0

1926

17.0

6.0

1927

!3-7

1921

1922

10.o

1923

22.5

10.5

1928 1929

13.2

1930

5-i

* Fraser, C. E. and Doriot, G. F., Analyzing page 439-

Our

Industries

T h o u g h p r o d i g a l l y w a s t e f u l in its production of crude oil, the industry e n j o y s unusual stability of d e m a n d for the m a j o r part of the final products, which accounts f o r the stable e m p l o y m e n t possible in the refining and m a r k e t i n g departments. In 1 9 3 2 , the d e m a n d f o r gasoline declined, chiefly because of the curtailment in motor car registration, but the consistent g r o w t h in its use d u r i n g the preceding years is indicated by the percentages of increase for each year o v e r the y e a r preceding shown in T a b l e 18. " F o r these figures, w e a r e indebted to a study m a d e b y M r . F r a n k B . B u r t i s w h i c h w a s submitted t o the W h a r t o n S c h o o l F a c u l t y , 1 9 3 4 , as a senior thesis.

354

EXECUTIVE

GUIDANCE

T h e refining capacity of American companies has been presented already, but competition may be gauged better by an analysis of their relative marketing strength. F o r decades, the supplying of the world's oil was dominated by the Standard companies, but since the dissolution decree of 1 9 1 1 , they have been competing both with each other, with the American independents, such as the Texas Corporation and Sinclair, and with the strong foreign rivals, Anglo-Persian and Royal Dutch Shell. In the domestic competition, the territorial lines between the Standard companies means little, and the competition between Standard companies does not appear to differ from that carried on with the independents. T h e leading Standard companies in the order of their daily refining capacity ( 1 9 2 9 ) are as follows: Standard Oil Companies of New Jersey, Indiana, New York, California; Atlantic Refining; the Standard Oil Companies of Ohio and Kansas; and Vacuum Oil (now part of Standard of New Y o r k ) . Of these, Standard Oil of New Jersey is the great exporter to Europe, and Standard of N e w York leads the battle in the Orient against the Royal Dutch Shell. 24 RAILROAD

T h e railroads have been diagnosed so thoroughly that their symptoms and ailments are generally known, and it will suffice, therefore, to present only the important data concerning them. In the thirty years from 1900 to 1 9 2 9 , the ratio of net income to stockholders' equity ranged from 1 3 . 7 per cent ( 1 9 1 0 ) to 4.9 per cent ( 1 9 2 1 ) . T h e first 1 0 years of this period show steady improvement (from 5.5 per cent in 1900 to 1 1 . 6 per cent in 1 9 0 9 ) ; the second 1 0 years, a tendency to decline; and the last 1 0 years, a slight improvement. 25 In spite of the " b o o m " in general business during the last of these periods, the improvement in the situation of the railroads was not sufficient to return them to their strong financial " "Oil Abroad," Fortune, March 1 9 3 1 , page 44. " M o u l t o n , Harold G., and Associates, The American lem, page 3 1 .

Transportation

Prob-

SUPPLEMENT:

INDUSTRIES

REPRESENTED

355

position of 1 9 0 6 - 1 9 1 3 . T h e effect of depression upon their earnings has now become a serious national problem because of their heavy fixed charges, combined with the place held by their securities in the portfolios of our financial institutions. It has always created pressure to adjust wages. Y e t actually, railroad earnings declined f a r less than those of many manufacturing and extractive industries. F o r example, if the profits of 1928 be considered as 1 0 0 , the 1 9 3 1 index for railroad net income is 44.55 for mining and smelting profits, 1 9 . 5 ; for those of automobiles, parts and accessories manufacture, 1 5 ; TABLE 19 RATIOS OF RAILROAD N E T INCOME AND INTEREST TO INVESTMENT, AND OF N E T INCOME TO EQUITY, 1 9 0 0 - 1 9 3 0

A

Year

B Net Income Plus Interest Investment on Funded (000,000) Debt

r

D

Ratio B to A

Ratio of Net Income to Stockholders' Equity

4-9 5-7

7.8

(000,000)

1900 1905 1910 1915 1920 1925 1930

10,263

505-7 675-4

982.8 819.0 982.4

14,558 i7,44i 19,849

23,23! 25,465

1

»355-4

1,558.0

6.8

4-7 4-9 5.8 6.1

5-5

!3-7 6.8 8.4 8.6

for clothing and textile firms, 1 . 5 ; for steel plants, - 8 . 1 (loss) 5 and f o r copper, coal, and coke concerns, - 2 5 0 . 0 (loss). M o r e stable than the " r a i l s , " however, are the utilities and foods. T h e index of telephone profits in 1 9 3 1 is 1 0 7 . 5 j of other public utilities, 89.55 a n d of manufacture of food products, 7 5 . 5 . It must be noted that in the railroad industry, the return on the stockholders' equity is not a reliable indicator of the profitability of the total investment because of the large funded debt. A better index is the ratio of net income plus interest to the total investment. F o r the thirty-year period,

356

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1 9 0 0 - 1 9 2 9 , this ratio changed but little (see Column C, Table 1 9 ) . In addition to the ratios in Table 19, the operating ratio (i.e., the operating expenses divided by the operating revenue) varied from 64.0 per cent to 72.9 per cent in the 25year period, 1 8 9 0 - 1 9 1 4 . It rose to 94.4 per cent in 1 9 2 0 so that in that year, there was little left for fixed charges and profit, but improved efficiency during the decade of the 1920's drove it down again to 7 1 . 8 per cent in 1929. This increased efficiency, however, has caused the laying off of many experienced railroaders. T h e proportion of operating income that is spent for labor not only explains the importance of industrial relations in this industry but, to some extent, the strength of its unions. Of each $ 1 . 0 0 of operating income, approximately $0.44 is needed for operating payrolls. This is the important item of railroad operating expenses. Using the 1 9 1 0 wage bill as 100, the index for the period 1 9 2 1 - 1 9 2 9 ranged from 2 3 5 . 4 to 262.0, but by 1 9 3 1 it had fallen to 185.8. Since about three-fourths of the employees are unionized, the labor costs of the railroads are affected not only by the wage rates but by the rules governing the working conditions. T h e twenty-one standard railway unions, dominated by the " B i g Four," 2 6 have a total membership estimated at 400,000. In addition to these independent railway unions, there are sixteen that are affiliated with the American Federation of Labor. T h e working rules have been adopted from time to time as the result of collective bargaining, and vary from road to road. An example of these is the " c a l l " rule, under which a shopman notified to work outside of regular working hours is paid for not less than five hours. Still another example is the so-called "double-header" rule which is intended to prohibit the operation of extra-long freight trains with two engines except where a helper engine is needed on grades. " Brotherhood of Locomotive Engineers. Brotherhood of Locomotive Firemen and Enginemen. Brotherhood of R a i l w a y T r a i n m e n . Order of R a i l w a y Conductors of America.

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T h e railroad industry is no longer outstanding f o r the stability of either its physical volume or its employment. F r o m 1 9 1 1 to 1 9 3 1 , the freight traffic in ton-miles fluctuated rather w i d e l y ; the year-to-year changes exceeded five per cent in all but seven years. T h e depression, as might be expected, carried the ton-miles down f r o m 3 2 5 billions ( 1 9 2 9 ) to 1 6 7 ( 1 9 3 2 ) , which resulted in a serious decline in the total revenue. ( F r e i g h t earnings represent 77 per cent of the latter.) M o r e o v e r , competition f r o m motor trucks has caused railroads to make a drive upon their operating expenses which has TABLE MILEAGE

20

O F L E A D I N G R A I L R O A D S IN THE U N I T E D S T A T E S ,

Railroad Southern Pacific Atchison, Topeka & Santa Fe New York Central Chicago, Milwaukee, St. Paul & Pacific Pennsylvania Chicago, Burlington &Quincy Great Northern Northern Pacific Southern Railway Baltimore & Ohio

1930*

Miles 13,836 13,195 11,800 11,419 10,878 9,333 8 ,367 6,789 6,731 5 ,658

* Glover, J. G. and Cornell, W. B., The Development of American Industries, page 631. in turn affected the security of railroad jobs. I n the decade, 1 9 2 0 - 1 9 2 9 , the number of tons of freight carried by the average train increased 1 3 per cent, and the average gross ton-miles per train-hour 65 per cent, whereas the tons of coal burned declined 1 0 per cent. T h e number of employees f e l l f r o m ¿ , 0 2 2 , 0 0 0 at the end of 1 9 2 0 to 1 , 5 1 0 , 0 0 0 at the end of 1 9 3 0 , partly as an effect of the improved operating efficiency resulting f r o m better locomotives, track, terminals, and y a r d facilities. R a i l r o a d transportation in the United States dates f r o m the founding of the Baltimore and Ohio R a i l r o a d in 1 8 2 7 . I n a

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century, the largest roads have accumulated the tremendous mileage indicated in Table 20. T h e development of the railroads may be traced through several periods: that of experimentation ( 1 8 3 0 - 1 8 5 0 ) ; of rapid expansion ( 1 8 5 0 - 1 8 9 0 ) ; of rounding out the system of feeder lines ( 1 8 9 0 - 1 9 1 5 ) ; and of increased competition from other services (World War to date). In fact, railroad traffic reached its peak in 1926, and then displayed signs of having ceased to grow even before the severe decline both in freight and passenger earnings that accompanied the depression of the i93o's. Consequently, the outlook for increased railroad employment does not seem promising. RUBBER

The American rubber industry is a step-brother of automobile manufacturing. In 1930, 82 per cent of the crude rubber consumed in the United States was used for tires and tubes, and 61 per cent (by value) of the rubber products sold consisted of these items. It is an industry whose management must struggle with fluctuations in raw material prices, and with the unprofitability of that share of the output sold to automobile manufacturers for original equipment. T h e industry is a speculative one because it depends for its principal raw material, crude rubber, upon foreign sources, so that the distance from the sources of supply makes it necessary to keep inventories equivalent to several months' consumption. This accentuates the risk attendant upon price declines, a risk which the workers share because of the pressure thus created to reduce wage rates. T o a less degree, the same situation is true of cotton, which is the other chief raw material. Of each dollar of income received by rubber companies, materials and fuel usually require about 55 per cent and labor 16 per cent.27 The last is overshadowed by the high overhead resulting from r T h e percentage required for rubber is influenced, of course, by the price of rubber and cotton. Fraser and Doriot indicate that an increase in price from $0.06 to $0.20 per pound increases the ratio of rubber cost to total manufacturing cost from 1 4 per cent to 38 per cent. Of. cit., page 86.

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heavy equipment, the costliness of which makes a liberal wage scale expedient in order to attract men capable of running the equipment efficiently. Although the industry dates theoretically from the discovery of the vulcanizing process in 1 8 3 9 , its rapid expansion came in the period between 1 9 1 0 and 1928. This rapid rate of growth was the result of enlarged sales for original tire equipment combined with that for replacement. Business grew apace as the number of registered automobiles increased. In fact, the sales for this purpose grew from less than $2,000,000 to $40,000,000 between 1 9 1 0 and 1 9 2 3 . Since that time, the rate has slowed down because the increased life of tires has greatly reduced the average number of casings used per car. B y 1 9 3 0 , a car used, on the average, only a fourth as many casings as during the W o r l d War. TABLE

21

P N E U M A T I C T I R E P R O D U C T I O N OF S I X P L A N T S A S C O M P A R E D W I T H T O T A L P R O D U C T I O N OF T I R E I N D U S T R Y ,

Year 1922 1924 1926 1928 1930

>93»

6 Plants

Industry

1922-1931*

Ratio of SixPlants to Total

(000)

(000)

18,320 23,182 27,887

40,93° 51,633

44.8

37>488

77,940

48.1

29,865 29,001

60,725

50,966

48,497

44-9 45-9 58.6 59.8

* Labor Productivity in the Automobile Tire Industry, Bulletin No. 585 of the U. S. Bureau of Labor Statistics, page 4. T h e industry is dominated by four concerns, which (ranked according to their total assets) are the United States Rubber, Goodyear Tire and Rubber, Firestone Tire and Rubber, and B. F . Goodrich companies. It is estimated that they do about two-thirds of the total American business, and that their percentage of it has been increasing. This fact is revealed by Table 2 1 . Their rivalry is and always has been intense. Goodyear specializes in tires, whereas United States Rubber and Good-

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rich products are highly diversified. In fact, Goodrich makes some 30,000 items, and United States Rubber depends on tires for only about one-third of its volume. Firestone has been a constant instigator of new forms of competition of which its development of direct retail outlets is an evidence. A l l of these companies, excepting United States Rubber, have their main plants at A k r o n , Ohio, and all four have branch plants at L o s Angeles, California. In consequence, the supply of rubber workers tends to be concentrated in these manufacturing centers. Since tires are worn out and burned out most rapidly in summer, the demand is seasonal enough to affect both production and employment, as is shown by the seasonal index of employment which varies from 102.8 in September to 95.1 in January. T h e seasonal fluctuations in tire production have been accentuated by the low volume since 1929, as is indicated by the ranges between peak and low months in each year. TABLE TIRE

PRODUCTION

22

RANGES BETWEEN PEAK AND L o w

MONTHS

1923-1931* 1923

65.9

1929

79-5

1925

26.9

1931

84.6

1927

35-4

* Bulletin N o . 5 8 5 of the U . S. B u r e a u of L a b o r Statistics, page 3 5

T h i s seasonal instability is of moderate proportions, as is the decrease of demand during depression. For example, the 1930 production of casings was about one-fourth less than in 1929. Each company has been faced by the continual change in the design of product, and in manufacturing and selling methods. M u t e testimony as to the imagination that has been applied to the development and manufacturing of new products is to be found in the figures as to the production of tire casings in the United States. A s late as 1 9 1 1 , all the tires made were of fabric, but by 1924 these had been so supplanted by high pressure cords that the latter comprised 59 per cent of the production of casings, and fabric tires less than 30 per cent. B y 1929, the high pressure cords had themselves been

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replaced by balloons which comprised 58 per cent of the production as against 25 per cent for the high pressure cords. A l t h o u g h the investment in physical plant is not excessively h e a v y , being from one-third to one-half of the annual sales, the industry as a whole has a heavier bonded indebtedness than most manufacturing ones. T h e percentage of total debt to total tangible assets at the end of 1930 varied f r o m 17 per cent in the case of Firestone to 50 per cent in the case of the U n i t e d States Rubber Company. H o w e v e r , inventories have been more troublesome than fixed charges, for manufacturing efficiencies have greatly increased the output obtained f r o m the equipment. Goodyear for example, turned out 2.7 times as many pounds of product per dollar of net plant investment in 1928 as in 1922, the figures being 6.8 and 2.5 respectively. T h e profits for the decade 1 9 1 9 - 1 9 2 8 , according to P r o fessor R a l p h C . Epstein's calculations, were only 5.9 per cent, and of 60 manufacturing industries for which National City Bank data are available, rubber companies were in the least profitable quarter in 1929-1930, and had deficits until 1933 when a 2.4 per cent profit was reported. In spite of the fact that rubber is one of Nature's peculiar gifts to mankind, being not only resilient but more resistant to wear than ordinary steel, the industry that converts it to our uses suffers from competition that is exceedingly intense. T h e r e is no prospect of competition diminishing for the productive capacity is estimated to be more than double the 1930 production. In spite of its low profits, the industry has paid fairly high wages because many of the operations require both skill and brawn. F o r example, the average monthly earnings of the employees in three automobile tire plants e m p l o y i n g in all f r o m 7,000 to 10,000 employees were as f o l l o w s : TABLE

23

A V E R A G E M O N T H L Y E A R N I N G S IN T H R E E AUTOMOBILE T I R E

PLANTS, I 9 2 3 - 1 9 3 1 *

1923

$138-52

1929

*'3M9

1925

134-08

1931

109.86

1927

133-7°

* Bulletin N o . 5 8 5 of the U . S. B u r e a u of L a b o r Statistics, page 2 9 .

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In the ten years following 1922, the change in output per worker was tremendous as is shown by Table 24. That tire building is heavy work is traditional. T h e dependence of the industry upon skilled men helps to explain the concentration of the industry in Akron and Los Angeles. Since the unit of production, namely, the tire, is reasonably constant, this industry provides a clear-cut illustration of the increase in human productivity. This is the result of so-called technological change which in this industry represents the cumulative TABLE^24 MAN-HOUR

PRODUCTION

IN

SIX

REPRESENTATIVE

TIRE

PLANTS

1922-1931*

Year 1922 1924 1926 1928 1930 1931

Output per Man-Hourf

Index Numbers (1926= 100)

Tires

Pounds

Tires

Pounds

0.70 0.82 0.92 1.05 1.14 1 -37

-3 12.7 16.5 21.0 26.2 3°-7

7 6-3 89.8 100.0 114.0 124.4 149-5

68.4 77.1 100.0 127.2 158.8 186.1

11

* Bulletin No. 585 of the U.S. Bureau of Labor Statistics, page 7. f Man-hours cover direct productive labor only. effect of relatively small changes in the process of tire building. T h e only major change in the method was the substitution of the flat drum process of tire building for the old core process which took place between 1919 and 1927. SOAP

Since the making of soap is not intricate, its distribution is the key to dominance in the field, and successful merchandising has made the profits of certain soap concerns outstanding both as to amount and regularity. In fact, the lag between the price declines of the finished product and the raw materials tends to increase profits in the early period of a depression. For example, of the companies represented herein whose earn-

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ings are published, Procter and G a m b l e was the most profitable in 1930 and 1 9 3 1 , and the remarkable consistency of its earnings is shown by the fact that between 1929 and 1 9 3 1 , its profits ranged from 20.8 per cent to 25.0 per cent of its net worth. A soap factory is therefore a good place at which to be working at the onset of a m a j o r depression. T h e fact that labor cost is a relatively unimportant part of the production cost, sets the stage for a liberal personnel program if the management so desires. M o r e o v e r , the facts that the demand for soap is fairly steady, and that the number of men required is relatively small make it possible to stabilize employment to an extent that is remarkable for manufacturing plants. T h e demand for soap diminishes, of course, during periods of unemployment when fewer work-clothes are washed. Y e t soap is so cheap, relatively, that it keeps its place in the family budget long after the latter has begun to shrink. M o r e o v e r , this industry has increased the stability of its total sales by the adoption of by-products and sidelines. F o r C o l gate-Palmolive-Peet, the important sideline is shaving soap and toothpaste, for U n i l e v e r , Inc., oleomargarine, and Procter and Gamble's "edible products" (Crisco, etc.) are said to be almost as important to it as soap. T h e soap industry is the oldest of the industries represented in this study. Soap manufacture was introduced into France from Italy and G e r m a n y during the 13th Century where it developed in the vicinity of Marseilles. 2 8 STEEL

T o understand the industrial relations of units in the steel industry, one must know that since 1890, it has been traditionally a non-union industry in which the issue of union recognition has occasioned bitter struggles. Consequently, steel towns do not have the reputation for placid relations between employers and employees, especially in periods of unemployment and distress. A n oft-cited example is the H o m e stead Strike of 1892. T h e A m a l g a m a t e d Association had se" Encyclopedia

Brittanica.

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cured a foothold at Carnegie's Homestead Steel W o r k s and had imposed rules and restrictions that raised costs. A l t h o u g h M r . Carnegie had professed to believe in union recognition, there is evidence that he vigorously supported the implacable policy of his manager, M r . H . C. Frick (Chairman, T h e Carnegie Steel C o m p a n y , L t d . ) . H i s lack of consistency provoked widespread criticism typified by the following assertion in the London Times: " T h e avowed champion of trades-unions now finds himself in almost ruinous conflict with the representative of his own views." 2 9 T h e terms submitted by the company were rejected by the employees who, though they knew that Frick had destroyed the unions in the coke plants, thought that Carnegie would not support a conflict. But the introduction by the company of 300 special watchmen from the Pinkerton National Detective Agency brought warfare. T o quote Winkler's description: " T h e mob rushed into the barges and looted them. Bedding, food, fire-arms, personal effects, everything movable was taken away. T h e n the barges were fired. W h i l e the flames shot high, the prisoners were marched through the yard and along the public road. It was a horrible mile for them. T h e y were battered and clubbed and gouged and kicked. T w o were killed, a third became insane and later committed suicide. T h i r t y others were taken, from the train which bore them to Pittsburgh, to hospitals with broken limbs, fractured noses, torn ears, and all manner of bruises and abrasions." 30 T h i s one day's fighting killed ten and wounded sixty. But almost five months f r o m the day on which the company expected an answer to its first demands, the strike was officially declared off. T h e company had won, but it is estimated to have cost the State $1,600,000, the workmen $1,200,000, and the company around $2,000,000. T h e steel industry dates from the inventions of Bessemer ( 1 8 5 6 ) and Siemens ( i 8 6 0 ) , but it was not until after the panic of 1873 that steel surpassed wrought iron in importance. "Winkler, John K., Incredible Carnegie, page 213. "Winkler, John K., of. cit., page 206.

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T h e t r e m e n d o u s g r o w t h of the industry d u r i n g the ensuing 60 years is indicated by the table of capacity w h i c h also indicates the relative importance of the principal steel producers in the U n i t e d States. O f the ten significant units in the industry, U n i t e d States Steel has about 40 per cent of the ingot capacity; B e t h l e h e m , about 14 per c e n t ; and A m e r i c a n R o l l i n g M i l l , almost 3 per cent. A l t h o u g h the U n i t e d States Steel C o r p o r a t i o n dominates TABLE

25

I N G O T C A P A C I T I E S OF P R I N C I P A L S T E E L

COMPANIES

IN T H E U N I T E D S T A T E S *

Company United States Steel Corporation Bethlehem Steel Corporation Republic Steel Corporation Jones & Laughlin Steel Corporation.. Youngstown Sheet & Tube Company Inland Steel Company American Rolling Mill Company. . . . National Steel Corporation Wheeling Steel Corporation Corrigan, M c K i n n e y Steel Company

Gross Tons 26,778,000 9,430,000 4,806,000 3,420,000 3,240,000 2,000,000 1,876,705 I,850,000 I,614,640 I,140,000

* Glover, J. G. and Cornell, W. B., The Development of American Industries, page 378. the industry, it has f o l l o w e d a policy of " l i v e and let l i v e , " and consolidations and technical d e v e l o p m e n t s indicate that the industry is still in a state of flux. F o r e x a m p l e , one p l a n t , now part of the N a t i o n a l Steel C o m p a n y , was placed in the D e t r o i t area recently to supply the automobile companies on a h a n d - t o - m o u t h basis. A n o t h e r instance is the invasion in 1 9 2 3 of the C h i c a g o district by the Y o u n g s t o w n Sheet and T u b e C o m p a n y . B e t w e e n 1 9 2 5 and 1930, C y r u s S. E a t o n m e r g e d a number of companies into the R e p u b l i c Steel C o r p o r a t i o n ; then B e t h l e h e m was m e r g e d with M c C l i n t o c - M a r s h a l l . Steel is the basic m e t a l used for railroads and industrial equipment because it combines the qualities needed with r e l a tive cheapness. Y e t it is an industry whose profits h a v e

fluctu-

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ated because of shifting demand and whose profit ratios have been lessened by its high capitalization. F o r the decade 19201929, the profits derived f r o m sheet metal manufacture averaged 9.3 per cent of net w o r t h / 1 In 1929, a peak year, 57 iron and steel companies earned 1 1 . 2 per cent on their net worth, but in 1930, they earned 4.6 per cent, and in 1 9 3 1 , 1932, and 1933, they showed deficits." F r o m 1929-1933, the annual profits of the steel industry f e l l below the median of sixty industries. T A B L E 26 A V E R A G E H O U R L Y E A R N I N G S IN THE IRON AND S T E E L I N D U S T R Y BY DEPARTMENT, 1929*

Department Blast furnaces Bessemer converters. . Open-hearth furnaces. Puddling mills Blooming mills Plate mills Bar mills Standard rail m i l l s . . . . Sheet mills Tin plate mills

Number of Plants

Number of Employees Covered

Average Earnings per Hour

37

12,222 2,251

33

!

$0.528 0.643 0.714 0.686 0.666 0.639 0.625 0.628

11

11

30 ll 39 7 15 8

3 >171 1,800 6,266 4,024

7.475

2,816 12,598 8,386

° - 7 93 0.732

* Wages and Hours of Labor in the Iron and Steel Industry, IQ29 Bulletin No. 513 of the U. S. Bureau of Labor Statistics, pages 2-3 A l t h o u g h the relative importance of labor and material varies with the degree of integration, the 1931 Census data indicate that of the value of product of steel works and rolling mills, 59 per cent was spent for raw material, fuel, and purchased electrical energy, and 24 per cent for wages excluding salaries. 88 T h e corresponding figures for blast f u r naces were 83 per cent and 6 per cent. " Epstein, Ralph C., loc. cit. " See Part II, Chapter I, T a b l e 3. " T h e more highly integrated concerns, like the United States Steel and Bethlehem, show a higher percentage of wages to sales, their 1929 ratios being

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T h e size of employee earnings in the steel industry prior to the depression is shown by Table 26. Tremendous capital expenditures are made necessary by the heavy equipment required for making steel. A well-integrated mill is estimated to cost $60,000,000. Differences in the methods of financing are reflected in the variations ambng leading corporations in their funded debt per ton of ingot capacity at the end of 1 9 2 9 shown in Table 27. TABLE

27

F U N D E D D E B T P E R T O N OF I N G O T C A P A C I T Y ,

Company

American R o l l i n g M i l l C o m p a n y Y o u n g s t o w n Sheet & T u b e C o m p a n y Bethlehem Steel Corporation Inland Steel C o m p a n y Republic Steel Corporation United States Steel Corporation Jones & Laughlin Steel Corporation

1929*

D e b t per T o n of Capacity $23.64 22.22

19-55 14.70 12.14 4.19

3-31

* Frazer, C. E., and D o r i o t , G . F., op. cit., page 2 7 1 .

Companies that have raised their capital by the sale of bonds feel an increased pressure during depression to reduce wages and other variable costs. T h e high capitalization of the industry lends to it a certain exclusiveness because it prevents fly-by-night concerns from entering the industry. In addition, the concentration of ownership of this country's iron ores tends to protect the huge investment in them until it can be amortized. This same concentration of control helped the industry to enjoy a reasonable degree of price stability until the beginning of the depression of the 30's—a fact that is rather remarkable in view of the keen competition created by its reckless and optimistic expansion. Although the production in 37 per cent and 36 per cent respectively. The corresponding figure for the Gulf States Steel Company was 35 per cent. (Fraser, C. E., and Doriot, G. F., of. cit., page i S j . )

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1 9 3 0 was no greater than in 1 9 2 0 , the capacity of the industry had in the meantime been enlarged 3 0 per cent, and expansion continued even during 1 9 3 0 and 1 9 3 1 . Steel companies suffer not only f r o m seasonal fluctuations in demand (the low month in the year is often 2 5 per cent to 5 0 per cent below the high o n e ) , but f r o m terrific cyclical swings. T h e recession of orders f r o m the railroad and construction industries reduced its annual rate of operations (based on gross tons) f r o m 88 per cent of capacity during 1 9 2 9 to an estimated figure of 2 6 . 5 per cent in 1 9 3 1 . Subsequently, this ratio m o v e d below 2 0 per cent. T h e same tendency was evident in 1 9 2 1 when the daily production of steel ingots was only a fourth of the daily average of 1 6 0 , 0 0 0 tons between 1 9 2 3 and 1 9 2 7 . T h e wide fluctuations in demand are to be explained by the nature of the business done by the principal customers which, according to their importance in 1 9 3 1 , are building and construction, automobile manufacturing, and railroads. A detailed analysis of the steel sold to each outlet in 1 9 3 0 is shown in T a b l e 28. TABLE

28

P E R C E N T A G E OF S T E E L SOLD B Y I N D U S T R Y ,

Building and construction . 1 9 . 0 Automotive 15.5 Railroad 15.0 Oil, gas, water, mining, and lumber 11.5

Containers Agriculture Exports Machinery Miscellaneous

1930* 6.0 4.0 5.5 3.0 20.5

* "Building Construction Resumes Lead in Steel Consumption" Iron Age, January 1 , 1931, pages 7, 8, and 9. T h e pricing of steel products according to the basing point system is linked inseparably with the concentration of control in the industry and the leadership of the U n i t e d States Steel Corporation. U n t i l the current depression, the latter's dominant position helped to stabilize prices. But between 1 9 0 1 and 1 9 2 9 , the percentage of the industry's capacity under the control of this concern dropped f r o m 65 per cent to 40 per cent. T h i s fact, together with the dearth of orders during the depression, stimulated price cutting.

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(CANE)

Because of its excess capacity, the refining of cane sugar is an industry of rather low profits; but, though meager, the profits proved stable in depression. In 1 9 2 9 , when other industries were making exceptional earnings, the sugar companies (other than Cuban) were in the lowest quarter of 60 industries, but in 1 9 3 0 and 1 9 3 1 , they were in the next to the highest quarter of these industries. T h e labor cost per dollar of sales is even lower than in oil eac refining, only $0.035 h dollar of income being used for payroll. T h e labor is chiefly unskilled. Approximately 93 per cent of the workers in this industry are male, and in 1 9 3 0 their average earnings per hour varied from $ 0 . 4 1 3 for laborers to $0.694 for sugar boilers. T h e corresponding full-time earnings per week range from $ 2 4 . 7 4 to $ 3 7 . 1 3 . T h e women earn from $ 1 4 . 6 8 to $ 1 6 . 9 7 P e r week. T h e average of both sexes in all occupations was $0.461 per hour, or $27.06 per week. R a w material, however, requires over $0.85 of each sales dollar, and consequently, the refiner is forced to operate within a very narrow margin which is said to be not much over $0.01 a pound. This margin must cover the labor and overhead of refining and selling before any profit can be derived, and in addition, make up for the shrinkage of the raws during the refining process. Only about 93 pounds of refined sugar are obtainable from 1 0 0 pounds of 96-test raw sugar. T h e remaining seven pounds represent molasses and impurities. Seasonal fluctuations in the production of refined sugar are rather severe, but the cyclical variations are relatively slight. In respect to the latter, sugar ranks with the other foods and the utilities. Of the present annual consumption in the United States (about $ l / 2 million long tons), approximately threefourths is cane sugar. ( T h e rest of the sugar used in the United States is extracted from beets.) This cane sugar is refined by 2 1 seaboard refineries, owned by about 1 5 companies and all large. In fact, all but three of them have a daily melting capacity between 2,000,000 and 5,000,000 pounds. T h e y are

370

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located on the seaboard to minimize the handling of raws; thirteen are on the Atlantic, two on the Pacific, and the remainder on the Gulf of Mexico. T h e extent to which control is concentrated in this industry is shown by the fact that in 1930, the American Sugar Refining Company, the National Sugar Refining Company, and the California and Hawaiian Sugar Refining Corporation produced over 57 per cent of the meltings. T h e expansion of refining capacity during the World War, coupled with the increase of beet sugar, has left the industry with an embarrassing excess of capacity. The total annual capacity is estimated at 7,700,000 tons, whereas the cane sugar refined in the United States between 1928 and 1 9 3 0 averaged only 4,276,000 tons per year. The excess capacity is therefore about 80 per cent of the annual demand. The price of refined sugar dropped sharply after 1 9 2 3 , the annual rate of decline between 1923 and 1929 being 7.4 per cent. This is the most rapid decline for this period of all the industries under investigation, and may be explained by the rapid decline in the prices of raws at the annual rate of 8.5 per cent. The quoted prices have less significance in the case of refined sugar than with most commodities because each year the bulk of it is sold during short periods just prior to dates on which price advances have been announced. The refining of cane sugar is an old industry for the first American refinery is said to have been established in New York in 1730. TELEPHONE

The product of the telephone industry consists of the service of providing communication. Since its product is not tangible, the satisfaction derived by its customers depends both upon the technical perfection of its equipment and the behavior of those employees who come in contact with the telephone users. Since the effectiveness and manners of its people are so fundamental to successful operation, it is natural that industrial relations should be emphasized. Contrary to the notions of many peo-

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REPRESENTED

371

pie the Bell System does not provide all of the telephone service of the country, in fact, only about four-fifths of it. In addition to 24 operating companies that make up the Bell System, several thousand independent companies own over 4,000,000 telephones. In 1 9 3 0 , there were 3,446 telephone and telegraph companies in the United States. T h e profitability of this industry is markedly stable during depression. T h e Bell companies, as a whole, earned 1 1 per cent in 1 9 2 9 , 9.7 per cent in 1 9 3 0 , and 6.8 per cent in 1 9 3 1 . Although the industry was somewhat less profitable in 1 9 2 9 than the median of 60 industries, it rose to the top quarter of these industries in 1 9 3 1 . Although the individual companies have a difficult problem of keeping the personnel adjusted to the hourly fluctuations in the number of calls, the industry shows very little variation from month to month. Moreover, cyclical influences have relatively little effect upon its volume. In 1 9 3 2 , local telephone conversations declined about s J A P e r c e n t over 1 9 3 1 , and toll and long-distance conversations about 1 7 per cent. Depression also causes customers to have instruments disconnected. Consequently, the industry is stable, but by no means impervious to the darts of depression. T h e industry grew at a slow rate from its origin in 1 8 7 6 until the end of that century. By 1 9 3 0 , the number of telephones owned by the Bell System and connecting with it numbered over 20,000,000. B y 1 9 3 2 , however, this total had shrunk over 1 0 per cent. At the end of 1 9 3 2 , the total assets of the Bell System amounted to over $4,900,000,000, but the physical plant, which had increased each year until 1 9 3 1 , stopped growing for the first time since the beginning of the industry. T h e rates for telephone service are subject to the control of state Public Service commissions, and are therefore not sensitive to rapid changes in general prices. In spite of the stability of prices, decreased volume caused the operating revenues of the Bell System to decline 1 1 per cent in 1 9 3 2 , but total expenses including depreciation and taxes were reduced 8.7 per

372

EXECUTIVE

GUIDANCE

cent. Apparently with the necessity in mind of a sound public relations policy, the company some years ago made a definite statement of its position on the question of dividends, and stated that its responsibility for a nation-wide telephone service was in the nature of a public trust. Therefore, the company stated that its policy is to pay only reasonable, regular dividends, and for additional capital required, to offer from time to time new stock to its stockholders. In view of this policy, it believes that extra or special dividends are inconsistent with this aim and would be unsound. 34 " Glover, J. G . , and Cornell, W . B., of. cit., page 732.

CHAPTER PERSONNEL

II

STANDARDS

T h e Biblical injunction to " j u d g e not" was surely not intended to discourage self-appraisal. Doubtless, company executives would adopt a questioning attitude if it were possible to analyze the results of personnel policies objectively. Clearcut standards are required if even "insiders" are to do more than condemn or condone on theoretical grounds. Yet such standards are not easy to secure because much of the essence of first-class personnel management lies in the imponderables that have no tangible expression. Moreover, the available criteria are of value only if one first makes certain that they relate to firms and situations that are reasonably comparable. As a gauge of excellence, these standards scarcely lend themselves to wholesale appraisal; but, used with judgment, they help an executive to find out how the results of certain personnel activities compare with the best, or the average as the case may be. That all plants do not have a program equal to the best is to be regretted. If all executives were to proceed on the thesis that what has been done by a few can be done by them, in so far as the underlying economic factors permit, then American business and those dependent on it might take a long step forward. One can have no worthier ambition than to help to close the gap between the industrial relations of the average firm and the best that are now known. Since any personnel program needs to be examined from the dual point of view, that of the owner and that of the employee, the available criteria may be grouped under these two heads. Whether or not the former is securing what he should expect can be judged by an appraisal of the points listed below. 1. Labor cost 2. The quality of workmanship 373

EXECUTIVE

374

GUIDANCE

3 . T h e good will of consumers 4 . T h e cost per capita of the personnel activities 5 . T h e permanence of the w o r k i n g f o r c e 6 . E m p l o y e e morale

Certain other "measuring sticks," however, are primarily of interest to employees, but are significant to management because they affect the foregoing items. These may be classified as follows: 1 . Steadiness of e m p l o y m e n t a. Seasonal indices of

employment

b. C y c l i c a l fluctuations of e m p l o y m e n t 2 . W a g e s in relation to a. " G o i n g " rates in c o m m u n i t y b. C o s t of living 3.

H o u r s , w o r k i n g conditions, and health a.

Hours

b. Physical conditions c. A c c i d e n t rate d. Sickness rate 4 . F i n a n c i a l protection a. A g a i n s t retirement for old age

(pensions)

b. A g a i n s t death c. A g a i n s t disability f r o m sickness and non-occupational a c cidents 1 d. A g a i n s t u n e m p l o y m e n t e. A g a i n s t " r a i n y d a y " emergencies 5.

G u i d e s to satisfactory joint relations MANAGEMENT

CRITERIA

Costs, Quality, and Consumer Goodwill The real test of the benefits derived by the owners of a business from the personnel policies of the operating management is a matter of labor cost, workmanship, and consumer goodwill. Unfortunately, these are not easily measured. Some companies can take advantage of the cost data of competitors provided they belong to a trade association that has succeeded in getting its members to adopt and use uniform cost accounting methods. Stores can take advantage of such studies as that 1

State legislation requires protection against occupational accidents.

SUPPLEMENT:

PERSONNEL

STANDARDS

375

of Dr. Bezanson and Miss Hussey (Industrial Research Department, University of Pennsylvania) on Wage Methods and Selling Costs, or of the Harvard surveys of retailing costs. With respect to the quality of workmanship as compared with that of the shops of competitors, there is little chance for comparison. Percentages of rejections mean little unless one knows how close are the tolerances and how tight are the other standards of quality. T h e only recourse here is to a confidential exchange of information where comparison is possible. As to customer goodwill, one can point to numerous methods of testing it. Every sales manager, if alert, is sensitive to the ebb and flow in the sentiment of customers. But complaints are an inadequate measure of the real situation for the most costly ill-will is that of patrons who inaudibly transfer their business elsewhere. Moreover, a company often wishes to know the reactions of customers toward specific things, such as the quality of service rendered. One solution is to resort to "spot" checking of the type represented by department store "shoppers" who in their role of pseudo-customers can record their impression of the service received in making each purchase. T h e other method is to make a survey of customers, using a carefully worked-out interviewing technique, which has also been tried by department stores and public utilities. Cost of Personnel A ctivities An essential question concerning any activity is " W h a t does it cost?" Much misunderstanding between employers and employee groups might be avoided if the expense of personnel activities were more generally known. Many, unknowingly, assume it to be higher than it is, and argue that they would rather have the equivalent in the pay envelope. T h e real test is to compare the cost of each activity with its usefulness. T o aid in judging the former, some figures can be offered; to appraise the latter, one must rely chiefly on judgment. Now for the figures. T h e best one can say about those available is that they are better than nothing. T h e absence of conformity to any one accounting procedure diminishes compara-

EXECUTIVE

376

GUIDANCE

bility. For example, some companies charge each activity with the space used, and also allocate to each a share of administrative expense; others do not. Besides, the methods of classifying expenditures differ radically. Were they the same, the problem would still not be solved altogether, because whether a given expenditure relates to accident compensation or medical work is a matter of interpretation and arbitrary decision. TABLE 29 AVERAGE PERSONNEL COSTS IN LARGE PLANTS, 1926*

Industry

Automobiles Boots and shoes Chemicals, soap, etc Clothing and furnishings. .. . Electrical supplies Fine machines and instruments Food products Foundries and machine shops Furniture Iron and steel Leather Ore reduction Paper Printing and publishing Rubber Textiles Miscellaneous manufacturing Mining and quarrying Offices Electric railroads Gas, electric light and power, telephone and telegraph.. . Stores All industries

Average Number of Number of Average Firms Employees Cost per per Firm Employee $54

3 5 11

9,080 9,500 2,500 1,760 2,300

6

2,990

18

5

i,540

3°

5

2

28 2

2,420 1,185

4

3.750 565

2

6

3

8

6

8

55 14 l 9

16 1

9

16 16 16 20 22

1,790 910 860 6,960 1,620 2,040

3

32 15 13 4

67

25

21

33 28

I.540 '

900

9.310

1

24 - 13

4,5ïo

1,580

41

»9 190

2,700

$27

26

* Health and Recreational Activities in Industrial Establishments, 1926, Bulletin No. 458 of the U. S. Bureau of Labor Statistics, page 86.

SUPPLEMENT:

PERSONNEL

377

STANDARDS

T h e most serious difficulty of all is that what is received by the employees and company in return for a given expenditure usually defies clear-cut portrayal. W i t h these warnings, it is perhaps useful to set down what is known about the cost of various programs and activities. T h e Bureau of Labor Statistics, in a study made in 1926, secured cost data from 190 large companies, whose employees number, on the average, 2,700. These data are only totals, but they are usefully classified by industries. TABLE COSTS

OF M E D I C A L

30

SERVICE

Automobile Banking Chemicals, explosives, etc Department stores Electric manufacturing. Foundry production.. . . Food and food products. Iron and steel Petroleum Mining* Public utilities Rubber manufacture. . . Soap All industries

No. of Plants —

Medical Cost per Capita

No. of Plants 20

—

3

$4.68

3

21

6.16

15

5

10

i . II 4-75

—

'3 54 i 3 8 14

Í-77 S-35

4.01 6.02

Í-45 3-78

1920

Medical Cost per Capita

u

18

Medical Cost per Capita

5

l i 1• oU

Tî

Q


924,7l6

1916

154,926,766

1917

35M73,i33 642>877>376

1918 1919

1,165,761,280

1920

1,687,096,445

1921

1,649,966,587

1922

1>885,479,689

1923

2,5io,935.492

1924

3,250,638,241

1925

4,416,822,143

1926

5,628,294,457

1927

6,669,066,590

1928

8,311,665,826

1929

9,600,233,601

1930

10,485,113,514

!93!

10,609,285,815

1932

9,683,403,985

* Figures furnished b y M r . W . J. G r a h a m , Vice-President, E q u i table L i f e Assurance Society.

SUPPLEMENT:

PERSONNEL

STANDARDS

397

Industrial Group Insurance Group insurance, excluding group annuities, is of several different types: —Group life insurance —Group accident and health insurance —Group accidental death and dismemberment insurance (which is written in conjunction with or supplementary to group life, or group accident and health insurance). T h e volume and growth of group life insurance in the United States is indicated by T a b l e 44. In 1 9 3 1 , the average amount of protection per employee was approximately $ 1 , 5 4 0 . T h i s amount varies, however, with the size of company as is shown by a study of the National Industrial Conference B o a r d , covering 3 5 2 companies and some 4 , 7 0 0 , 0 0 0 employees. 1 7 TABLE 45 A V E R A G E A M O U N T OF G R O U P L I F E I N S U R A N C E PER E M P L O Y E E BY S I Z E OF E S T A B L I S H M E N T

Number of Employees per Establishment 200 and under 201500 501800 801- I,000 1 , 0 0 1 - 1 , 500 I,501- 3,000 3 , 0 0 1 - 5,000 5,001-10,000 10,001-15,000 I 5 , 0 0 1 - 2 5 >°°° Over 2 5 , 0 0 0

Average Amount of Insurance per Employee $1,102 1

> 132

i,i77 i ,188 i ,098 1,077 i ,20g i ,469 i ,696 1-563

2,229

A t the time the latter study was made, 47.6 per cent of the insurance was on a non-contributory basis, 45.8 per cent on a contributory basis, and 6.6 per cent was additional insurance paid f o r entirely by the employees. T h e tendency for the " National Industrial Conference B o a r d Inc., Industrial 1 9 ^ 7 , T a b l e 6, page i 7.

Group

Insurance,

EXECUTIVE

398

GUIDANCE

larger companies to use the contributory type is shown by the percentages in Table 46 derived from the National Industrial Conference Board figures.18 TABLE 46 PERCENTAGES OF INSURANCE HELD UNDER DIFFERENT FORMS OF GROUP LIFE INSURANCE BY SIZE OF ESTABLISHMENT

Number of Employees per Establishment 200 and under

201500 501800 8 0 1 - 1,000 1 , 0 0 1 - 1,500 1 , 5 0 1 - 3,000 3 , 0 0 1 - 5,000 5,001-10,000 10,001-15,000 15,001-25,000 Over 2 5 , 0 0 0

NonContributory

Contributory

70

24

74 56 66 64 66

53 42 2 3 21

44

22

36 14 28 22

3° • 5° 33 5° 47

Additional Paid by Employee 1.0 0.4 0.9 7.0 2.0 10.0 4.0 2.0 — •

10.0

Types not Segregated S 3 7

12

7 9 8

4 42 28

—

Grouf Health and Accident Insurance Weekly benefits for temporary or permanent total disability caused by accident or disease may be provided by group accident and health insurance. 18 T h e three largest insurance companies reported to the National Industrial Conference Board in 1 9 2 5 that the average weekly amounts of benefits for sickness and accident disability were $ 1 1 . 4 4 , $ 1 2 . 9 7 , a n d $ 1 3 . 3 7 respectively. These are merely averages, however, and the amount of protection in a given company is influenced by its liberality. In general, the insurance is higher in the larger enterprises, as is indicated by the data in Table 47 from the 1 9 2 5 study of the National Industrial Conference Board. This study indicated that of 81 company plans of group sickness and accident insurance, 5 1 (63 per cent) were con™ O f . cit., T a b l e 5, page 1 6 . In recent years, insurance companies have found it necessary to increase the rates for such insurance, and some have ceased to write it.

SUPPLEMENT:

PERSONNEL

STANDARDS

399

tributary; 1 7 ( 2 1 per cent) non-contributory (i.e., paid f o r entirely by the c o m p a n y ) ; and 1 3 ( 1 6 per cent) were paid f o r entirely by the employees. If the plan is contributory, and if the number of those eligible exceeds 5 0 , at least 7 5 per cent of the employees must participate. I f the number is less than 5 0 (the minimum is 2 5 ) , it varies f r o m 7 5 to 85 per cent. H e a l t h insurance has not become popular as fast as its early advocates expected. 20 A f t e r workmen's compensation swept the country in the years following 1 9 1 1 , certain advocates of social insurance thought that health insurance would be the TABLE NUMBER

OF E M P L O Y E E S

INSURED

47 FOR S I C K N E S S A N D

ACCIDENT,

T O T A L W E E K L Y A M O U N T OF I N D E M N I T Y A N D A V E R A G E W E E K L Y AMOUNT

PER E M P L O Y E E

BY S I Z E OF

Number of Number of Employees Employees Insured for Sickness per Establishment and Accident 200 and under 201-

500

501-

800

801-

1,000

1,001-

1,500

1,5013,001-

3,000 5,000

5,001-10,000 10,001-25,000

Over

25,000

i,3l6 i,5i7 3 >549 1 >432 i,57° 15,299 9, x 99 4,291

ESTABLISHMENT

Average Weekly Insurance per Employee i n . 7 8

9.61

10.76 10.54 15.92

11.84 10.7 3 11.12

20,633

18.04

35,H7

24.59

next step, but to date there is no indication of its adoption on a state-wide basis. N a t u r a l l y , health insurance f o r industry as a whole w o u l d be immensely more costly than compensation. M o r e o v e r , as D r . Rubinow explains, there has been opposition f r o m the medical profession, f r o m Christian Scientists, and f r o m the insurance companies. F o r years to come, therefore, this type of protection will be limited to private plans. See I. M . R u b i n o w , M . D . , " C o n f l i c t of P u b l i c and P r i v a t e Interests in the F i e l d of Social I n s u r a n c e , " Annals of the American Academy of Political and Social Science, M a r c h 1 9 3 1 .

400

EXECUTIVE

GUIDANCE

Unemployment Reserves and Dismissal Compensation W h i l e unemployment reserves are in the experimental stage, the ideal plans from the standpoint of employers would be those of the individual voluntary type. Y e t the adoption of the latter has been entirely inadequate to meet the need. I n this country, prior to 1 9 3 0 , they numbered less than a dozen firms, excepting for those adopted in cooperation with trade unions. L a t e r , a f e w more significant experiments were begun. I n 1 9 3 0 , the contributory plan of General Electric was adopted, and in 1 9 3 1 , nineteen employers of Rochester, N e w Y o r k , representing over one-third of the industrial workers of that city, adopted a common plan. A reliable dissertation upon the problems and costs of unemployment insurance is contained in an article by Dr. C. A . K u l p , Professor of Insurance, University of Pennsylvania, in

the American Labor Legislation Review for March 1934. He points out that " T h e two per cent premium plans will pay not more than 5 0 per cent nor more than $ 1 0 a week, and for not longer than ten weeks in each year. . . . F o r an extra one per cent of premium cost the Ohio plan expects to pay for 1 6 weeks and up to $ 1 5 , but in this plan the waiting time is extended to three weeks compared with the reserve plan t w o . " " T h e Massachusetts Commission places the cost of a 2 per cent reserve plan in 1 9 2 9 for her manufacturing industries at 4 1 / 1 O O of a cent on each dollar of factory sales price. T h e Minnesota calculations, based on a 2 per cent contribution by employers, put the extra cost in terms of product value at only 2 7 / 1 0 0 of a cent per dollar." T h e sound principles to be followed in the establishment of any system of reserves, either voluntary or compulsory, have been carefully considered by the Permanent Committee on Unemployment of the Philadelphia Chamber of Commerce. T h e conclusion of this committee is that while it believes in certain advantages peculiar to sound, voluntary private plans, " t h e voluntary approach is probably inadequate to meet either the need or the public demand. It is, therefore, our deliberate

SUPPLEMENT:

PERSONNEL

STANDARDS

401

and unanimous opinion that a system of u n e m p l o y m e n t r e serves to be satisfactory must cover industry g e n e r a l l y , that the burden should be borne in such a w a y that its unavoidable cost could be passed on to the public in the price of products, that State compulsion will be needed to complete and maintain that general coverage, and that self and social interest accordingly require that wise employers take p r o m p t l y their due share of responsibility in this m o v e m e n t . " 2 1 A n allied device is dismissal compensation. D u r i n g the depression of the 1 9 3 0 ' s , over 1 5 0 l a r g e manufacturing plants, railroads, and utilities are known to h a v e paid a dismissal w a g e to those laid oflF. T h e Industrial Relations Section of Princeton U n i v e r s i t y , after a n a l y z i n g the arrangements of some of these, concluded that the emphasis upon age in determining the amount of dismissal compensation had tended to increase. T h e r e was also an inclination to pay it even to those who were dropped f o r incompetency, and to lessen the service requirements f o r eligibility. A m o n g the industries where dismissal wages have been used are public utilities, oil refining, department stores and retail chains, the manufacture of electrical products, paper, clothing, and chemicals and e x plosives.

Employee

Savings and

Investment

M a n y companies f e e l that it is esential to p r o v i d e some sort of " r a i n y d a y " f u n d , upon which employees can rely in emergencies. Savings plans f o r the short-run u s u a l l y consist of arrangements in savings banks to facilitate the m a k i n g of periodic deposits through payroll deduction, or similar investment in the company itself, or the establishment of a credit union. Because of their advantages and rapid g r o w t h , the ensuing discussion w i l l be confined to the last of these. A credit union is designed to serve a dual purpose: to p r o v i d e facilities for saving, and a source f o r b o r r o w i n g at reasonable rates. It has to do, t h e r e f o r e , with thrift and credit. W h a t the " T h e specific suggestions of this committee, as outlined in 1 9 3 3 , are p r e sented in A p p e n d i x B .

402

EXECUTIVE

GUIDANCE

return on the investments of credit unions is likely to be in the future cannot be foretold, but in past years, the following dividend rates have been paid.22 In order to determine the reasons for borrowing, the Bureau of Labor Statistics made an analysis of some 4,000 credit union loans that had been made by eight different organizations, including factory, railroad, municipal, and public T A B L E 48 T Y P I C A L D I V I D E N D R A T E S E A R N E D BY C R E D I T

Location of Credit Unions Postal employees Telephone workers. . . R o c k Island L i n e s . . . New York

Year

Number of Credit Unions

Percentage Return

1932 19 32

298

6.59

8

I931

28

6.00 7.00

95

6.21

1929 1930

I931

1932

Massachusetts

UNIONS*

1930

I931

1932

96F

5.96

76

5-So

73

5.20

6-53 6.24 5.61

* Prepared from data presented in a study made by the Industrial Relations Section, Princeton University, The Use of Credit Unions in Company Programs. f In N e w Y o r k state, there were additional credit unions which paid no dividends. Their numbers were as follows: 1929, nineteen; 1930, fifteen; 1931, thirty-nine; 1932, forty.

service corporation employees. T h e result of the analysis showed that, as indicated by Table 49, medical, coal, and family expenses comprised 50 per cent of the total. T h e loan to any one borrower is usually limited by the bylaws or board of directors. These loans range, customarily, from $10 to $500. Those due Massachusetts credit unions at the end of 1928 averaged $249; and the corresponding figures = See B e r g e n g r e n , R o y F . , Credit Unions: A In addition to purchasing shares, members m a y , accounts. Sometimes this p r i v i l e g e is granted to deposits, the interest is determined b y the board of

Cooperative Banking Book. in many states, have deposit non-members also. O n such directors.

SUPPLEMENT:

PERSONNEL

STANDARDS

T A B L E 49 P U R P O S E S FOR W H I C H L O A N S W E R E G R A N T E D

Purpose

Number

Medical Coal Family expenses Clothing Investment Various bills House repairs and p a y m e n t s . . Taxes Furniture Renewals Education Insurance Vacation Automobiles Death T o pay notes Radios All other No data

929 618 451 341 323 322 302 208 90 61 59 57 57 39 20 J 9 3 93 8 4,000

Total

BY C R E D I T

403 UNIONS

Percentage 23.2 1 5•5 11 -3 8.5 8.1 8.1 7 .6 5 •2 2 -3 1 -5 !-5 1 -4 i-4 i .0 0.5 0.5 0. i 2 -3 0.2 100.0

for N e w Y o r k and for 170 unions among postal employees were $261 and $ 1 1 1 respectively. 23 Joint

Relations

T h e guides to the effective use of employee representation are not easily reduced to words because of the predominating importance of the spirit with which it is initiated and used. H o w e v e r , the objectives and principles that may be used as guides for the formation of a sound plan have been w e l l expressed by Messrs. O r d w a y T e a d and H . C. M e t c a l f . " By employee representation they mean any organized method of " S e e also " W h y W o r k e r s B o r r o w , " Monthly Labor Review, J u l y 1 9 2 7 ; " L o a n s f o r S m a l l B o r r o w e r s : the Present Status of Credit Unions in the United States," Monthly Labor Review, N o v e m b e r 1 9 2 6 . The Use of Credit Unions in Company Programs for Employee Savings and Investment, Industrial Relations Section, Princeton University, 1932. " T e a d , O r d w a y , and M e t c a l f , H . C . , Personnel Administration, Its Principles and Practice, T h i r d E d i t i o n .

404

EXECUTIVE

GUIDANCE

joint dealing between the management of an organization and representatives elected f r o m among its own employees. It therefore covers works councils, shop committees, company unions, etc., whose motive is to supply a procedure of actual negotiation on all matters of common interest. This motive may have the following subdivisions: 1 . T o provide a double-track, t w o - w a y channel of c o m m u n i c a tion between m a n a g e m e n t and m e n . 2. T o provide procedures f o r the prompt handling of grievances. 3 . T o provide a method of collective negotiation on all the terms of e m p l o y m e n t . 4 . T o provide an educational medium f o r both sides to help foster better understanding of their respective problems, desires, and purposes. 5 . T o provide a c o n f e r e n c e m e d i u m foi* the fullest possible cooperation, f o r fostering a sense of corporate unity, and f o r developing creative g r o u p p o w e r .

Perhaps no one has done more to popularize the philosophy of employee representation than the late E . K. H a l l . H e has summarized his point of view in the following statement. 25 " I would say that employee representation is a new and additional form of organization in industry. Its adoption constitutes recognition of certain things not previously recognized or fully appreciated by management. First, the normal or the military form of organization in industry is not adequate for promoting, developing and maintaining the best relations between management and men as individuals. Second, the worker is entitled to a better status in the industry than that of being a mere servant or a mere contractor. T h i r d , the worker ought to be considered and treated as a part of the organization just as much as an employee who happens to carry the title of supervisor. F o u r t h , as a part of the organization, as a part of the industry, the worker is entitled to confer with responsible representatives of the management concerning his own relations to the business and everything involved in that relation. F i f t h , he is entitled to know and ought to know " S e e Personnel, February 1928, published by the American Management Association, New York.

SUPPLEMENT:

PERSONNEL

STANDARDS

405

something about the plans and the procedure, the practices and the objectives of the industry itself, and he is entitled to have a chance to do this and to ask these questions without seeming impertinent or feeling embarrassed or being told that it is none of his business. As a matter of fact, management assumes responsibility for taking the initiative in telling employees about these things. Sixth, where size prevents this contact between representatives of the managing employees and all the members of the general working forces, then an orderly method to accomplish these ends is for the general forces to confer with management through representatives, through people whom they select, their own side partners, people who are more or less working under the same conditions they are working under in the business. " T h a t is what I conceive employee representation to be, a new and an additional form of organization in industry, which promises to find, and in many instances has already helped to find the biggest part of the answer in this so-called industrial relations problem. It is a form of organization that in my judgment has come to stay indefinitely in American industry and business." It is significant, perhaps, that our attempt to assemble the objective "measuring sticks" by which a personnel program may be j u d g e d should end with an analysis which stresses the importance of the philosophy and point of view of the employer. Factual data have their place, but in comparison with such homely virtues as sincerity of purpose, fairness, and ability to put one's self in the place of another, they are of minor significance. 28 " In making use of the foregoing personnel standards, an employer who is engaged upon the always illuminating task of self-appraisal may find it useful to f o l l o w a check list like that which appears in Appendix F .

APPENDIX

APPENDIX A Employment

Excerpts from Code Drafted Tentatively by a Committee of the Taylor Society in ig31

T h e code begins by defining the objective of an industrial enterprise as "supplying goods and services with the least possible waste of human effort and materials, at the lowest prices consistent with good quality of product, fair wages, healthful working conditions, and safety and fair return for capital invested." W i t h respect to wages and earnings, the compilers point out that constant change due to technological changes and increased skill make the development of a formula impossible. T h e y conclude " t h a t the method of determining the wage rates as well as the wage scale established is a vital factor in employeremployee relations. . . . In a period of increasing productive capacity the use of a surplus in industry as between enlargement of plant or equipment or enlarged return to investors or, on the other hand, distribution of purchasing power through lower prices or increased income must be viewed as a problem in keeping the balance between production and consumption. " R e v i e w of the wage scale at regular intervals becomes therefore necessary. T h e earnings throughout the year of individual workmen must be regularly analyzed and compared with the standards already established in the industry and in the locality. Cutting rates should be avoided as demoralizing alike to production and to the community's standard of living. O n the other hand, increases in rates should be based on more than local, temporary change in productivity. All wage determinations should be based on facts and procedures which insure at least relative permanency. " T h e principles of scientific management emphasize that setting the rates of compensation involves study and standardization of all factors affecting the performance of a given task, including the keeping of machinery in good condition, provision of proper tools and good materials and the maintenance of good working conditions as well as careful selection and training of workers. T h e basic minimum for the 409

410

EXECUTIVE

GUIDANCE

lowest paid adult worker should be a living wage, with proper differentials established for skill and experience. " T i m e and motion and related studies . . . should be a joint enterprise between labor and management. . . . " *

*

*

" A working day of eight hours has been so generally accepted in industry, as meeting the social needs of the worker and as a safeguard of efficiency in production, that the burden of proof rests heavily on any longer s c h e d u l e . . . . Overtime representing excess over the regular schedule should be paid for at a higher rate or at least 'time and a half,' both as an inducement for management to keep within the standard schedule and as a recognition of the right of the workers to their leisure. " T h e working week should always insure at least one day of rest in seven. T h e Saturday half-holiday is now well established.... It is to the advantage of a proper balance between production and consumption that industry should reduce daily and weekly hours as higher levels of output are permanently attained. " T h a t the legal and customary holidays of the community should be observed needs no emphasis, as this is commonly accepted in well managed enterprises. Equally desirable is the growing practice of giving summer vacations with pay. " N i g h t work (after 1 0 : 0 0 P.M.) should be avoided where possible and should not be required of women employees. . . . Minors under the age of eighteen years should never be employed longer than eight hours a day and never during night hours. *

*

*

" T o insure relative permanency and continuity of employment should be an objective of good management. . . . Continuity of employment is coming to be looked upon as a net result of all the elements which enter into good management. . . . "Technological improvement [s] . . . constitute the solid foundations of stability within the industry and . . . improvement by small increments permits adjustments to change on the part of individuals concerned and avoidance or reduction to a minimum of what has come to be called technological unemployment. "Sudden termination of employment, without warning and without financial compensation, is contrary to good practice in employment.. . . " I f displacement of employees is unavoidable after all the other

APPENDIX

A

411

possibilities have been studied, a compensation wage can be paid as a lump sum or in weekly payments covering a reasonable m a x i m u m period to make it possible for the worker to find another position. T h e personnel department should assume definite responsibility in co-operation with public employment offices and other agencies t o assist the worker in finding other employment. *

*

*

" T o secure, develop and maintain a competent w o r k i n g force is the basis of lasting success in an industrial enterprise. Provision for attaining this objective through competence in the personnel function is of the essence of an employment code. . . . I t should . . . be so developed as to insure m a x i m u m success in selection of the right employee for the right j o b ; the training of the employee for the best performance of his job; and his promotion to more difficult w o r k as capacity a n d ambition are discovered. . . . "Principles and procedures for good personnel work, j u d g e d by this general objective, will affect the choice of foremen, their training for their work, a n d in general the mechanism for effective supervision of work. Foremanship should be regarded not merely as an obligation to keep machinery in order and to secure a maximum output, but as a responsibility for leadership of groups of men and w o m e n w h o are freely co-operating in the task of production. " T h e best-managed enterprise will be the safest, because it will provide for machinery suited to use by human beings w i t h o u t risk; clean floors a n d removal of waste and debris which cause accidents; proper hours of work to avoid fatigue; and a wage policy which eliminates unreasonable pressure for speed resulting in carelessness as to the use of safeguards. N o new machine or process should be installed until attention has been paid to the proper safeguards. M o r e o v e r , in a well-managed plant, supervision insures full knowledge of the circumstances of an accident as a basis for prevention of a similar occurrence in the f u t u r e . . . . "Progressive personnel policies establish at least sixteen years as the m i n i m u m age for employment. . . . . . A n enterprise should also avoid setting an upper age limit for hiring workers. . . . " U n p r e j u d i c e d study of the most effective f o r m s of organization of labor for functioning in relation to m a n a g e m e n t as a science is an obligation resting upon progressive managers, in the interest of good

412

EXECUTIVE

GUIDANCE

management as well as in recognition of the importance of satisfactory human relations in industry. " L a b o r ' s right to recognition as a party to collective agreements is now, in this country, so widely recognized as to be generally beyond debate in theory and beyond contest in practice. . . . W i t h whatever form of workers' organization an employer must deal, fairness, good faith and complete frankness about all governing facts are the surest means to understanding and agreement."

APPENDIX B Guiding Principles for Voluntary Unemployment

Reserves

T h e sound principles to be followed in the establishment of any system of unemployment reserves, either voluntary or compulsory, have been carefully considered by the Permanent Committee on Unemployment of the Philadelphia Chamber of Commerce. Specifically, the suggestions of the Committee were as follows. General Coverage—Any system of reserves should have minimum limits and minimum exemptions in order to secure wide coverage of regular workers, with the possible exception of higher salaried employees. Under that coverage the competitive feature, affecting individual concerns, would become increasingly unimportant. Joint Employer-Employee Contributions—The reserve fund should be created through joint contributions by employer and employee only. Any state participation should be strictly limited to the definition of minimum standards, to their enforcement, to the administration of those reserve funds set up under state law, and to the supervision of approved equivalent private plans. Employer and employee contributions should be made in some such proportion as 2 per cent and I per cent of payroll respectively. T h e larger contribution from the employer is justified by his greater influence on employment; the employee contribution insures a partnership attitude and responsibility and more rapid accumulation, or an increased amount, of protection. Limited Responsibility—The responsibility of the reserve fund should be restricted to the maintenance of worker-consumer purchasing power for only a limited period of unemployment, on the ground that in an extended depression such as the present emergency, such purely industrial reserves can be expected to do no more than cushion the shock for such a limited period, beyond which the burden becomes mainly a social one. Specifically, experience suggests that initial coverage should be limited to: 1 . Involuntary unemployment. 2. Employees qualified by a reasonable length of service (such as 6 months) or number of weekly contributions (such as 26 in preceding year or 40 in preceding two years). 413

414

EXECUTIVE

GUIDANCE

3. Employees normally receiving less compensation than a figure to be set between $2600 and $ 2 0 0 0 a year. 4. A benefit equal to 60 per cent of normal full-time wages ( n o l o w e r maximum). 5. Benefits for a period not exceeding 1 6 weeks total unemployment in any consecutive 1 2 months; or an equal amount in case of part-time employment, to maintain income for a longer period at 60 per cent of normal. 6. One waiting period in any consecutive 1 2 months of at least 3 weeks total unemployment or 6 weeks of less than 60 per cent employment. These weeks need not be consecutive. 7. A total amount of benefit definitely related to length of service or total amount of contributions made. 8. T h e liability of the fund should be definitely limited to the balance therein at any given time. State-wide Pooled Reserves—with Merit Rating—The actuarial uninsurability of the total unemployment risk is recognized, but to secure increased strength with economy of principal and administrative cost, the principle of insurance should be applied to the limited coverage agreed upon as the responsibility of industry. This means that the reserves of all employers except those with approved private plans should be pooled in one common state-wide plan. But a sufficiently widespread merit rating or penalty, on employer payments only, and based on the experience of individual employers in their elimination of non-depressional unemployment or otherwise, should be provided to induce employers to prevent all unemployment within their power. Actuarial Basis—The size of the fund and/or the total and individual rates of contribution required in terms of eligible payroll to maintain the adequacy and solvency of the fund should be calculated on an actuarial basis. Benefits similarly should be on a strictly contractual basis and should not be determined by "means" tests. Necessary Data—Necessary data for the accurate calculation and succesful administration of the reserve fund should be made available to the administrative authority on terms of strict confidence. Integrity of the Fund—All unemployment reserve funds should be trusteed or otherwise legally protected from industrial and/or political hazard, and thus be rendered exempt from Federal corporation income tax. Investment—All unemployment reserve funds should be so

APPENDIX

B

415

handled or invested as to be readily convertible into cash without loss when needed. Timing—The plan should be designed, and its start should be timed, to encourage the spreading of work. There also should be allowed a period of accumulation long enough to establish the fund on a sound basis and to prevent it from operating as a deterrent to re-employment on the upswing. Administration—An administrative commission should be set up in each state. T h e substantive provisions of any plan, especially of any compulsory plan, should be precise, leaving to the administrative body the authority only to adopt and enforce reasonable rules and regulations and to develop the necessary administrative staff and procedures. Such authority, however, should include the equitable definition of normal full-time weekly hours for all occupations, as a basis for calculating base wages for benefits, the equitable adjustment of merit ratings, the decentralization and organization of claims procedure to insure prompt, equitable and economical adjustment of claims, etc. T h e complexity and importance of these duties require that the administrative authority should be as competent, independent and as representative of the parties in interest as passible. T h e necessary costs of administration of a state plan should be borne by a separate administrative fund provided from a percentage levy on eligible payrolls of all subject employers, including self-insurers. Employment Offices—An efficient, co-ordinated system of employment offices is essential to the successful operation of any unemployment reserve plan, whether private or public; and should be integrated with the administration thereof. Enforcement of a State Plan—Any compulsory plan should provide effective penalties or fines on employers, employees, or persons connected with the administration of the act for fraud, for violation of the law, or for failure to comply with lawful orders of the administrative authority. Private Plans and Self-Insurance—Any state system should, so far as possible, expressly permit individual or grouped establishments to carry their own risk either directly or by reinsurance (as in the case of workmen's compensation) provided such arrangements meet the minimum requirements of the act and provide equivalent security to their workers. Meanwhile the widest and most energetic adoption of voluntary private plans is desirable to forestall ill-advised legislation, and to provide a maximum of interim coverage, data, technique and experience on which to build a sound system.

416

EXECUTIVE

GUIDANCE

In developing this experience under voluntary plans, contributions from the start should be joint, wherever company experience provides a basis for successful cooperative action. W h e r e the cooperative background is lacking, however, administrative considerations may recommend, as an intermediate step, contributions by the employer only, since ( a ) the primary aim is to discharge industry's responsibility in industry's way, ( b ) pending complete coverage the employer tends to bear the direct cost anyway, and ( c ) employees in any case bear the major risk through absorbing the entire burden of unemployment during the waiting period, the first 40 per cent for the period of benefit, and all thereafter. In either of these cases it may be found desirable to stipulate, as do both the General Electric and Rochester plans, that in time of declared emergency the rate of contribution shall be increased by means of joint annual emergency payments from company and from all employees receiving at least half pay. Supplementary Relief Program—The foregoing outlines the principles of a system of reserves for handling industry's limited share of the unemployment problem, but it is all too clear that widespread depression brings extended unemployment for which society as a whole should make due provision. Unless the proposed system of industrial reserves is to break down, as in England, under burdens that do not belong to it, therefore, it is of the utmost importance that simultaneously and with equal thoroughness there should be made ready in advance, and coordinated with the system of reserves, an adequate supplementary system of public and/or private relief to take up society's burden.

APPENDIX C Guiding Principles for a Company Pension Plan1 1 . A l l employees should be eligible f o r pension privileges. 2 . W h e r e experience indicates a definite c l e a v a g e of mortality trends b e t w e e n d i f f e r e n t g r o u p s of employees, separate plans should be set up. 3 . T h e plan should require contributions f r o m both e m p l o y e r a n d employees. 4 . A f t e r the i n a u g u r a t i o n of the p l a n , m e m b e r s h i p should be c o m p u l s o r y f o r all n e w e m p l o y e e s . 5.

M e m b e r s h i p in the plan should be optional f o r those a l r e a d y e m p l o y e d , but credit f o r past service should be conditional upon i m m e d i a t e e n t r a n c e into the plan.

6 . T h e plan should provide f o r c o m p u l s o r y retirement at a g e 6 5 , provided, h o w e v e r , that an e m p l o y e e m a y , upon his o w n application, with the consent of the e m p l o y e r , postpone retirement. 7. T h e plan should m a k e possible the r e t i r e m e n t of employees prior to the n o r m a l a g e at the discretion of the c o m p a n y . 8 . S u p e r a n n u a t i o n pensions should be payable on condition of attained a g e alone, without c o n s i d e r a t i o n of service. 9. I f superannuation r e t i r e m e n t is m a d e flexible as j u s t s u g gested, service r e q u i r e m e n t s m a y be dispensed w i t h f o r the p e r m a n e n t and total disability b e n e f i t ; in a n y event, not m o r e than 1 0 y e a r s of service should be required. 1 0 . E m p l o y e e contribution should be l e v e l percentages of pay, should be g r a d u a t e d a c c o r d i n g to a g e at entry a n d should be so calculated as to p r o d u c e , w i t h interest accretions, benefits h a v i n g a r o u g h relationship to a g g r e g a t e pay a n d s e r v i c e ; these contributions should stop at the n o r m a l a g e of retirement. 11.

F o r the purpose of m a k i n g c o n t r i b u t i o n s a n d a c c u m u l a t i n g pension credits, salaries o v e r $ 1 0 , 0 0 0 or $ 1 5 , 0 0 0 should be disregarded.

1 2 . T h e pension at the n o r m a l a g e of r e t i r e m e n t should be the l i f e a n n u i t y equivalent in v a l u e to the total contributions m a d e by both e m p l o y e r a n d e m p l o y e e . ' Latimer, Murray W., Industrial Pensions in the United States and Canada, page 946. 417

418

EXECUTIVE

GUIDANCE

1 3 . T h e benefit f o r employees retired prior to the n o r m a l age should be the immediate annuity equivalent in value to e m ployee contributions, plus the applicable employer reserves. 1 4 . T h e benefit f o r employees retired after the normal age should be the annuity equivalent in value to the accumulated contributions of both employer and employee, plus the applicable mortality salvages.

•

*

*

1 8 . U p o n w i t h d r a w a l or death of an employee prior to qualifying f o r a benefit, his own deposits should be returned with interest at a reasonable rate. *

*

*

2 I . A w a r d of the pension should be guaranteed to persons w h o attain retirement age and the payment of benefits once granted should be guaranteed for the duration indicated by the f o r m of the pension or annuity. 2 2 . F u n d s set aside for pension purposes should in no event be subject to recapture by the company. *

*

*

2 4 . I n small companies the liabilities of the plan should be underwritten by an insurance company. 2 5 . L a r g e companies may safely administer their o w n plans, provided that the f u n d s are handled by competent investment managers and actuarial advisers are employed.

APPENDIX 3DUiJnSUJ

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420

EXECUTIVE

GUIDANCE APPENDIX

INDEX N U M B E R S OF ACCIDENT

E

FRE-

( 1 9 2 6 = 100 except

Industry All industries.... Automobile Cement Clay products (>928) Chemical Construction... . Electric railway (1927) Food Foundry Glass ( 1 9 2 9 ) . . . . Laundry (1928). Lumbering Machinery Marine (1927).. . Meat packing (1928) Metal products (Misc.) Mining Non-ferrous metals Paper and pulp. Petroleum Printing and publishing Public utilitites. Quarry Railway car and equipment . . . Refrigeration (1928) Rubber Sheet m e t a l . . . . Steel Tanning and leather Textile Tobacco (1929). Woodworking...

Frequency Rate Indexes 1926

1927

1928

1929

'93°

>931

1932

100 0 100 0 100 0

86.6 79 3 71 4

77-2 83-9 515

74-1 87.7 47-9

55 6 54 8 35 5

45-5 57-7 3Î-4

38 5 45 5 26 7

100 0 100 0

92 O 90 O

100.0 85.6 85.4

95.2 78.1 74.0

80 8 68 3 70 5

77-5 50.5 67.9

73 I 43 5 67 4

100 0 100 0

100 O 86 7 93 8

103.8 79.8 86.6

95 8 85-3 100 0

100.0 89.7 76.3 79-5

92.2 72-5 86.2 100.0 100.5 85-9 85.7 64.9

76 61 55 74 66 75 64 65

9 9 2 4 6 4 6 4

7Î-4 58.6 40-3 68.8 42.6 66.9 45.6 53-2

52 53 42 55 31 59 38 36

100.0

67.4

48 3

41.2

34 9

100 0 100 0

7 I 8 3 6 2 6 6

100 0 100 0

66 I 108 7

68.0 102.2

68.5 95-7

43 8 99 7

33-6 92.8

34 8 84 3

100 0 100 0 100 0

78 4 84 8 88 5

78.0 69.6 78.0

81.0 68.3 83-7

55 0 56 2 56 8

38.6 46.2 41.5

38 9 39 4 35 3

100 0 100 0 100 0

80 6 81 0 103 4

78.9 64.2 81.9

78.0 55-° 82.8

67 7 39 3 62 3

65.9 28.1 61.3

48 4 20 8 53 5

100 0

118 3

66.7

102.3

73 6

68.2

47 8

100 0 100 0 100 0

89 7 104.7 77 9

100.0 75-1 105 .0 67.0

876 60.5 102.0 643

70 40 71 44

8 8 4 8

57-2 36-7 673 38.7

40 34 56 36

2 2 3 8

100 0 100.0

95 9 95 6

99.6 91.9

100 0

71 2

68.3

84.9 89.2 100.0 70.0

68 7' 90 58

4 6 5 0

62.2 66.6 m .2 56.2

45 65 66 47

8 4 0 8

* Accident Facts, 1933, National Safety Council, Inc.

APPENDIX T a b l e QUENCY

E

51 AND

SEVERITY

R A T E S ,

I926-I932

where indicated) Severity Rate Indexes 1926

1927

1928

1929

I930

1931

1932

8 3 9 66 .2

83-5 80.6

84 . 2

79-

68

8

64

100.0

7 9 •4

79-4

56

2

100.0

77 •5

83 •9

91 •5

5 1 -3

79

5

89 3 50 2

100 0

187

6

90 7 87 6

82.7 81.4

79

6

18 92

0

84 •9 1 2 5 •7

4 0 •7 69.6

60.3

100.0

72

3

54

7

100 0

75 122

4 4

84 90

5 6 5 8

100.0

100.0

100.0

89

i

1693 84.5

100.0

6S

2

50 0 100 0

100.0 100.0

39

0

75 2 100 0

57 60

9 i

87

1

100 0 100.0

71

8

100.0

137

9

100.0

72 5 70 4 108 7

100.0 100.0 100.0

181

47.6

56

5 i

74-4 48.1

75

7

61

38-4

37

7

4Î

8

4

84.9

66.4

130 0

I42. 2

33-6

3

7

53-3 46.1

0

51

4

78.1

100 0

127

4 6

102.0

84.2

100.0

83-9

85-7

100.0

68

51 110

5 0

58.5

8 0

72

i

100.0

7

5 3

2

S 84 2

4

40

60 7

4' 67 118

69

287

96

5 9

2

91

91.9

117.9

61

47

67.1

1

100.0

5 9

5

123

105

41 68

78.5

2

22

3

51 58

64.2

i

5

115.2

48

I02.3

310

44

100 0

i

100.0

100.0

129.9

i

72

9 80 9

94.6

3 7 8

114

155 66

71 72

100.0

127

3 0

81 79 122

7 i 6

100.0 100.0

9 78

76 0 146.7

78 •4

7

79

83 I 102 4

60.7 66.5 92.8

7

59

8

151

4

57 167

5 0

61

2

68

0

54 3 103 8

66

5 2

•5 39

i

95

8 7 38

3 89 5

34

3 7

58 3

27

6

i

54 48

5 0

45 64

7 2

63 80 2

161

7 i 100 0

197.8

90

108

164.2 23.1

145 21

86 4

97.6

41

3 6 3 i

39

i

63

2

53 101

7

21

J

99

5

2

EXECUTIVE

422

GUIDANCE

TABLE 52 F R E Q U E N C Y R A T E S OF I N J U R I E S BY INDUSTRY, 1 9 2 7 - 1 9 3 2 *

Industry

Tobacco Laundry Cement Printing and publishing.. Machinery.. . . Glass Textile Non-ferrous metal Public utilities. Rubber Steel Chemical Tanning and and leather. Railway car and equipment Petroleum.... Sheet metal.. . Automobile.. . Miscellaneous metal. . . Food Woodwork.. . . Quarry Marine Paper Electric railway Foundry Clay products. Refrigeration.. Meat packing. Lumber Mining Construction.. Ceramic

NumManber Hours of Worked (000) Units

Ratest (disabling injuries per million man-hours)

1932

1932

13 41 112

18,481 8,470 27,939

i .89 425 4.65

43 282 49 189

23.444 247.976 51,888 163,107

6.87 7-76 8.76 914

11 10 1j 8

93 04 49 72

i l .29 14.01 12.82 9-44

12.92 18.36 12.03 11.64

9-37 15.64

6.79 17.56

11.80

12.58

58 621 53 121 266

57.772 694,808 »3.442 212,884 174,908

9 - 44 9.82 9.86 10.19 IO.53

11 il 16 10 10

67 30 59 11 65

17.41 16.55 15-75 H .48 14-73

25-53 21.72 23-75 16.46 16.76

3034

3161

24-95 19.81 18.52

30.84 21-75 19.50

57

45.270

10.60

22 14

24.62

30.86

29.98

28.88

36 101 204 69

21,669 565.760 97,620 129,442

II . 12 12.28 I3-I3 13-19

17 89 •3 03

19.65 17-33

29.15 25.85

15.90 26.19

28.30 29.64

15 14

15.98

24.71

200 283 109 118 56 241

81,901 242,022 28,290 7.849 106.379 136,034

I325 15.27 15-77 16.56 17.24 17-77

13 14 31 16 15 18

72 42 09 64 33 22

15-77 15.07 37-82 18.16 16.20 21.28

24.20 18.97 41-63 23.98 16.09 25-33

67 108 3° 69 74 48 138 61

152,162 33,998 7,308 26,259 138,684 13.157 42,045 22,157

19.20 23.12 23-40 23-53 25.50 47.96 56.68 57-90

23 89 23 62

23-94 32 53

28 56 35 22

13-20$

All industries 3.937 3,754,481t

1932

1931

1930 —

—

1929 —

—

1928

1927

_

_

—

—

—

—

—

24.99

23.80

23-51 47-33

1 1 .62 49- I4

24-73

30.27

28.78 48.20

20.90 23.16

22.96 24.46

32-63 41.25

40.95 56.98

53-91

47.10

61 32 56 71 22 20

65.46 52-47 22.20

66.62 55.16 26.63

60.16

62.94

15 10

18.42

24.51

—

—

• Source: Individual company reports to the National Safety Council, t The number of units used in computing the frequency rates for 1 9 3 1 , 1930, 1929, 1928, and 1927 is not the same as that used for 1932. For example, the total number of units for 1929, 1930, and 1931 equal 2307. The fact that the 1932 figures cover a larger sample means that they are not strictly comparable with those for 1 9 2 9 - 1 9 3 1 , which represent identical firms. t Includes miscellaneous industries not shown separately and corrected for certain duplications in the Marine and Petroleum industries. § If the total frequency rate for 1932 be analyzed according to the character of njury, the relative influence of the latter was as follows: fatal 0 . 1 6 , permanentpartial 0 . 5 8 , temporary 1 2 . 4 6 , and total 1 3 . 2 0 .

APPENDIX TABLE

E

423

53

S E V E R I T Y R A T E S OF A C C I D E N T A L I N J U R I E S BY I N D U S T R Y *

(Arranged in order of 1932 rates)

Industry

Number of Units

Laundry Tobacco Printing and publishing... Tanning and leather Ceramic Textile Rubber Glass Machinery Sheet metal Metal products Railroad car Automobile Meatpacking Food Non-ferrous metallurgical. Woodworking Cement Steel Public utilities Petroleum Paper Chemical Refrigeration Electric railroad Marine Foundry Quarrying Construction Lumbering Mining All industries

41 13 43 57 3° 189 53 49 282 204 200 36 69 74 283 58 109 112 121 621 101 241 266 69 67 56 108 118 611 48 138 3,937 3,937

Rates (days lost from disabling injuries per thousand man-hours) I93*t

'93Jt

I93°t

I 9 29t

0.06 0.07 0.25 0.30 0.38 0.4Î 0.71 0-73 0.84 0.88 0.97 1.05 1.10 1.13 1.15 1.58 1.71 1.80 1.81 1.83 1.91 1.92 1.92 2.04 2.09 2.14 2.46 3-53 4-44 5-43 9-51

1.81

0.67

i.6j

I-59&

—

0.21 0.94 4.68 0.60 1-59 °-43 0-93 —

1.07 1.40 1.17 0.89 1.18 0.96 2.27Î —

2.19 2.09 1.98 1-49 2.01 1.04 1.71 4-33 1.8* 6.06 4.51 —

—

0.49 1.68 1.68 0.74 1.19 1.19 I.OJ —

1.12 2.78 1-59 0.92 1.11 «•33 3-68Î —

2.52 2.81 2.27 i-55 i-95 2.21 1.70 2.46 2.28 2.13 J.81 —

—

0.60 1.62 1.10 0. j6 "•37 O.J2 1.18 —

1.30 1.90 1.30 1.48 «•43 2.65 3-73Î —

2.77 3-^5 1.68 1.63 2.91 1.11 a . 11 I-9J 5.88 $.68 —

8.90

9.68

9.01

1.72

2.07

3.18

* Source: Accident Facts, 1931 and 1933, National Safety Council, Inc. Severity rate = number of days lost as the result of lost-time injuries per thousand man-hours of exposure. The rate includes arbitrary charges for deaths and permanent disabilities. t The number of units represented in the columns for 1929, 1930, and 1931 are different, the total being 2,307 as compared with 3,937 in the 1932 column. t Includes lumbering. I If the total severity rate for 1932 is analyzed according to the character of injury, the relative influence of the latter was as follows: Fatal 0.96 Permanent-partial 0.36 Temporary 0.27 Total

1.59

APPENDIX F Check

List

I n m a k i n g use of the p e r s o n n e l s t a n d a r d s discussed in P a r t I I I , C h a p ter I I , an e m p l o y e r e n g a g e d in the task of self-appraisal m a y find it u s e f u l to f o l l o w a c h e c k list like that w h i c h f o l l o w s . 1 . L a b o r cost as c o m p a r e d

w i t h s i m i l a r operations

elsewhere

2 . Q u a l i t y of w o r k m a n s h i p as c o m p a r e d w i t h s i m i l a r o p e r a t i o n s elsewhere 3. Consumer good will 4 . C o s t per capita of p e r s o n n e l activities 5 . P e r m a n e n c e of f o r c e ( p e r c e n t a g e s w i t h l o n g s e r v i c e ) 6.

R a t e of l a b o r t u r n o v e r ( q u i t s , d i s c h a r g e s , a n d l a y o f f s separately)

7. Employee morale a. D o e s c o m p a n y m a i n t a i n a m a g a z i n e ? 8. Steadiness of e m p l o y m e n t a. S e a s o n a l v a r i a t i o n of m a n - h o u r s , or n u m b e r e m p l o y e d b. C y c l i c a l

fluctuations

( y e a r - t o - y e a r c h a n g e s in a n n u a l m a n -

h o u r s or a v e r a g e n u m b e r

employed)

9 . H o w d o w a g e rates c o m p a r e w i t h " g o i n g " rates in c o m m u nity? a. A r e base rates set s y s t e m a t i c a l l y ? 10. H o w do annual employee earnings compare with m i n i m u m n e e d e d t o keep a " t y p i c a l f a m i l y in h e a l t h a n d d e c e n c y ? " 1 11.

A r e i n d i v i d u a l w a g e s a n d p r o m o t i o n r e v i e w e d at least a n nually ?

12.

Hours, w o r k i n g conditions, and health a. A c c i d e n t rates ( f r e q u e n t l y a n d s e v e r i t y ) b. Sickness disability f r e q u e n c y r a t e

1 3 . D o e s c o m p a n y p r o v i d e v a c a t i o n s w i t h pay? a. F o r shop e m p l o y e e s b. F o r clerical e m p l o y e e s c. F o r salaried e m p l o y e e s d. F o r e x e c u t i v e s 14.

D o e s company have a pension ( o r a n n u i t y ) plan?

1 See Wages: A Means of Testing Balderston, C. Canby.

Their Adequacy, 424

Leeds, Morris E., and

APPENDIX

15. 16.

17.

18.

19.

20.

F

425

a. Annuities with insurance company ( o r definite individual contracts that are reinsured) b. T r u s t e e d and funded c. T r u s t e e d , but not funded d. Not trusteed, but f u n d e d e. I n f o r m a l (i.e., unsystematic) Does company have a systematic plan to care for cases of pre-retirement? Does company have death benefits (or group life insurance) a. Composite b. Contributory c. Non-contributory (paid by company o n l y ) d. Paid by employee only Does company have insurance ( o r benefits) for sickness and accidents a. Contributory b. Non-contributory Does company have provisions to protect against unemployment? a. Guaranteed employment b. Unemployment reserves c. Dismissal w a g e s d. " N o t i c e " of month, or more Does company provide facilities for employee savings? a. Savings bank b. Credit union c. Building and loan association Does company deal collectively with its employees? a. U n i o n - m a n a g e m e n t arrangement b. Employee representation

BIBLIOGRAPHY General Annals of the American Academy of Political and Social Science, "Social Insurance," November, 1 9 3 3 Balderston, C . Canby, Managerial Profit Sharing, John Wiley & Sons, Inc., New York, 1928 Baridon, F . E . and Loomis, E . H., Personnel Problems, McGrawHill Book Company, Inc., New York, 1 9 3 1 Bergen, Harold B., Personnel Policies, American Management Association, New York, 1934 Bergengren, Roy F., Credit Unions: A Cooperative Banking Book, Credit Union National Extension Bureau, Boston, 1 9 3 1 Berle, A . A., J r . and Means, G . C., The Modern Corporation and Private Property, Commerce Clearing House, Inc., New York, 1932 Bezanson, Anne, "Four Years of Labor Mobility," Annals of The American Academy of Political and Social Science, May 1925 Bureau of Foreign and Domestic Commerce, Statistical Abstract of the United States, Washington, 1 9 3 3 Bye, Raymond T . , Principles of Economics, Alfred A. Knopf, New York, 1927 Davis, Eleanor, Employee Stock Ownership and the Depression, Industrial Relations Section, Princeton University, 1933 Dennison, Henry S., Organization Engineering, McGraw-Hill Book Company, Inc., New York, 1 9 3 1 Donald, W . J . , Editor-in-Chief, Handbook of Business Administration, McGraw-Hill Book Company, Inc., New York, 1 9 3 1 Douglas, Paul H., The Theory of Wages, The Macmillan Company, New York, 1934 Epstein, Abraham, Insecurity—A Challenge to America, Harrison Smith and Robert Haas, New York, 1 9 3 3 Epstein, Ralph C., Industrial Profits in Prosperity and Depression, 1 9 1 9 - 1 9 3 2 , Bulletin No. 44 of the National Bureau of Economic Research, Inc., New York, January 27, 1 9 3 3 Feldman, H., The Regularization of Employment, Harper and Bros., New York, 1925 Hackett, J . D., Labor Management, D. Appleton & Co., New York, 1929 426

BIBLIOGRAPHY

427

Hall, E . K . , " W h a t Is Employee Representation?" Personnel, American Management Association, N e w Y o r k , February, 1 9 2 8 Ham, Arthur H . and Robinson, L . G . , Credit Union Primer, Russell Sage Foundation, New Y o r k , 1 9 3 0 Industrial Relations Section, Princeton University —Employee Magazines in the Depression, Company Retraining Programs, 1 9 3 3 —Hours of Work and Recovery, 1 9 3 4 — U s e of Credit Unions in Company Programs for Employee Savings and Investment, 1 9 3 4 Kornhauser, A . W . , " T h e Technique of Measuring Employee Attitudes," Personnel, American Management Association, M a y , 1933 Kulp, C . A . , " T h e Purchase of Security through Unemployment Compensation," American Labor Legislation Review, March

, 1934

Kuznets, Simon, Seasonal Variations in Industry and T r a d e , N a tional Bureau of Economic Research, New Y o r k , 1 9 3 2 Latimer, Murray W . , Industrial Pensions in the United States and Canada, Industrial Relations Counselors, Inc., N e w Y o r k , 1932 Leeds, Morris E . , and Balderston, C . Canby, W a g e s — A Means of Testing Their Adequacy, University of Pennsylvania Press, Philadelphia, 1 9 3 1 Lewisohn, Sam A . , T h e N e w Leadership in American Industry, E . P . Dutton & Company, New Y o r k , 1 9 2 7 Little, Elinor, Some Considerations in Installing a Salary Administration Plan, American Management Association, N e w Y o r k , Office Executives' Series, No. 27 Mayo, Elton, T h e Human Problems of an Industrial Civilization, T h e Macmillan Company, N e w Y o r k , 1 9 3 3 Metropolitan Mutual L i f e Insurance Company, How L o n g Do Employees Stay? Executives Service Bulletin, March 1 9 2 9 Mills, Frederick C . , Economic Tendencies in the United States, J . J . Little & Ives Company, N e w Y o r k , 1 9 3 2 National Industrial Conference Board, Inc., N e w Y o r k —Industrial Relations: Administration of Policies and Programs, I931 —Personnel Programs in Small Plants, 1 9 2 9 National Safety Council, Incorporated, News Letter, M a y 4, 1 9 3 4 Public Health Reports: —Volume 45, No. 3 0 —Volume 48, No. 3 0

428

EXECUTIVE

GUIDANCE

Rockefeller, John D . , J r . , T h e Personal Relation in Industry, Boni & Liveright, N e w Y o r k , 1 9 2 3 Rowntree, B . Seebohm, T h e Human Factor in Business, L o n g mans, Green & Company, N e w Y o r k , 1 9 2 5 Smith, E . S., Reducing Seasonal Unemployment, M c G r a w - H i l l Book Company, Inc., N e w Y o r k , 1 9 3 1 Stecker, Margaret Loomis, Industrial Pensions Systems, American Management Association, General Management Series, No. 1 2 1 T e a d , Ordway and Metcalf, Henry C . , Personnel Administration, M c G r a w - H i l l Book Company, Inc., N e w Y o r k , T h i r d Edition, 1

933

United States Bureau of Labor Statistics, Health and Recreational Activities in Industrial Establishments, 1 9 2 6 , Bulletin No. 458 Viteles, Morris S., Industrial Psychology, W . W . Norton and Company, Inc., New Y o r k , 1 9 3 2 Webb, Sidney and Beatrice, T h e Consumers Co-operative Movement, Longmans, Green & Company, New Y o r k , 1 9 2 1 Wertheim Lectures on Industrial Relations, 1 9 2 8 , Harvard University Press, Cambridge, 1 9 2 9 Wolman, Leo, T h e Growth of American T r a d e Unions, 1 8 8 0 1 9 2 3 , National Bureau of Economic Research, Inc., N e w York, 1924 Pertaining

to Industries Represented

in the Study

Fortune, March 1 9 3 1 , " O i l Abroad" Fräser, C . E . and Doriot, G . F . , Analyzing Our Industries, M c Graw-Hill Book Company, Inc., N e w York, 1 9 3 2 Glover, J . G . and Cornell, W . B., T h e Development of American Industries, Prentice-Hall, Inc., New Y o r k , 1 9 3 2 Jamison, Charles L . , Management of Unit Banks, Bureau of Business Research, Michigan Business Studies, University of Michigan, Vol. 3, No. 2 National Electric Light Association, Statistical Supplement to the Electric Light and Power Industry in the United States, 1 9 3 1 National Industrial Conference Board, Inc., T h e Banking Situation in the United States, New Y o r k , 1 9 3 2 Moulton, H . G . and Associates, T h e American Transportation Problem, T h e Brookings Institution, Washington, 1 9 3 3 United States Bureau of Labor Statistics —Handbook of Labor Statistics, Bulletin No. 5 4 1 , 1 9 3 1 — L a b o r Productivity in the Automobile Tire Industry, Bulletin No. 585 Winkler, John K . , Incredible Carnegie, Vanguard Press, Inc., New Y o r k , 1 9 3 1

BIBLIOGRAPHY

429

W o l m a n , L e o and Associates, Clothing Workers of Chicago, R e search Department of Amalgamated Clothing Workers of America, Chicago, 1 9 2 2 . Pertaining

to Companies

Represented

in the Study

Douglas, Paul H . , A Case of Genuine Industrial Self-Government, T h e University Journal of Business, November 1 9 2 2 and February 1 9 2 3 E m m e t , Boris, T h e California and Hawaiian Sugar Refining C o r poration, T h e Graduate School of Business, Stanford University, California, 1 9 2 8 Hapgood, Norman, T h e Columbia Conserve and the Committee of Four, Privately printed, 1 9 3 4 Hapgood, William P., A n Experiment in Industrial Democracy, Privately printed, 1 9 3 4 Van KJeeck, M a r y , Miners and Management, Russell Sage Foundation, N e w Y o r k , 1 9 3 4 W o o d , Louis Aubrey, Union-Management Co-operation on the Railroads, Y a l e University Press, N e w Haven, Conn., 1 9 3 1

INDEX Accidents, indujtrial, 37, 420-423 A g e of industries, effect of, 240 Amalgamated Clothing Workers of America, 104, IOJ, 107, 284, 336 American Federation of Labor, 306 American Management Association, American

Rolling

Mill

Company,

9-19 Annuities (See Pensions) Automobile industry, 199-206,

329-

33*

Baltimore and Ohio Railroad pany, 10-32 Banking,

125,

Com-

332-334

Base rates, 14, IOI, 269 Berle, A . A., Jr., 4, 243 Beyer, Otto S., 20, 21, 22, 30, 31 Bezanson, Anne, 294, 375, 385 Birrell, Augustine, 287 Board of directors, composition of, 242

British Quaker employers, 1 Brundage, Dean K., 84, 393 Building and loan, 52, 292, 299

353,

33-38

Canby, Henry Seidel, 326 Canning industry, 39, 334-336 Carnegie, Andrew, 364 Casualty rate, 28 Chemicals, explosives, and photographic goods, J8-79 Clark, J. B., 321 Clothing industry, 103, 336-339 Coal mining, 1 7 1 , 339-341 Collective bargaining (See Joint relations) Columbia Conserve Company, 39-49 Commons, John R., 103 Commonwealth Edison Company, 50-

345,

37O,

37»

348,

351 > 356,

358,

342, 3

366, 3 6 9 — m a t e r i a l , 330, 335, 337, 342, 345, 3 4 8 , 3 5 ' . 3 5 8 , 366, 3 6 9 — o v e r h e a d , 335, 345, 358 Cowdrick, E . S., 302 C r a f t union (See Unionization in specific industries) Credit union, 1 1 , 62, 1 1 4 , 182-183, 299,

401

Criteria used in appraisal, 5 Cyclical fluctuations: — i n general, 238, 368, 389 — i n specific industries, 342,

355,

357

Davis, Jerome, 42 Death benefits, 12, 25, 5 1 , 81-82, 93, 123,

136,

158,

169,

187,

197

Dennison, Henry S., 251, 307 Department stores, 155, 342-343 Depression, effect of (See Cyclical fluctuations) Design of product, 3 31 Disability benefits, 25, 35, 72, 81, 92, 169,

180

Disability insurance (See Insurance) Discharge, 33, 55, 101, 1 1 5 , 1 1 6 , 130, 169,

[43

365,

375-3«i Costs—in specific industries o f : — l a b o r , 330, 335, 337, 340,

57

Company union (See Employee representation) Compensation of executives, 245-248

359,

Conflict of interests, 2, $ Costigan, Edward P., 173, 283 Costs—in general o f : — l a b o r , 230, 231, 232, 37+ — m a t e r i a l , 232, 233 — o v e r h e a d , 233 —personnel activities, 209, 225, 288,

292,

California and Hawaiian Sugar Refining Corporation, Ltd.,

Competition, 2, 5, 25, 221, 221, 250 Compulsory employee contributions, 314-315 Concentration of control, 346, 349,

176, 192-193, 205,

Dismissal

wage,

186, 209,

11,

J9,

207

108,

129,

401

Diversification of product, 122, 143

0

432

EXECUTIVE

Douglas, Paul H., 42, 321 du Pont de Nemours Company, Inc., E. I., 58-65 Eastman, George, 69, 249, 256 Eastman Kodak Company, 66-79 Earnings, employee (See Wages) Economic influences (See Competition) Economic security, 3 1 5 - 3 1 9 Eddy, Sherwood, 42 Edgar, Charles L., 80, 82, 84, 85, 249, Edison Electric Illuminating Company of Boston, 80-85 Electric light and power industry, 50, 80, 343-344 Electrical equipment, 86, 1 2 1 , 1 4 1 , 207, 345-348 Emmett, Boris, 34 Employee representation: —in general, 278-285, 2 9 1 , 297, 3 1 1 314,403-405 —in specific companies, 19, 20, 2 1 , 28, 64, 95, 1 1 7 , 1 2 4 , 138, 1 5 1 , 170, 177) 190. 2 1 7 Employee stock purchase (See Stock ownership, employee) Employer obligations, 5, 6 Employment Code, 409-412 Employment exchange, 106 Epstein, Abraham, 3 1 6 , 3 1 7 Epstein, Ralph C., 225, 345, 361 Executive bonuses (See Managerial profit-sharing) Executive compensation (See Compensation) Executives, influence of, 249, 256 Executives, personnel problems of, 258, 296 Fair dealing, 252-253, 286 Financial strength of companies, 241 Flying squadron, 99, 102 Folsom, M . B., 69 Forbes, B. C., 1 4 1 Ford, Henry, 3 1 5 Forecasting, 166 Foremen, 257 Fortune, 306 Frank, J . M., 1 2 2 Frick, H. C., 364 Functionalization of personnel activities, 257

GUIDANCE Garment Cutters Society of Philadelphia, 1 71 General Electric Company, 86-97 Goodwill, customer, 375 Goodyear Tire and Rubber Company, 98-102 Green, William, 306 Greene, James H., 2 0 1 , 275 Grievances, 29, 1 0 3 , 1 1 7 - 1 1 9 , 124, 33« Growth of industries, 2 4 1 , 330, 338, 34i> 349. 3 5 i , 359. 3 >5?. 164. 185» 196, 200, 207 Personnel functions, 33, 5 1 , 126, 1 3 4 , »07, 4 1 9 Personnel management, case for, 2901 9 4 Personnel philosophy, 2, 46, 5 1 , 80, 86, 164, 1 7 1 , 1 7 7 , 287, 303 Personnel, place in organization, 256158 Personnel policies, 2, 9, 10, 58, 66, 8o, 98, i 2 i , 1 4 1 - 1 4 * » 1 73> '79) 200 Personnel program: —balance of, 9, 295 —effect of depression on, 302 —essentials of, 252 Personnel records, i o , 106, 1 1 5 , i j o , 205, 296 Personnel relations, conflicting concepts, 303-326 Personnel standards, 5, 2 5 1 , 373-405, 424-425 Philadelphia Chamber of Commerce, 413 Photographic goods industry, 66 Physical examination, 56, 78, 1 6 1 , 184 Piecework, 26, 1 0 1 , 1 1 2 , 1 3 6 , 189, 205 Placement of employees (See Selection of employees) Plant expansion, 242 Plumbing supply industry, 1 3 1 - 1 4 0 Policies, personnel (See Personnel policies) Pre-retirement age pensions, 83, 92, 188, 209-210 Price cutting, 3 3 1 Price trend (See Sales price) Procter, William C., 164, 166, 249, 256 Procter and Gamble Company, 164170 Profit stability, 224, 226 Profitability, its effects, 224-225 Profitability of: —cooperating companies, 229-230 —industry in general, 225-227 —specific industries, 227-228

Profit-sharing, 76, 1 2 3 , 183 Promotion, 16, 38, 1 6 1 , 272-274 Purchasing, relation to personnel, 233 Quality of operating management, 244 Quality of workmanship, 375 Railroad, 20, 354-358 Rate-setting, 1 3 - 1 6 , 48, 1 0 1 , 1 1 1 - 1 1 3 , 1 6 1 , 269 Recreation, 1 8 , 102, 1 3 7 , 1 6 3 , 169, 206, 2 1 7 Regularizaron of employment (See Stabilization) Relation of labor, material, and overhead, 230-235 Research, 98, 1 2 2 , 1 3 0 , 143 Retailing (See Department stores) Rettenmayer, J . P., 179, 180, 256 Robertson, A. W., 207 Robinson, Leonard G., 300 Roche, Josephine, 1 7 2 , 1 7 3 , 1 7 4 , 283 Rockefeller, John D., J r . , 244, 306 Rocky Mountain Coal Company, 1 7 1 178 Rolph, George M., 249 Rotation of work (See Workspreading) Rowntree, B. Seebohm, 290, 323 Rubber industry, 98-102, 358-362 Rubinow, I. M . , 399 Ruskin, John, 307 Safety, 10, 1 8 - 1 9 , l 8 > 77. »4, 1 3 7 , 1 7 0 , 1 7 7 , 2 1 7 , 277-278, 2 9 1 , 392 Salaries, 38, 48, 84, 129, 149, 183, 189, 198, 231 Salary administration, 50, 129, 150 Salary review (See Salary administration) Sales price, 238-239, 293 Samarkand Company, 1 79-1 84 Sample of companies, 3, 4 Savings, employee, 1 1 , 25, 52, 6 1 , 73, 83, 128, 1 3 5 , 1 8 3 , 198, 209, 292, 299, 401 Schaffner, Joseph, 106 Seasonality: — i n general, 235-237, 389 —in specific companies, 34, 67, 127, 157. —in specific industries, 330, 3 3 3 , 335, 3 3 * . 34'» 34*i 349, 3 ® ° , 3^8, 369 Selection of employees, 16, 38, 53, 76,

INDEX 94, IOI, 1 1 4 , 1 2 9 , ' J ° i ' 3 4 i I37> 1 6 1 , 1 6 9 , 1 7 6 , 1 9 0 , 1 9 2 , 2 0 5 , 298 Shop committee (See E m p l o y e e r e p r e sentation) Shortened h o u r s , 8 7 , 1 1 5 , 1 8 6 ( S e e also W o r k s p r e a d i n g ) Sick benefits, 3 5 , 5 2 , 6 1 , 9 3 , 1 0 0 , 1 3 6 , 1 4 7 , 1 j 8 , 169, 176, 186, 197 Sickness, 3 9 2 - 3 9 4 Size of firms, 4 Skill, 1 5 Soap industry, 1 6 4 - 1 7 0 , 3 6 2 - 3 6 3 " S p o t " system, 26 Stabilization of e m p l o y m e n t : — i n general, 235 —in

specific companies, 1 1 , 2 3 , 4 7 , 5 8 , 6 7 , 8 1 , 8 7 , 99, 1 0 7 , 1 2 2 , 1 2 7 , 134, 142, 157, 165, 174, 179, 1 8 5 , 1 9 6 , 2 0 1 , 208 S t a g g e r i n g hours, 1 2 7 , 1 5 8 ( S e e also

Worksp reading) Standard Oil Company ( N e w J e r s e y ) , 185-194 S t a n d a r d O i l C o m p a n y of C a l i f o r n i a , 195-198 Standardization of base rates a n d salaries ( S e e R a t e - s e t t i n g ) Stecker, M a r g a r e t L o o m i s , 3 0 0 Steel i n d u s t r y , 9 - 1 9 , 3 6 3 - 3 6 8 Stewart, Bryce M . , 1 1 5 Stock o w n e r s h i p , e m p l o y e e , 5 2 , 6 1 , 124, 136, 148-149, 167-169, 180, 189, 198, 205, 292, 298, 303 Straus, P e r c y , 1 5 5 Strike, 2 0 - 2 3 , 1 3 8 - 1 4 0 , 1 7 2 Studebaker C o r p o r a t i o n , 1 9 9 - 2 0 6 Style, 2 3 5 S u g a r refining industry, 3 3 - 3 8 , 3 6 9 370 S u g g e s t i o n systems, 3 1 , 5 6 - 5 7 , 7 6 , 7 7 , 95. i « 3 S u p e r v i s i o n , 2 5 3 , 296 S w o p e , G e r a r d , 90 Taussig, Frank W., 307 T a y l o r Society, 4 0 9 Tead, Ordway, 3 1 3 , 3 1 4 , 403 T e a g l e , Walter C., 1 8 5 Technological unemployment, 2 3 4 T e l e p h o n e industry, 3 7 0 - 3 7 2 Tests, 76, 77, 1 6 1 Thurstone, L . L., 389 Training: — i n general, 2 7 4 - 2 7 7 — i n specific companies, 1 0 , 17-18,

435

5 5 - 5 6 , 84, 95> ' o * . » 3 3 , 1 3 5 > 1 5 7 , 1 6 1 - 1 6 3 , 190. 2 1 7 , 303 apprentice, 2 7 , 1 3 7 , 2 0 6 supervisory, 1 7 , 56, 78, 1 3 7 , 206 T r a n s f e r , 5 3 , 77, 87, 1 1 5 , 1 2 8 , 1 2 9 , 1 3 5 , 136, 169, 192, 201, 202-203 T u r n o v e r , labor, 8 1 , 1 8 6 , 340, 384387 U h r b r o c k , R . S., 3 8 9 U n e m p l o y m e n t reserves, 7 4 , 8 8 - 9 1 , 106, 1 0 9 - 1 1 1 , 143-146, 259-261, 295. 400, 41 3 - 4 1 6 U n i o n - m a n a g e m e n t cooperation, 20, 2 1 , 28-32, 177, 282-285, Unionism (See J o i n t r e l a t i o n s ) U n i o n i z a t i o n in specific industries, 2 9 , 336. 356 U n i t e d M i n e W o r k e r s of A m e r i c a , 4 0 , 1 7 1 , 1 7 2 , 1 7 3 . 1 77> ^ 8 2 , 2 8 3 , 3 1 2 Vacations, 76, 85, 95, 1 2 9 , 1 6 0 , 198, 206, 303 Verity, George M . , 9

179,

W a g e d i v i d e n d , 69, 7 0 , 7 5 , 76 W a g e s , 1 7 6 , 2 5 2 , 2 9 1 , 3 9 0 (See also Rate-setting) — a n d profitability of i n d u s t r y , 2 2 4 — i n specific industries, 3 3 1 , 3 3 7 , 3 5 1 , 3 6 1 , 366, 369 — m a r k e t rates, 3 2 3 , 3 2 5 , 3 9 0 —theory of, 319-326 Waste, i 7 Weaknesses of personnel m a n a g e m e n t , 294-302 Webb, Beatrice, 309 Webb, Sydney, 309 W e r t h e i m Lectures, 3 1 Western E l e c t r i c C o m p a n y , 2 9 6 , 3 8 9 Westinghouse E l e c t r i c a n d M a n u f a c turing Company, 2 0 7 - 2 1 7 Willard, Daniel, 20, 2 1 , 22, 28, 29, 32, 249, 256, 281 Williams, J . E., 107, 1 1 2 , 1 1 6 Williams, Whiting, 389 Winkler, John K . , 364 Wolman, Leo, 1 1 3 , 1 1 6 , 3 1 1 W o o d , L . A . , 30 Workspreading, 3 5 , 59, 8 1 , 99, 1 2 2 , ' 3 5 i 174> ' 8 6 , 1 9 6 , 1 9 7 , 2 0 1 , 208 W o r k s councils (See E m p l o y e e r e p r e sentation) Y o u n g , O w e n D . , 86