In 1916, Sears, Roebuck and Co., then one of America’s largest corporations, with
over 30,000 employees, announced a major experiment called profit-sharing. The firm gave workers
shares of stock, meaning that the workers actually owned part of the company.
By the 1950s, Sears workers had accumulated enough stock that they owned a quarter of the entire company.
And by 1968, the typical Sears salesperson could retire with a nest egg worth well over
$1 million (in today’s dollars). The program was a huge success.
So here’s an idea: Let’s bring back profit-sharing.
Profit-sharing is an old idea that emerged from the tumultuous period when America shifted
from farm to factory. In December 1916, the Bureau of Labor Statistics issued a report
on profit-sharing, suggesting it as a way to reduce the “frequent and often violent
disputes” between employers and workers.
That same year, Sears launched its successful profit-sharing program. Other companies that
later joined the profit-sharing movement included Procter & Gamble, Pillsbury, Kodak, and U.S. Steel.
Profit-sharing gave workers an incentive to
be more productive since the success of the company meant higher profits would be shared.
It also reduced the need for layoffs during recessions
because payroll costs dropped as profits did.
But there was a downside.
When profits went down, workers’ paychecks would shrink.
And if a company went bankrupt, workers would lose all their investments in it.
The best profit-sharing plans have been in the form of cash bonuses
that employees can invest however they wish, on top of predictable wages.
At Lincoln Electric, for example, which has had profit-sharing since 1934,
employees receive a profit-sharing cash bonus worth, on average, 40 percent of their annual base earnings.
But profit-sharing with employees has all but disappeared in large corporations,
which have increasingly focused on maximizing shareholder returns.
Sears phased out its profit-sharing plan in the 1970s
and filed for bankruptcy protection in 2018.
At the same time, profit-sharing with top executives has soared
as big Wall Street banks, hedge funds, private equity funds, and high-tech companies
have doled out huge amounts of stock and stock options to their MVPs.
Share prices have gone into the stratosphere while wages have barely risen.
Researchers have found that increases in share prices before the late 1980s could be accounted
for by overall economic growth. But since then, a large portion of the dramatic increases
in share prices have come out of what used to go into wages.
Jeff Bezos, who now owns around 10 percent of Amazon’s shares of stock, is worth $210
billion overall. Other top Amazon executives hold hundreds of millions of dollars of Amazon shares.
But most of Amazon’s employees, such as warehouse workers,
haven’t shared in the bounty.
Amazon used to give out stock to hundreds of thousands of its employees.
But in 2018 it stopped doing so, and instead raised its minimum hourly wage to $15.
The wage raise got headlines, but Amazon’s decision to end stock awards was more significant.
If Amazon’s 1.2 million employees together owned the same proportion of Amazon’s stock
as Sears workers did in the late 1950s — a quarter of the company — each Amazon employee would
now own shares worth an average of over $350,000.
America’s trend toward higher profits, higher share prices,
mounting executive pay, but near stagnant wages is unsustainable, economically and politically.
Here’s one idea to encourage profit-sharing:
Corporate taxes should be lower on corporations that share profits with their workers,
and higher on those that don't.
Sharing profits with all workers is a logical and necessary step toward making the system work
for the many, not the few.