Welfare Co-Partnership.

Progress, Volume XV, Issue 1, 1 September 1919, Page 601

Welfare Co-Partnership.

Paper read by H. Yalder, Esq., Vice-President and and Managing Director Ellis and Barnard Ltd., Hamilton, at the Annual General Meeting held in 'Wellington, 14th August, 1919. One of the principal causes of unrest in the industrial world is the suspicion on the part of labor —which may or may not he well founded—that capital is taking more than its fair share of the result of their combined efforts, i.e. profits, and if this suspicion could be removed we would be getting a step nearer to the solution of one of the problems that is the cause of world-wide agitation, viz., the strained relationship between capital and labor. Under the present wage system the share of labor is limited, and the share of capital is unlimited. It is this method of division of profits which causes the suspicion alluded to. Capital of itself has no earning power until put into action by labor. Would it not therefore be a more equitable division of profits if capital’s share was limited and labor’s share unlimited. This could be brought about by fixing a wage for capital to the same extent that the wage of labor, is now fixed by first ascertaining the current rate of interest for money. To this interest should be added -what might be termed a “risk” rate to cover the extra risk involved in trading or manufacturing over and above tile risk on the best class of securities. This risk rate would vary according to the nature of the business in which, the capital is invested, .but when ascertained the sum' of these two factors would be the wage that capital would be entitled to

draw, and when paid, capital would have no further concern in the division of the profits. It is not suggested that the wage of capital should rank with that of labor, as' the latter will always be a first charge on the joint earnings, but, the wages of labor and capital having been paid, the balance should belong to the active agents alone, in their combined efforts, viz., labor. This balance, if any, could be dealt with by issuing what may be termed “welfare shares,” of which everyone concerned in the production of profit should hold a proportion to-the extent to which they influence the earning power of the business. Welfare shares would be allocated on this basis to every individual employed in the business, including the owner of the capital, if he is employed in it, but hot otherwise. The number of shares held by any. individual should be subject to variation from time to time, according to the degree to which the holder influenced the earning power of the business. This variation should be determined by a committee set up for the purpose, and if any individual felt aggrieved owing to the adjustment made, there should be a right of appeal to a disinterested party. Welfare shares would have no capital value, as the title to them would only be good so long as the holder remained in the business. There would be no limit to the number of these shares as this would increase or decrease automatically, according to, the number of employees. The following example will make the intention clear. • A manufacturing company is formed 'with a capital of £ISOO. It has ten employees, including the owner of the capital. The product of the company is £3OOO per annum, and the wages paid to the employees, including the, owner of the capital, avernge £4 per week. The net profit per annum is estimated to be £317/10/-. The division of this profit would be as follows: Current rate of interest on ±ISOO, say G per cent. ±9O 0 0 Risk rate, say 3 per cent. .. .. . . 45 0 0 1 Owner ‘ 100 Welfare Stares 100 ±25 0 0 1 Foreman 90 ~ „ 90 22 10 0 5 Journeymen 80 ~ ~ 400 100 0 0 2 Improvers' 60 ~ ~ 120 30 0 0 1 Apprentice 20 ~ ~ 20 5 0 0 , 730 Shares at 5/- 182 10 0 ±317 10 0 Thus the owner of the capital would get the wage of his capital and the dividend on his welfare shares, and the other employees would get the dividends on their welfare shares which, in this instance, would he nearly 9 per cent on their wages, and the-dividends would rise or fall according to the efforts of the employees. This scheme would have the effect of putting capital on a much sounder basis than at present, as labor would then have every incentive, (which it has not now), to earn moire than sufficient to pay the wage of capital, in order to benefit under the welfare shares, and it would therefore appear that increased production would also result,

It would be advisable to carry to reserve a part of the dividend payable on the welfare shares, so that in course of time the holders of these shares, i.e., all the employees, would gradually also become , pairt owners of the. capital on which they would draw the interest and risk rate. The division of the welfare shares need not of course necessarily be in the proportion stated in the example, but this would be a detail for the owner and the employees, to mutually agree on before entering into the scheme. , For instance, an _ owner might stipulate that he, being the founder, should be entitled to half oir any large proportion of the welfare shares so long as he was an active worker in the business, and it is quite possible that this might be an equitable arrangement that the employees would agree to. The welfare shares could also lie used to make the scheme co-operative, as it would be quite possible to distribute the shares to customers on the basis of their, purchases over a given period. Provision would also have to .be made for employees leaving or being discharged, but these and many otheir essential details would have to be thought out bv the parties concerned. The principal features of the scheme outlined are, firstly, that the wage of capital would be fixed subject to certain fluctuating conditions, secondly, that the division of the profit after paying the wage of capital would be on a variable basis, and thirdly, it would do away with the suspicion that capital was getting more than its share of the profit, and thus tend to a more harmonious working of capital and labour. H. VALUER, [Mr. Valder invites constructive criticism of the above paper, but desires that' all remarks be summarised to save time and enable him to make a concise reply. W. T. IRVINE, Secretary