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Author: 
 
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 Profit 
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 ace: 
 
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 haring plans for 
 
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 Dartnell corporationr tSvioago, 
 
 ••• Profit sharing plans for salesmen, sales 
 executives, departraenb managers and office 
 workers I with a section on the compensation of 
 the sales manager, cojnpiled by J.C.Aspley. 
 Chicago ^192-? 3 
 
 22 1, forms, 29 om« (Special report, no, 59) 
 
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 SPECIAL REPORT ^S 
 
 9 
 
 PROFIT SHARIKQ PLANS FOR SALESE5EN, SALES EXECUTIVES. 
 DEPARTMENT MANAGERS AND OFFICE WORKERS; 
 fflTH A SECTION ON THE CeWPENSATION 
 OP THIS SALES MANAGER 
 
 ? 
 
 LIBRARY 
 SCHOOL OF BUSINESS 
 
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 Compiled by 
 7. C. ilSPLEY, eHICASO 
 
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 PDRPOSK OF THIS REPORT 
 
 It is not the purpose of this report to go into detail 
 concerning profit sharing plans for factory workers/ 
 inasmuch as this subject has already been thoughtfully 
 treated by such institutions as Alexander Hamilton 
 Institute, Babson's Statistical Organization, and the 
 authors of several excellent books to say nothing of 
 the U. S. Department of Labor. 
 
 This report concerns itself only with plans, or por- 
 tions of plans, which are applicable to the executive 
 and sales staffs. S?e have heard much about profit 
 sharing as a cure for labor unrest. But we have heard 
 little about profit shgtring as a cure for executive 
 unrest, which while not so boisterous as the unrest of 
 the factory worker is quite as pronounced, and fraught 
 with even more serious consequences to the business. 
 
 This report is in no sense a blanket endorsement for 
 the profit sharing plan. Indeed, it comes out clearly 
 in gathering the data for it, that there are just as 
 many reasons against it as there are for it. What we 
 have aimed to do is to set forth, impartially and 
 without bias, the exact facts as we have gathered them 
 from the experience of over 300 concerns, and then 
 leave it to the individual subscriber to draw his ow^ 
 conclusions. A profit sharing plan might work 
 splendidly for the executives of one business, but 
 prove fatal for another, 
 
 Sven though your concern is not at present interested 
 in this subject, it is recommended that this report 
 be filed for reference. Should the question come up 
 later, as is very likely, the data which we have here 
 gathered at considerable expense may prove of material 
 value far exceeding the cost of this report. So far 
 as we know, it is the oialy authorative and comprehen- 
 sive report dealing with the question of profit shar- 
 ing for the sales and e:tecutive worker. 
 
t !™£ii!l ~^[^ 91 PROFIT SHARING PLANS FOR 
 GENERAL AND SALES EXECUTIVES, SALESUEN AND OFFICE WORKERS 
 
 Much of the material embodied in this 
 report is -semi-confidential in character. 
 Right of republication of any portion of 
 report is, therefore, withheld unless per- 
 mission is first secured from either The 
 Dartnell Corporation or concern quoted. 
 
 »HAT PROFIT SHARING IS INTENDED TO ACCOMPLISH •- An analysis of thirty odd 
 
 general profit sharing plans in use, including those nf the Ford Motor Company, 
 
 Seari Roebuck & Company, Eastman Kodak Company^ Dennison Manufacturing Company, 
 
 Sunlight Soap SVorks (England), Proctor & Gamble, Way Sagless Spring Co., A. W. 
 
 Burritt k Co., International Harvester Company, William Demuth & Company, leads 
 
 us to the following conclusions regarding profit sharing so far as it may be 
 
 applied to all employees, both shop and office: 
 
 1: As a general thing, profit sharing plans have not been 
 successful in preventing labor unrest among factory workers. 
 Even in these days of fair profits the militant minorities 
 among workers in factories, sharing profits have provoked 
 strikes. 
 
 2: The Bureau of Labor statistics show that the dividends 
 paid under profit sharing plans by 34 concerns ^ere too small 
 to influence unrest in the present era of high prices. The 
 profit is seldom over 6 percent. Indications are that if a 
 period of reduced profits were to set in, the plan would 
 be still less effective. 
 
 3: Indications are not lacking that organized labor will 
 eventually open a campaign against profit sharing in the 
 factory, if indeed such a campaign is not even now being 
 secretly waged. Labor leaders, jealous of their power and 
 concerned mainly about their continuance in office, cannot 
 be expected to passively permit workers to be weaned away 
 from local unions by profit siharing plans, whatever they may 
 say in public to the contrary. 
 
. 4 - 
 
 4: While there are cases whore profit sharing and so called 
 plans of "industrial democracy** have and are proving success- 
 ful, it is doubtful in the opinion of economiats wbo have given 
 study to the results so far acocmplished, y^hether these plans 
 will give permanent relief lifter the novelty has worn off. 
 
 An analysis of these same plans, ho^rever, proves conclusively that profit shar- 
 ing is not only feasible, but in many instances highly beneficial when applied 
 to those in higher positions. Several concerns who have tried profit sharing 
 for all employees have abandoned the idea in the factory, but continued it in 
 the office and among the sales force. In most cases of this kind which we have 
 investigated we find that the benefiits have been mutual, and that greater 
 efficiency and better reoations have resulted. All in all, our information 
 loads to this conclusion: Profit sharing for the factory work is not desirable. 
 It does not satisfy the worker even in times of high profit, and will, there- 
 fore, prove a liability rather than an asset in times of poor profits, as 
 workers will not accept a reduction in earnings when it is possible for them to 
 make more money elsewhere. But profit sharing for the salaried employee, or 
 the' commission salesman is in most oases desirable for it appeals to that 
 class of employees who can hetter understand and appreciate its operation. 
 PROFIT SHARING PLANS FOR SALARIED WORKERS: A subscriber, writing upon the 
 apparent failure of profit sharing for factory workers, questions the wisdom of 
 going to so much trouble to satisfy the salaried worker, "^e have reached the 
 conclusion," he says, "that about as good a way as any in to pay adequate 
 salaries large enough to keep our force contented." There is a good deal of 
 logic in this attitude. There are, however, several important advantages that 
 may be over-looked. 
 Foremost among the advantages of the salary and profit sharing plan as against 
 
 the straight salary or straight commission, is the building up of esprit de 
 
 corps. Employees feel that anj saving they may effect benefits them. They 
 
- 5 
 
 feel that they are in business for themselves, and take a deeper interest in 
 
 the welfare of the company, not only as pertains to matters which come to the 
 attention of their immediate superior, but in matters not strictly within their 
 province. There is a big difference in the value to a business of an employee 
 
 who 
 
 feels that ho is working for himself, and one who feels he is working for 
 
 his pay envelope and when that same feeling is held by all the salaried employ- 
 ees of a business, a noticeable increase in efficiency is the logical result. 
 
 There are several ways of producing this effect. But all of these plans 
 should be built on definite fundamentals. These fundamentals have been 
 thoughtfully set down in a most excellent report on the subject of profit shar- 
 ing by the Alexander Hamilton Institute as follows: 
 
 l5 Belief on ^he part of employers that employees are entitled 
 to share in tjie profits: It is needless to say tHat, if tTie 
 employer does not honestly believe that the plan he is seeking 
 to establish is just, the employees will soon come to the con- 
 elusion that it has been established simply to get more work 
 out of them. 
 
 ^' Study o f pe culiax ^nee<^3; Xt is impossibl^^ to adopt bodily 
 any profit sharing plan used by some other concern It must be 
 adapted to the peculiar needs of the organisation to which it 
 is applied. There are so many points to be considered in con- 
 nection with J^uch a system, that earnest consideration should 
 be given before any plan is adopted. 
 
 3: A definite agreement; It is a serious and usually complic- 
 ated business to start a profit sharing system. There are 
 possibilities of misunderstanding, unjust claims, and even of 
 lawsuits. It is, therefore, necessary to draw up a clear and 
 carefully worded agreement to which reference can be made in 
 case of dispute. Many employers, in order to protect themselve» 
 from litigation,, stipulate that the undertakings of this arrange- 
 ment are subject to modification and not enforcible at law. 
 
 4: Simplicity: The plan should be drawn up in such simple 
 language that it may be readily understood by the worker, as 
 well as by the employer. This is manifestly necessary in order 
 that no disputes may arise in regard to the construction to be 
 placed upon any part of the agreement. 
 
 5: Co-operation between the employer and the employee;' It is 
 quite impossible to make such a plan practicable unless each 
 
. 6 . 
 
 party to the arrangemeat understands the other and co- operates to 
 the fullest extent. 
 
 5: Reward must be timely: If the reward offered by the employer is 
 too far removed, the plan, even though drawn up in the most excellent 
 form will be worse than useless. Speaking very generally, %h^_re^_ 
 wards should follow as closely as practicable the work done to obtain 
 them. The fact that a reward which is to be given only after the end 
 of six month's or a year's work does not appeal so strongly to a man 
 as one that he receives weekly or monthly, constitutes one of the 
 major difficulties of the whole idea. 
 
 7- Reward must be adequate: Any reward of ferelMJ^, worker must 
 be large enough to appeal to him. The return over the regular wafer 
 must be such that the worker will be repaid for the additional effort 
 he has expended. 
 
 8: Basis of distribution fixod in advance: If the basis of distrib- 
 ution of the reward is not fixed in advance, the plan lacks one of 
 the salient features of profit sharing, which is, that a definite 
 proportion of net profits shall be distributed. 
 
 9- Profit sharing must not be counted as a part of the wage by 
 either party: This is one of the danger points. The employee is 
 apt to do so and frequently employees have actually spent or borrowed 
 on the amount that they expect to receive at the time the profits are 
 divided. It is evident that such a course is dangerous to the em- 
 ployee, who may over-estimate the amount coming to him. It may lead 
 him, moreover, to an injudicious expenditure of this extra income on 
 current needs. Employers are just as negligent in this respect and 
 are apt to think, though they may not say so to the employee, that 
 the amount which he gets at the profit sharing time is a part of his 
 renumeration. 
 
 10: Purpose of plan must be predetermined: It is necessary to ^^^^J" 
 mine in advance what special purpose is to be arrived at m installing 
 profit sharing, at^d to have the details arranged accordingly. A plan 
 which aimed at industrial efficiency might be useless in securin'g 
 length of service. _ 
 
 Hi Care after installation: A system of this kind will not take 
 care of itself. It must be watched with a great deal of care, and 
 the interest in it must be kept up, both by the employer and by the 
 employee. I 
 
 12: A fair trial: It has been said by some writers that a system 
 of this kind ought not to be installed unless the employer is willing 
 to give it at least two or three yars' trial. This does not seem to 
 be any too long, in view of the difficulties connected with it. 
 
 SELLING THE PROFIT SHAHINQ IDEA TO THE PARTICIPANTS: It is true of any new 
 
 idea to be applied to an organization that its success depends very largely 
 
 
 
- 7 - 
 
 on th8 way it is put up to the men. A sales contest fails very often, 
 because the men have not been put in a receptive mental attitude for it. So 
 in installing a nev7 plan of compensa-'sion, it must bo well "sold." If such a 
 plan is instituted at the request of the men themselves, it will be much better 
 received than a plan that is offered by a charitably inclined management. The 
 following latter is contributed by a large security concern who instituted a 
 profit sharing plarj far salesmen, and it might prove helpful in showing how 
 one concern presented profit sharing to the sales force: 
 Dear Sir: 
 
 t 
 
 We have been giving a great deal of time and thought and seeking ad- 
 vice wherever we thought it would be valuable on the question of compens- 
 ation to salnsmen. Personally, I tiave been very desirous of arriving at 
 some profit-sharing basis fair to the firm and fair t<^ the salesman that 
 might work out automatically so as to avoid the embarrassing question of 
 constantly discussing this subject. Uy own experience, covering now about 
 twenty-five years in the business, convinces me that- th?^ true method is 
 one based on results. This rpeans results both to the firm and by the in- 
 dividual. It goes without saying that a firm ris^^s or falls, succeeds or 
 fails, wholly on the basis of results. The individual cannot always be 
 rated on this, because there may be conditions that govern which may be 
 beyond his control, and he may do oertain work tV\at may not show up in 
 immediate results, but my experience is that, in the long pull, the indiv- 
 idual who devotes the proper amount of time and effort to any territory in 
 which he works will be satisfied to be judged by the results over a period 
 of years. 
 
 In railroads and other corporations it has become the practice to 
 have departments, and to put competent men at the head of these depart- 
 ments and to let these departmental heads adjust the matter of territory 
 and efforts and judge of results. In this method, however, there is 
 alv?ays the possibility of favorltijjm or of overlooking certain endeavor 
 or effort that is really entitled *io recognition. What I have been trying 
 to do is to cover all. of these points and to decide upon a standard of 
 gauging the result of efforts in various directions. 
 
 I wish to express personally, my appreciation of the patience each of 
 cur force has shown in waiting for these methods to be worked out and 
 tested, and while I do not feel that we have yet fully covered the ground 
 or arrived at an absolutely satisfeictory solution, I do think we have 
 reached a point where we can start in by putting into effect certain plans 
 that we have been working on with the idea of giving them a fair trial. 
 
 I think any fair-minded man will agree that the capital employed in 
 any business is entitled to a fair interest return as a fixed charge. 
 
.♦ 
 
 . S - 
 
 Than comes the risk of doing bu3ineBs. Everybody who has been in the bus- 
 iness for a period of years will recognize, no matter how conservative the 
 bouse may be, or hc^ careful in the selection of its securities, that 
 there are bound to b© periods when a house cannot avoid sustaining losses, 
 unless it has such an enormous capital that it had best simply invest its 
 money and not try to do business; in this case there is, of course, nothing 
 left to be divided in the way of profits -- it is simply a question of 
 interest on invested capital. 
 
 The next, or third consideration, is probably the reputation of the 
 house, which ia entitled to recognition. If a firm has itself, or is able 
 to command for a long period, a sufficient capital with which to do a 
 large business, these questions of risk and of its reputation, which is 
 derived from careful management, from the selection of competent and high 
 class employees, from advertising and any of the other many methods to 
 which success may be attributed, arg) factors entitled to recognition. 
 
 Therefore, our theory is that j;alesmen or others who devote their 
 abilities and time to the interests of the house should receive a certain 
 fixed compensation or salary, which they may rely upon whether business is 
 good or bad. This salary would be gauged, however, upon the character of 
 the results they have been able to sihow. Of course, devotion and loyalty 
 to a business are entitled to recognition, but, as things go in this world, 
 it is very difficult to fix upon a fair compensation for this quality of 
 loyalty and devotion, and it has become a very general practice in commer- 
 cial houses to estimate this compensiation on results and the value to the 
 house of the responsibility assumed by the individual. 
 
 Therefore, after a fair allowance is made for capital, the risk of 
 business and the reputation of the house, if the business is successful 
 there is a divisible surplus that should be divided among those who get 
 results on the basi^ -- as nearly and so far as it can be ascertained •- 
 of these results. 
 
 The individual who has the ability to do things on his own initiative 
 and to turn in results that are creditable and profitable, should be will* 
 ing to be compensated on the basis of those results; therefore, it is 
 largely a question of ascertaining what is the fair basis of dividing these 
 results so that at end of a given period the capital of the house has not 
 been impaired, that it is still in a position to continue along the lines 
 which it is organized to pursue, and, if the individuals selected get these 
 results, are competent and have given a good account of themselves, they 
 should find in this organization as good a field to compensate them fairly 
 for their efforts and on their merits as they could find anywhere else, 
 
 I propose, therefore, that we put into effect plans which we have care- 
 fully worked out in each of the offices for the salesmen, these arrange- 
 ments to be made through the head of the Sales Department in each office, 
 with the hope that the plan will work satisfactorily, become practically 
 automatic, and result in very much less discussion of these matters than 
 has heretofore been the case. 
 
 i 
 
 In this connection, speaking from a long experience, I think it 
 
- 9 . 
 
 proper to warn salesman against tha advisibility of discussing these ar- 
 rangements with representatives of other houses, in fact, against wasting 
 their time and efforts in discus3i:ag these questions among themselves. 
 Constant discussion of these questions does not bring results--the same 
 amount of time and effort directed toward getting results will bring far 
 more satisfactory returns than constant discussion and fretting whether 
 this one or that one is getting more or less than he would like to have or 
 than anybody else is getting. 
 
 In talking about this matter with some well-established houses, not 
 only in our line but in some other lines of business, particularly mercan- 
 tile houses, I have been pleased to find that representatives and employees 
 were not aware of what others were getting and paid no attention to it. It 
 was simply a question of whether the particular place and opportunity 
 afforded the individual as good a forum in which to work out his destiny 
 as anything to which he could apply his talents. 
 
 There was al^o other matters which are entitled to consideration in 
 this connection, such as the proper employment of time, use of facilities 
 and opportunities, the care with which expense-i are watched and the general 
 interests of the house, for this must, of course, come back to affect each 
 individual, and, aside from what is fair and what is good morals, purely 
 from a selfish point of view, the individual who ha? these matters in mind 
 is bound to accomplish the most for himself. 
 
 This house has been growing and expects to grow. It will be the policy 
 of the house to fill the mare important positions from the ranks rather than 
 to seek talent froon the outside This again will be based as nearly as pos- 
 sible on merit, and our effort will be to devise a system that will make a 
 record possible, dependent not upon the whim or favoritism of any one indiv- 
 idual or of any member of the firm, but upon what the results accomplished 
 by each individual show him to be entitled, 
 
 A PLAN WHEaEBY SALESMAN SHARES LOSSES AS WELL AS PROFITS: Clawson A ffllson 
 
 Company of Buffalo, N. Y. has tried both the salary and commission plans. It 
 
 found the salary plan undesirable, because it discouraged initiative, and did 
 
 not always reward the men on the basis of what they did. Too often the men 
 
 were rewarded on the basis of what the house thought they did. Again, a 
 salesman who succeeded in increasing his sales materially by dint of hard 
 work, was sometimes compelled to wai t several months before he was awarded for 
 that extra effort, bj an adequate raise In salary. This the company felt was 
 
 not fair to the salesmen, who ought to really share the profit on each sale 
 
 at the time it is made, and not be required to wait. 
 
 Some of these major objections to the salary plan were overcome in the 
 
. 10 • 
 
 aommission plan, but this too, \ms unsatisfactory because it encouraged men to 
 push the articles which they sold easiest. To encourage the salesman to direct 
 selling energy along lines that would be to the house's best interests -• and 
 by the same reasoning to the salesman's own best interests, the management de- 
 cided on a plan of compensation that enabled salesmen to automatically regulate 
 their own salaries and encourages them to keep expenses down to the very low- 
 est point consistent with results. 
 The plan in a nut-shell is to group all the products sold according to the 
 
 margin of profit the>^ offer the house. The salesman is told just what the 
 profit is in each item, then his orders com^e in, the accounting department 
 
 
 credits his account with the profit on that sale. At the end of the period, 
 the profits on all sales is totaled up. Cancellations, returned ^ods on 
 former orders and expenses deducted, and the salesman is paid a predetermined 
 portion of this net profit. 
 
 Ifhat this portion should be depends oq several factors. One important factor 
 is the nearness of \.he territory to the home office. The company finds it 
 easier for the salesmen to sell near Buffalo, than in the middle western 
 states. So the salesmen working nearer the home office gets a smaller portion 
 of the profit on his work than the salesman working say, upper Michigan. Other 
 territories are those sometimes spokea of as in the "nursing condition." On 
 these territories the company is willing to take a temporary loss, knowing that 
 eventually a good business will be built up under strong, constructive sales- 
 manship. So the salesman working this sort of a territory, quite often gets a 
 premium from the company as well as whatever profit he is able to make. Again 
 some salesmen are better business builders thaii others. While their immediate 
 sales may not be as large, they take pains to make better customers as they go. 
 This is work which the company will cash in on for years to come. The company 
 
- 11 - 
 
 can wall afford to allow that kind of a salesman a far greater share of the 
 profits on his work, than a salesman who travels over the territory skioiming 
 the cream from It, and leaving tomorrow to take oare of Itself. 
 As s'ated, the plan suggested here is not in any sense experimental, and can be 
 adapted by any business where it is desired to encourage salesmen to push more 
 profitable lines, maintain prices and keep down expense accounts. This plan 
 lets the men share profits during a period of prosperity, and shoulders them 
 with some of the loss in a period of depression. 
 
 A still further advantage of this profit sharing feature is that it tends to 
 attract better salesmen. Clawson 4 Wilson have men who make as high as $10,000 
 a year under this plan, who would have to be content with a |5,000 .alary were 
 they working for a concern using the old salary plan. But a man who can make 
 big profits for himself is to be welcomed, because the success of the company 
 depends largely on what he gets out of his territory. Putting on a salesman 
 who can get twice as much business out of a territory, means more than double 
 profits from that t.,rritory for the company, because it costs no more to travel 
 a good salesman than It does a poor one. 
 
 This Clawson A Silson plan was originally submitted to Dartnell subscribers in 
 1916 shortly after it was installed. The following letter under date of 
 October 7, 1919 from James Wilson, vice-president and general manager of the 
 company -- three years afterward -- is of interest: 
 
 "This arrargpment with the travelling men and also with the de- 
 partment managers has worked nut verj satisfactorily and, of course, 
 for the past two years when profits have been rather abnormal, they 
 have made considerable money and are very well pleased. Our depart- 
 ment managers draw a fixed salary and get a percentage of the pro- 
 fits made in their own particular department over a certain fixed 
 amount which varies in the different departments. 
 
 "However, there are some executive positions that cannot show a 
 profit. For instance, the nan in charge of our shipping department, 
 we have him on a different basis and we give him a percentage on 
 
- 12 . 
 
 what he can save. He figure that it costs so much to ship every 
 $1000.00 worth of merchandise based on our experience of several 
 years previous and whatever he can save on that amount, he gets a 
 percentage of. Then again, others we give a flat bonus to at the 
 end of the year as there is no way of their showing in actual 
 figures just what they have mada for u^. This refers to office 
 executives." 
 
 PLAN OP THE PERICDICAL PUBLISHING COyPAN?: John H. Nind. Jr.. vice-president 
 of the Periodical Publishing Company, publishers of several furniture trade 
 papers, sends us the following data regarding the plan his company has worked 
 out for compensating its advertising salesmen, as well as all other salaried 
 workers: 
 
 "In general, the profit sharing plan is as follows: After the 
 stockholders have received six percent on their stock, representing 
 merely interest on the money invented, employees receive dividends on 
 the amount of their annual salaries at the same rate as stockholders 
 on their stock. 
 
 y- 
 
 "For instance, if a six percent dividend only is earned and paid, 
 employees receive no profit sharing bonuses, but if a 10^ dividend is' 
 paid, an employee with a salary ot |l,000 per year, would receive ^% on 
 that amount just as the stockholder with |i,000 of stock would receive 
 4^ on his stock in addition to the initial ei. 
 
 "Prior to April 1, 1919. all advertising space salesmen were paid 
 on a commission basis. On that date the company assumed all travelling 
 expenses of advertising space salesmen, and paid representatives on the 
 basis of salary and expenses. The statement of the working basis laid 
 down for advertising representatives is as follows, after eliminating 
 features relative to the nine month's period of the current year: 
 
 "Each advertising representative shall be paid a salary and ex- 
 penses. For the purpose of determining the actual earnings of each 
 representative, memorandum accounts shall be kept. These accounts shall 
 show all amounts drawn as salary and expenses. They shall also show the 
 advertising representative's earnings. For this purpose all business 
 originating in each representative's territory will be credited to him 
 on thfl previously established commission basis; that is. when the busi- 
 ness comes direct from the advertiser and is billed to him, a credit of 
 20^ on published business will accrue to the advertising representative. 
 In the case of business coming from an Agency where the agent is paid 
 10^. the credit to the advertising representative on published business 
 will be 15^ of the amount of the advertising invoice. In cases where 
 the home office of the advertiser is located in one advertising repre- 
 sentative's territory, and the order for the advertising comes from an 
 advertising agent with headquarters in another advertising representa- 
 tive's territory, the 15^ commission credit shall be divided ^1% to the 
 
t 
 
 ^ 
 
 - II - 
 
 representative in the other territory. The above records are solely for the 
 purpose of establishing the salary of tl^.e representative and shall not be 
 ccttsidered as commission earnings except for the pt^rpose of establishing an 
 equitable salary* 
 
 '•When the records thus kept shall at the end of a calendar year show 
 that the salary and travelling and other expenses of an advertising represent- 
 ative are exceeded by the total of credits thus earned for a calendar year. 
 automatically a new salary basis shall be established for the ensuing year. 
 To establish the new salarj basis, the amount of the travelling and other ex- 
 penses (but not the salary) shall be deducted from the total of the credits 
 and the balance shall establish the amount of the salary to be paid in twelve 
 monthly or 52 weekly installments. 
 
 "In figuring the deduction for travelling expenses, the average from any 
 available record over a period of years in the specific territory, shall be 
 the basis. In establishing any increas(3d salary for the year 1919, necessar- 
 ily the nine months of 1919 alone will be the only basis for calculation. 
 Salaries thus established shall not be reduced when a representative's credits 
 for a given year do not equal his salary and travelling expenses. Several 
 successive year's ootitinuation of a condition whereby salary and expenses 
 exceed credits, or circum<?tance3 calling for a general reduction of wages 
 throughout the organization, shall be n<5cessary for a reduction of an adver- 
 tising representative's salary established by previous earnings. 
 
 "tn addition *o advertising representatives* salaries being established 
 by their earnings, as above indicated, advertising representatives shall 
 participate in the general profit sharing plan of the organization as follows: 
 
 "This profit sharing arrangement provides that after the stockholders 
 have received ^t interest on the money yhlch they have invested in the stock 
 of the company, at par. all employees share in additional profits on the basis 
 of their salary. Thus, when dividends of 10% are paid, for instance, the 
 employee receiving $1^000 during the year as wages, receives 4% as a profit 
 sharing dividend on the amount of $1,000. in the case of advertising repre- 
 sentatives, the salary basis for the computation of any profit sharing 
 dividends shall be the amount of all commission credits for the year less the 
 deduction for travelling and other expenses, 
 
 "For instance, should the memorandum commission credits to an advertising 
 representative receiving $60 per week exceed the amoun-^. of his salary for .the 
 year or $3,120, then the amount of those credits less the amount of the trav- 
 elling expenses shall be considered the salary for the lear on which profit 
 sharing dividends are figured rather than $3,120. 
 
 "The Directors of the company stand strongly for the principle that those 
 who make the publications and whose activities are confined very largely to 
 editorial or inside work at the home office » are fully as much entitled to 
 generous treatment as are the outside or advertising representatives. The 
 ability of the representatives to successfully sell advertising space in our 
 publications, is to a large extent due to the quality of those publications as 
 made by the inside representative. 
 
 \ 
 
• 14 • 
 
 'ihile it is believed that the salary ftnd profit sharing basis for adver- 
 tising representatives outlined above, will not require change, nevertheless, 
 ho"d continued operation of the above plan indicate an "f- P"P°jJ^;,;^° 
 reward, going to the advertising representatives as against the «*°°f °1J«" 
 or editorial members of the organization, a readjustment of the above arrange 
 ment would be necessary. Such a readjustment will not be made prior to 
 January 1, 1922.' 
 
 There are a number of elements in this arrangement to «hich attention 
 should be properly directed. The purpose of making the salary increases de- 
 nendent on net income after expenses have been deducted, is of course, to 
 induce representatives to keep their expenses as low as possible. The purpose 
 Of Slvi^rrrpresentatives share in th. credit for business when the aocoun is 
 handled by an advertising agent in ons territory and the home office of the 
 advertiser is in another territory, is of course, to secure cooperation 
 between branches of the organiiation. 
 
 Prior to the time when the profit sharing arrangement with salaries was 
 in effect with advertising representatives, the inside organization felt that 
 the outside organization was receiving an undue proportion of the income, in 
 !ther woid!. that outside renu^eration was relatively higher than renumaratton 
 to employees in the office. When the change was made from coaanisaion to 
 •salary basis, au adjustment in salaries all along the line was made which 
 gSlirap^aking. met with the approval of the personnel both inside and 
 
 outside. 
 
 STOCK PROFIT SHARING IN A CLOSED CORPORATION: There is a decided tendency 
 
 among corporations whose stock is held by a few officials or in a family, to 
 aet aside a portion to be spread around among deserving executives. It is 
 generally recognized that we are living in a new era and that a more liberal 
 policy must be adopted. In the long run this is a wise policy, especially in 
 the case of brokerage and jobbing houses. The following letter from H. U. 
 Huffman, vice-president of the Davis Sewing Machine Co.. Dayton. Ohio, is of 
 interest in this connection: 
 
 1 A large corporation in which the common stock was held within a 
 small group, agreement was made among all common stockholders that they 
 give up a c;rtiin percent of their common stock, which would be "hung 
 up" for the executives. 
 
 The stock was nominally purchased by a trustee at the market price and 
 the stockholders giving up stock were repaid for it by dividends on the 
 stock, the payments being credited to the executives, among whom it was 
 pro-rated in proportion to their salaries. 
 
 The expense to the common stockholders in carrying out the plan was on a 
 
Memorandum Of Profit Sharing Agreement 
 
 (ORIGINAL) 
 Memorandum of Agreement entered into this__ day of 
 
 19- 
 
 between THE BLANK COMPANY, of the City of Louisville, Kentucky, party of the first part, and 
 
 ., of the City of_ 
 
 , party 
 
 of the second part. 
 
 THE BLANK COMPANY agrees to empky the said. 
 
 beginning 
 
 accepts such employment hereby. 
 
 .until December 31, 19 , and said 
 
 CONFIDENTIAL CONTRACT— The terms of this 
 contract shall be kept strictly confidential, and shall not 
 be divulged to any one — either an employe, traveling 
 salesman of our company or to any competitor or outside 
 party. Any failure to respect the confidential nature of 
 this Contract on the part of the party of the second part 
 shall, at the option of the first party, immediately operate 
 as a cancellation of this contract. 
 
 Party of the second is to devote his entire services to 
 the party of the first part, and under no circumstances 
 is the party of the second part to sell goods or do work 
 for any other person or persons, firm or corporation. The 
 party of the second part is to give his best efforts at all 
 times and cover such territory as the party of the first 
 pp.rt directs. 
 
 COMPENSATION— The party of the first part will 
 pay the party of the second part as compensation, and to 
 cover salary and expenses . . per cent of the profits made 
 by said first party upon the amounts received by said 
 first party upon all orders taken by said second party, 
 such profits to be computed by said first party; it being 
 expressly understood that all orders taken shall be sub- 
 ject to the approval of the first party and compensation 
 is to be paid only on such orders as are duly accepted and 
 shipped by the party of the first part. 
 
 On computing the profits to which the second party may 
 be entitled under this clause, deductions shall be made as 
 provided under clause entitled "BAD DEBTS." 
 
 SETTLEMENT— The settlement between the first and 
 second parties for the purpose of determining the amount, 
 if any, due and owing said second party, under the clause 
 herein entitled "COMPENSATION," shall be made within 
 60 days after the close of the fiscal year of said first party. 
 
 PAYMENTS— Party of the first part will allow party 
 
 of the second part a drawing account at the rate of 
 
 per month at the end of each calendar month on account 
 of the earnings of the party of the second part up to the 
 time such payment is made. 
 
 GUARANTEE — The party of the first part guarantees 
 that this contract in its entirety will pay the party of the 
 second part only the amount advanced, as per clause en- 
 titled "PAYMENTS," i. e., to say party of the first part 
 guarantees this contract only to the extent of making the 
 payments to the party of the second part in its entiret> in 
 the amount advanced, as per clause entitled "PAY- 
 MENTS." 
 
 MAIL ORDERS— The sales of the party of the second 
 part will be credited with every mail order received from 
 those merchants in his territory after his first sale to 
 them in person, and said party of the second part shall 
 
 receive per cent of the profit on the same, the same 
 
 as if order had been taken by the said party of the sec- 
 ond part in person. 
 
 HOUSE ORDERS— The sales of the party of the sec- 
 ond part will be credited with every house order received 
 from those merchants in his territory after his first sale 
 to them in person, and said party of the second part shall 
 
 receive. .. .per cent of the profit on the same, the same 
 as if order had been taken by the said party of the sec- 
 ond part in person. 
 
 DEDUCTIONS— It is understood that from party of 
 the second part's portion of the profits on Mail Orders 
 and House orders, he is to bear the cost of getting these 
 orders on a pro rata basis, viz., expense of the advertis- 
 ing. Mail Order Department and House Salesmen in pro- 
 portion to the amount credited. 
 
 ADVANCE FOR EXPENSE MONEY— Party of the 
 first part will guarantee to advance party of the second 
 
 part a traveling fund of $.... for expenses, etc., with the 
 understanding that at the end of each week itemized re- 
 port of expenditures for that week is sent in, so as to reach 
 party of the first part not later than Monday, together 
 with Route Sheet and Calling List, check for the amount 
 will be sent party of the second part at once, so the trav- 
 eling fund will always remain $ 
 
 TERRITORY— Party of the second part's territory will 
 be as follows until otherwise notified, viz.: 
 
 SPECIAL SALESMEN— Party of the first part re- 
 serves the right at any time to put special salesmen in the 
 above territory to bring up the sales on any item or De- 
 partment, the sales of such Special Salesmen to be cred- 
 ited to party of the second part and the expenses charged 
 to party of the second part. 
 
 V 
 
 (OVER) 
 
^ 
 
 - IS . 
 
 diminishing scale. The total cost to them was the interest on the bal- 
 ance owed them by the trustee on their stock. Each dividend decreased 
 the amount so invested with a ciorresponding decrease in the annual cost 
 of operating the plan. 
 
 The common stoclrholders believe that it ia good business for them to make 
 it an especial object to the ej:ecutive officers to produce satisfactory 
 earnings for the company, for regardless of how conscientious a manager 
 may be, exceptional results are seldom obtained under the ordinary salary 
 form of reward. The actual results had by this house prove that the best 
 results are to be bad through proportionate participation in profits 
 arising from the business by the men to whom the owners of the company 
 intrust the conduct of the business. Managers interested s,^ co-partners 
 have a direct incentive to make profits and effect savings. This direct 
 incentive produces results that cannot otherwise be obtained. 
 
 The inducement of the bonus based on the dividend on common stock is 
 that it makes all past and present bonuses productive only in proportion 
 to the company »s earnings, which is probably the strongest argument there 
 Is for insisting upon the investment of shared profits in the comoany's 
 stock. 
 
 MAKING STOCK PROFIT-SHARING PLANS EASY TO GRASP: Much of the value of profit- 
 sharing plans are lost, because they are never fully understood by the salesmen 
 or the executives b enefited. The Sill Stove Works have used a profit-sharing 
 plan (details follow) for several years. They employ salesmen of above the 
 average intelligence, yet Mr. fill advises us that they find many of their men 
 do not understand the operation of the plan, which is ^uite simple. It seems 
 to be the concensus of opinion that much of the success of any stock participa- 
 tion plan depends on the pains taktjn to explain its every detail to the men. 
 SHARING THJE SAVINGS WITH THS SALKSMSN: An evolution of the profit-sharing 
 plan is used bj one or two subscribers which might be better termed, sharing 
 the savings. This plan is based on a fixed cost of get ting business out of a 
 gi ven territ ory and then sharing the savings with the salesmen or branch man- 
 agers. The following plan is used by the Sill Stove Works, and submitted 
 through courtesy of Mr. Phillip Will, vice-president of the concern: 
 
 Each .salesman is given an expense allowance in terms of a percentage 
 of his volume of business. If the volume of business in that territory 
 and the expense of operating it in previous years are known, then these 
 
V 
 
 • 1$ . 
 
 figures are used as a basis to start from. For example: the given 
 territory has produced |30»000 of business and the cost of securing it. 
 .salary and traveling expense complete was $3,000. This gives the 
 salesman an expense alXovance of lOJ^, 
 
 *-<^ 
 
 The salesman receives half of any "profit" or "saving*' which he may 
 make either hj reason of reduced expense or increased sales, for example: 
 the following year his sales reiiain the same |30.000, but he reduces his 
 expense to $2,800. His expense allowance on the 10/^ basis is $3,000. 
 the saving is $200.00, he gets balf or $100.00. 
 
 Again, if the salesman increaises his sales to $40,000 his expense is 
 $3,200 iQ% of $40,000 gives an expense allowance of $4,000. Therefore, 
 the saving or profit of $800.00 is shown* of which the salesman gets one- 
 half or $400.00. 
 
 \ 
 
 Bvfery sort of expense that may be properly included in the cost of 
 operating a particular territory is included, automobile expense, of 
 course, including Insurance (these are owned by salesman.) Any price 
 concessions beyond our regular standard net prices for the quantity and 
 the conditions are also charged in as territorial expense. 
 
 This "profit-sharing" or bonus" is handed to the salesman in one 
 amount at the ^nd of the year. This same amount i^ also added to his 
 salary to make his salary for the following year. This salary ii^ subject 
 
 The following tables have been prepared to show how monthly payments of $1 and upwards will pay for Profit Sharing Certificates in amounts ranging from $50 to $1,000. 
 
 While the Profit Sharing Plan provides that the yearly credit shall be 1% of tKe employe's wages, these tables show in each case a credit of $10, this being the minimum 
 
 amount which will be credited to each subscriber who luis been in the Company's employment throughoat the preceding year. 
 
 IIMratlk. 
 
 ti-tOtmUt. 
 
 U.MP«M< 
 
 St.MrvM.. 
 
 $S MhrlU 
 
 U.MPnM.. 
 
 tTMPtrlb MMPtrM. 19 M Pir M*. $ia.MP.rM.. tll.MPvlb. 
 
 tlZ-MPvH. (ll.OOPitllt. tU.MPvMr tlSMPtrlU. 
 
 nt.MPvM.. 
 
 |2S.MP«li. 
 
 '♦^w 
 
 # 
 
 1919 
 
 Jan. 2 
 
 Dec. 31 
 
 " 31 
 
 1920 
 
 Jan. 2 
 
 • 2 
 I>ec. 31 
 
 " 31 
 
 1921 
 
 Jan. 2 
 .. 2 
 
 Dec 31 
 " 31 
 
 1922 
 
 Jan. 2 
 - 2 
 
 Dec. 31 
 •' 31 
 
 t923 
 
 Jan. 2 
 
 • 2 
 Dec3l 
 
 • 31 
 
 1924 
 
 Jan 2» 
 
 '• 2 
 
 I % of Wagea (Nflinimum) 
 1 2 Monthly Paymentt 
 Interest at 5°S 
 
 Bidonce 
 
 I % of Wages (Minimum) 
 12 Monthly Payments 
 interest at 5% 
 
 Balance 
 
 1% of Wage* (Minimum) 
 1 2 Monthly Payments 
 Inter««t at 5% 
 
 Balance 
 
 l%of Wages (Minimum) 
 1 2 Monthly Payments 
 Interest at 5% 
 
 Balance 
 
 1% of Wages (Minimum) 
 1 2 Monthly Payments 
 Interest at 5% 
 
 Balance 
 
 I % of Wages (Minimum) 
 Total Credit — 
 Jan. 2. 1924 
 
 $10 00 
 
 12 00 
 
 78 
 
 10 00 
 
 24 00 
 
 I 05 
 
 $10 00 
 
 36 00 
 
 I 33 
 
 $10 00 
 
 46 00 
 
 1 60 
 
 10 00 
 
 60 00 
 
 I 88 
 
 10 00 
 
 72 00 
 
 2 15 
 
 10 00 
 
 84 00 
 
 2 43 
 
 $ 22 73 
 
 $ 35 03 
 
 $ 47 33 
 
 $ 59 60 
 
 $ 71 88 
 
 $ 84 15 
 
 $ % 43 
 
 22 78 
 
 10 00 
 
 12 00 
 
 I 92 
 
 35 05 
 
 10 00 
 
 24 00 
 
 2 80 
 
 47 33 
 
 to 00 
 
 36 00 
 
 3 69 
 
 $59 60 
 
 10 00 
 
 48 00 
 
 4 58 
 
 $ 71 88 
 
 10 00 
 
 60 00 
 
 5 47 
 
 84 15 
 
 10 00 
 
 72 00 
 
 6 36 
 
 $ % 43 
 
 10 00 
 
 84 00 
 
 7 25 
 
 $ 46 70 
 
 $ 71 85 
 
 $ 97 02 
 
 $ 122 18 
 
 $ 147 35 
 
 $ 172 51 
 
 $ 197 68 
 
 $ 46 70 
 
 10 00 
 
 12 00 
 
 3 II 
 
 $ 71 85 
 
 10 00 
 
 24 00 
 
 4 65 
 
 97 02 
 
 10 00 
 
 36 00 
 
 6 17 
 
 $ 122 18 
 
 10 00 
 
 48 00 
 
 7 71 
 
 $ 147 35 
 
 10 00 
 
 60 00 
 
 9 24 
 
 $ 172 51 
 
 10 00 
 72 00 
 10 78 
 
 197 68 
 10 00 
 84 00 
 12 31 
 
 $ 71 61 
 
 $ no 50 
 
 $ 149 19 
 
 $ 187 89 
 
 $ 226 59 
 
 $ 265 29 
 
 $ 303 99 
 
 71 81 
 
 10 00 
 
 12 00 
 
 4 36 
 
 $ 1 10 50 
 
 10 00 
 
 24 00 
 
 6 57 
 
 $ 149 19 
 
 10 00 
 
 36 00 
 
 8 78 
 
 $ 187 89 
 
 10 00 
 48 00 
 10 99 
 
 $ 226 59 
 10 00 
 60 00 
 13 20 
 
 $ 265 29 
 10 00 
 72 00 
 15 41 
 
 $ 303 99 
 10 00 
 84 00 
 17 62 
 
 $ 10 00 
 
 %00 
 
 2 70 
 
 $ 10 00 
 
 108 00 
 
 2 98 
 
 $ 10 00 
 
 120 00 
 
 3 25 
 
 10 00 
 
 132 00 
 
 3 53 
 
 10 00 
 
 144 00 
 
 3 80 
 
 $ 10 00 
 
 156 00 
 4 08 
 
 10 00 
 
 168 00 
 
 4 35 
 
 10 00 
 
 180 00 
 
 4 63 
 
 $ 10 00 
 
 240 00 
 
 600 
 
 $10 00 
 300 00 
 7 38 
 
 $ 108 70 
 
 $ 120 98 
 
 $ 133 25 
 
 $ 145 53 
 
 $ 157 80 
 
 $ 170 08 
 
 $ 182 35 
 
 $ 194 63 
 
 $ 256 00 
 
 $ 317 38 
 
 $ 108 70 
 
 10 00 
 
 % 00 
 
 8 14 
 
 $ 120 98 
 
 10 00 
 
 108 00 
 
 9 02 
 
 $ 222 84 
 
 $ 246 00 
 
 $ 222 84 
 
 10 00 
 %00 
 13 84 
 
 248 00 
 10 00 
 
 108 00 
 15 38 
 
 $ 342 68 
 
 $ 381 38 
 
 $ 98 17 
 
 $ 151 07 
 
 $ 203 97 
 
 $ 256 88 
 
 $ 309 79 
 
 $ 362 70 
 
 $ 415 61 
 
 98 17 
 
 10 00 
 
 12 00 
 
 5 68 
 
 $ 151 07 
 
 10 00 
 
 24 00 
 
 860 
 
 $ 203 97 
 
 10 00 
 36 00 
 
 11 53 
 
 $ 256 88 
 10 00 
 48 00 
 14 45 
 
 $ 125 85 
 
 $ 193 67 
 
 $ 261 50 
 
 $ 329 33 
 
 S 125 65 
 
 10 00 
 
 $ 193 67 
 10 00 
 
 $ 261 50 
 
 10 00 
 
 $ 329 33 
 
 10 00 
 
 $ 135 85 
 
 $ 203 67 
 
 $ 271 50 
 
 $ 339 33 
 
 $ 309 79 
 10 00 
 60 00 
 17 36 
 
 $ 362 70 
 10 00 
 72 00 
 20 28 
 
 $ 397 15 
 
 $ 464 98 
 
 $ 397 15 
 10 00 
 
 $ 464 98 
 10 00 
 
 $407 15 
 
 $ 474 98 
 
 $ 415 61 
 10 00 
 64 00 
 23 21 
 
 $ 532 82 
 
 $ 532 82 
 
 10 00 
 
 $ 542 82 
 
 $ 342 68 
 10 00 
 % 00 
 19 83 
 
 $ 381 36 
 
 10 00 
 
 108 00 
 
 22 04 
 
 $ 468 51 
 
 $ 521 42 
 
 $ 468 51 
 10 00 
 % 00 
 26 13 
 
 521 42 
 10 00 
 
 108 00 
 29 05 
 
 $ 600 64 
 
 $ 668 47 
 
 $600 64 
 10 00 
 
 $ 666 47 
 10 00 
 
 $ 610 64 
 
 $ 678 47 
 
 133 25 
 
 10 00 
 
 120 00 
 
 9 91 
 
 $ 145 53 
 
 10 00 
 
 132 00 
 
 10 60 
 
 $ 157 60 
 
 10 00 
 144 00 
 
 11 69 
 
 $ 170 08 
 
 10 00 
 
 156 00 
 
 12 58 
 
 162 35 
 10 00 
 
 168 00 
 13 47 
 
 194 63 
 10 00 
 
 180 00 
 14 36 
 
 $ 256 00 
 
 10 00 
 
 240 00 
 
 18 60 
 
 317 36 
 10 00 
 
 300 00 
 23 24 
 
 $ 273 16 
 
 $ 298 33 
 
 $ 323 49 
 
 $ 348 66 
 
 $ 373 82 
 
 $ 398 99 
 
 $ 524 80 
 
 $ 650 62 
 
 273 16 
 10 00 
 
 120 00 
 16 91 
 
 $ 298 33 
 
 10 00 
 
 132 00 
 
 18 44 
 
 $ 323 49 
 
 10 00 
 
 144 00 
 
 19 97 
 
 $ 348 66 
 
 10 00 
 
 156 00 
 
 21 51 
 
 $ 373 82 
 
 10 00 
 
 168 00 
 
 23 04 
 
 398 99 
 10 00 
 
 160 00 
 24 57 
 
 $ 524 80 
 
 10 00 
 
 240 00 
 
 32 24 
 
 650 62 
 
 10 00 
 
 i200 00 
 
 39 28 
 
 $ 420 07 
 
 $ 458 77 
 
 $ 497 46 
 
 $ 536 17 
 
 $ 574 86 
 
 $ 613 56 
 
 $ 807 04 
 
 $ 899 90 
 
 $ 420 07 
 
 10 00 
 
 120 00 
 
 24 25 
 
 $ 458 77 
 
 10 00 
 
 132 00 
 
 26 46 
 
 $ 497 46 
 
 10 00 
 
 144 00 
 
 28 67 
 
 536 17 
 10 00 
 
 156 00 
 30 68 
 
 $ 574 86 
 
 10 00 
 
 168 00 
 
 33 09 
 
 613 56 
 10X)0 
 
 180 00 
 35 30 
 
 $ 807 04 
 10 00 
 
 ,L 60 00 
 44 02 
 
 $ 899 90 
 10 00 
 
 45 50 
 
 $ 574 32 
 
 $ 627 23 
 
 $ 680 13 
 
 $ 733 05 
 
 $ 785 95 
 
 $ 838 86 
 
 $ 941 06 
 
 $ 955 40 
 
 ^ 574 32 
 10 00 
 120 00 
 31 97 
 
 $ 627 23 
 
 10 00 
 
 132 00 
 
 34 89 
 
 $ 660 13 
 
 10 00 
 
 144 00 
 
 37 81 
 
 $ 733 05 
 10 00 
 156 00 
 40 73 
 
 $ 765 95 
 
 10 00 
 
 168 00 
 
 43 65 
 
 $ 838 86 
 10 00 
 
 ,1105 00 
 45 94 
 
 $ 941 06 
 10 00 
 
 47 55 
 
 $955 40 
 10 00 
 
 48 27 
 
 $ 736 29 
 
 $ 804 12 
 
 $ 871 94 
 
 $ 939 78 
 
 $1007 60 
 
 $ 999 80 
 
 $ 998 61 
 
 $1013 67 
 
 $ 736 29 
 10 00 
 
 $ 604 12 
 10 00 
 
 $ 671 94 
 10 00 
 
 $ 939 78 
 
 10 00 
 
 $1007 60 
 10 00 
 
 $ 999 80 
 10 00 
 
 $ 996 61 
 10 00 
 
 $1013 67 
 10 00 
 
 $746 29 
 
 $614 12 
 
 $ 861 94 
 
 $ 949 76 
 
 $1017 60 
 
 $1009 80 
 
 $1008 61 
 
 $1023 67 
 
 How the International Harvester Company visualize? profit-sharing 
 to its employees. Even tltie best salesmen have considerable 
 difficulty in grasping profit-sharing plans. 
 
. 17 - 
 
 to reduction to the old basis at the end of any quarter, however, if his A 
 sales fall behind the rate of sales of the previous year which produce 
 his bonus. 
 
 The Globe Optical Company have a somewhat similar plan, whereby the salesman 
 is paid a per cent of the profit on sales exceeding his last year's total. 
 This plan is described by Ur. R. C. Thompson, treasurer of the company, as 
 
 follows: 
 
 With our salesmen we do as follows: Svery salesman is entitled to 
 ten per .cent of his perBonal sales which are' credited by us as they are 
 shipped. Each salesgaan has a regular expense account and a drawing ac- 
 count based on'^^lie previous year's experience. The differ ence remain> 
 ing, between the amount of his drawing account plus^his current expenses 
 anT^EHe ten per cetit of his personal sales, is paid him each year* ffe 
 have had this plan in operation for the past tan yeara . and it has worked 
 out entirely satisfactorily. There have been years when a salesman 
 possibly would not sell the amount he sold the year previous; in that 
 case, there would really be a debit balance against him which would be 
 carried into the next year. This, however, has only occurred on one or 
 two occasions} mainly the men sell each year more thati the year previous 
 so that they have a constantly growing account. 
 
 ^ 
 
 1?e have this arrangement on personal sales for two reanons - first, w 
 work on a territory intensively , sometimes having three men going to the 
 same city so that it would be rather difficult to work it on the question 
 of book sales; second, we believe that by keeping it on a personal 
 sales basis we get better work from the men. 
 
 Another subscriber reporting, uses a plan whereby a fixed percentage is allowed 
 for selling, and when sales on a territory exceed t-he volume necessary to meet 
 this fixed percentage for sales, the salesman is given a commission of one-half 
 the percentage saved. The plan is that of the Killiam Roberts Laboratories, 
 Port Chester, N, Y. (formerly the William Hall Laboratories). Mr. D. H. Smith 
 illustrates the operation as follows: 
 
 Assuming our selling percentage is ten, if a salesman's territory 
 brings in five thousand dollars in one month the allowance for selling, 
 including salary and expenses, would be five hundred dollars. But suppos- 
 ing salary and expenses amounted to only four hundred dollars in that 
 month, then we would allow the salesman fifty dollars bonus. 
 
 Sales |5,000 ^ 
 
 Selling Exp. Allowed | 500 10% 
 
 Actual Expense | 400 S% 
 
 Saving I 100 Zt 
 
 i to Salesman I 50 -^^ / 
 
v^ 
 
 " 18 - 
 
 At the end of six months or a year we might find our average selling 
 expense was only 9 per cent. Then, this would be the fixed allowance 
 for selling during the next period. 
 
 Needless to say, our figures are based on billing, and returned 
 goods or unpaid bills are deducted. 
 
 OTHER PROFIT^ SHAH I NQ PUNS IN USE; The American Rolling yill Company, yiddle- 
 
 town. Ohio, have a plan for sharing profits with salaried employees which has 
 
 been in force since i9l6, Onder this plan, salaried employees are divided into 
 
 two groups, those receiving less than |iOO a month, and those receiving more 
 
 ■ 
 
 than |lOO a mouth. All such employees in the first group, whose services have 
 been satisfactory to their superior officers for the year, and who have been 
 continuously employed by the company as a salaried employee for at least 
 eighteen months, receive 5% of the amount of their salaries; those employed two 
 
 and a half years and under five years V5%, and those five years and under te 
 
 n 
 
 ynars 12^^. In cases of salaried eroployees receiving over |lOO a month, a 
 
 profit-sharing funi i.^ provided, and distributed by the management on the 
 
 following basis: 
 
 Character of position held. 
 
 Character and extent of the responsibility of that position. 
 
 Character of service rendered In that position. 
 
 Character and extent of co-operation given to other special 
 
 partners and to the company. 
 
 Loyalty to all things Armco. 
 
 The general character of Armco Spirit displayed all through the year. 
 
 The Central Ohio Paper Company have a somewhat different plan which provides 
 for a percentage of profits to be paid to the salesman, and ^he further stipu- 
 lation that his salary shall be regulated accordingly for the future. H. C, 
 Hanna describes this plan as follows: 
 
 The salesman had a stated salary, for instance in 1919. and on his 
 gross profits of $40,000.00 we gave him 10% of all over |40,000.00 
 profit he made in the ensuing year» and also based his balary for the 
 coming year on his old salary plus the 10% he had made above the quota 
 the previous year; in other words, if he had bef»n making $3000. Ou a 
 year and his bonus was $300.00. his salary for the coming year would 
 
> ' 
 
 >^ 
 
 . 19 - 
 
 be $3300.00 and hi h quota would be based on the tot^il amount of profit 
 ha mad© on his sales the year preceding. I believe this is not an 
 unusual method of prooedure, but we liked it very much. 
 
 Another paper house, Wright, Barrett A Stilwell of St. Paul, pay each sales- 
 man 33 1/3 per cent of his gross profits after he has made his quota. His quota 
 is made up of his »^alary. plus his share of the over-head of the business. A 
 Hundred Per Cent Club is operated in connection with this plan, so that when a 
 mao makes his quota he knows that he is in the profit-sharing or partnership 
 class. Jacob E. Decker k Sons pay a bonus On tonnage - that is, after a sales- 
 man exceeds his tonnage quota he receives $2.50 extra weekly for every 1,000 
 pounds sold over and above his quota. Numerous concerns pay a bonus out of 
 the profits for sales to new customersi. Others use sliding coimnissions with a 
 di efferent commission for each department, A large office appliance concern 
 have what they call a profit-sharing quota plan that automatically increases 
 the rate of coEHnission just as soon aa quota is reached For example, a man's 
 quota might be tSO.OOO and his rate o;f commission 5^. In the event that he 
 makes his quota, h^? gets 6% on the entire month's sales. 
 
 The Electric Appliance Company fi* a sales bogie for thf? salesmen. If they 
 make the bogie they get a certain amount, say $200. If they exceed those 
 earnings, they get 10^ of the profit on all above that. Th^re are many other 
 plans, but the toregoing will serve to illustrate the varied applications of 
 profit-sharing for salesman and branch managers. The i<1eal plan for your 
 particular businea.-^ mus* , however, ba worked out in the light of the peculiar 
 conditions confron'ing you. It is mxX to impossible to lift a plan bodily 
 from some other field and put it to work. 
 
(copy OF CONTRACT) 
 
 
 Dear Sir; 
 
 We are pleased to engage your services for an intertniinate period, as 
 salesman with our Office, upon the following basis j 
 
 SAL ART. 
 
 MH> 
 
 On the first day of each fisical year (Sept. 1), your salary for the 
 new year will depend on your total gross profits for the previous 
 
 v^ 
 
 year. If gross profits amount to less than |5.000» you will receive the mini- 
 mum salary, namely, |iOO per month. If over |5,000, you will receive a monthly 
 salary increased at the rate of |4 for each |500. Maximum salary |450 a month. 
 Whether your salary advances, declines or remains stationary, will depend on 
 yourself* 
 
 COMMISSION. As commission, we will pay you at the end of each quarter a sum 
 
 .^^^ equal to 3 per cent of the profits, as figured by us, accruing to 
 
 this office on bonds sold by you to customers, under regulations as established 
 by us. This commission, however, will apply only on the amount of profits 
 accruing in each year in excess of $5,000. 
 
 BONUS. We will also allow you a bonus, to be paid at the end of each fiscal 
 
 year, providing you show total profits for the year in excess of 
 llO.OOO. The percentage rate of the bonus' will depend upon your total profits, 
 as figured by us, and will be calculated at the rate of one per cent for each 
 $10,000 of profits and will be figured to hundredths. 
 
 TO arrive at the amount of the bonus, we will deduct from your gross 
 profits for the year, your salary, premiums, commissions and traveling ex- 
 penses; the remainder multiplied by the bonus rate, gives the bonus. The 
 maximum bonus rate will be 10 per cent. 
 
 For the present year, the bonus will be paid on August 31, 1919, and 
 will be figured on the profits made by you during the year ending on that date. 
 
 TBRRITORY. Your territory will be allotted to you by the Sales Department. 
 
 TERMINATION OP CONT RACT. 
 
 It is also understood that we shall have the right of terminating 
 this contract on days' notice, and you will have, likewise, the right to 
 terminate it on giving the firm the same notice. We shall be at liberty to 
 terminate this contract, without notice, for serious misconduct or willful 
 neglect of duty. It is understood that you will not engage in any other busi- 
 ness while in our employ, nor work for any other firm or corporation. 
 
 Kindly confirm and oblige, 
 
 Yours very truly. 
 
 I confirm my acceptance of the above contract. 
 
r 
 
 . 20 
 
 PROFIT-SHARING FOR THE SALES M/INAGIH 
 
 
 v^ 
 
 ( 
 
 ^ 
 
 There is evidence of a decided tendency on the part of subscribing concerns 
 to pay sales managers a percentage of profits in addition to a fixed salary. 
 Out of eighty-five concerns reporting on this question, nearly one-half of them 
 staled that they either distributed a portion of the year's profits to the 
 sales maaag?^r, or made it possible for him to secure a stock interest in the 
 business. The consensus of opinion is that when possible, the best profit- 
 sharing plan that may be devised is a stoclcholding arrangement, or in the case 
 of concerns such as automobile trucks, pianos, etc., to decide upon a fixed 
 
 bonus per sale. 
 
 It is evident that these profit-sharing plans for the sales manager are not 
 philanthropy by any means. ConditioRS have so changed in business that the 
 Bianageraent that seeks to set up a closed corporation, and keep trusted 
 employees from participating in the profits, after the usual return for capital 
 invested and management have been deducted, is inviting disaster. An instance 
 came to light, in our investigations, where out of ten wholesale paper houses 
 in one Western city, all but two of them are off -springs of one company, and in 
 practically every instance they were started by men who were refused a stock 
 interest in the older business. It niay be interesting to note also, that one 
 of these concerns, at least, is already doing a business far in excess of that 
 done by the old established concern. The feeling is general among the prin- 
 cipals of the "rebel" houses, that hsid this older concern adopted a policy 
 which would have kf»pt these men in the business, it would, today, be one of the 
 strongest paper jobbing houses in the West, 
 
 There are several ways used for transferring stock to a sales manager. 
 If the stock is listed, the problem is simple. But if the corporation is a 
 closed one, as is generally the case,, it may be necessary to issue an adequate 
 
 ( 
 
-^ 
 
 V 
 
 SHOWING OPERATION OF PROFIT-SHARING PLAN OF 
 SWEET, CAUSEY, FOSTER ^ COMPANY 
 
 (Adjusted to a basis of $100,000 annual net profit, of which 50% is distributed 
 Salaries chosen are hypothetical and for the purpose of illustration. 
 
 No. Years 
 ■witn Co. 
 
 President . . 5 
 ^ V.-Pres. . . 5 
 Sec. & Treas. 5 
 Head of 
 Department . 3 
 Salesman . . 3 
 Salesman . . 2 
 Salesman . . 4 
 Bookkeeper . 4 
 Stenographer 5 
 Office Boy. 2 
 
 mos. 
 yrs. 
 
 alary X p^^^^^ 
 
 $9,000 
 
 7,000 
 6,000 
 
 5.000 
 3.000 
 3,000 
 3,000 
 2,400 
 1,200 
 720 
 
 3 
 3 
 3 
 
 2 
 1 
 
 2 
 3 
 3 
 3 
 2 
 
 Basis of 
 
 Distribution 
 
 $27,000 
 2 1 ,000 
 18.000 
 
 1 0,000 
 3,000 
 6.000 
 9,000 
 7,200 
 3,600 
 1.440 
 
 V, Distribution 
 Constant 
 
 .26914 
 .26914 
 .26914 
 
 .26914 
 .26914 
 .26914 
 .26914 
 .26914 
 .26914 
 .26914 
 
 ) 
 
 Snare m 
 Profits 
 
 $7,266.78 
 5.651.94 
 4.844.52 
 
 2.691.40 
 
 807.42 
 
 1,614.84 
 
 2,422.26 
 
 1,937.81 
 
 968.90 
 
 387.56 
 
 Vv. 
 
 c» 
 
 Salaries for year, multiplied by Class Factor, representing length of employment, give 
 Basis of Distribution, which, divided into $50.000 — the amount to be distributed — shows the 
 Distribution Constant to be .26914. 
 
 Total salaries for year amount to $185,780.00. 
 
 $185,730.00 I $50,000.00 
 
 .26914 
 
 The amount of each individual's salary, multiplied by his Class Factor, is then multiplied 
 by the Distribution Constant of .2691 4. v/hich gives the portion of the distributed profits to which 
 each individual is entitled. (See table above.) 
 
 On this basis of distnbution. for the first year THE EMPLOYEES ALONE WILL 
 
 RECEIVE MORE THAN 31% OF THE ENTIRE NET PROFITS OF THE 
 
 COMPANY after deduction of 7% on the combined capital and surplus; AND A 
 LARGER AMOUNT AS LENGTH OF SERVICE INCREASES. 
 
 > 
 
r 
 
 \ 
 
 ^<. 
 
 - 21 - 
 
 amDuat of treasury stock, which will then be issued to the sales manager and 
 other department heada at its book value. If the sales manager cannot pay cash 
 for the stock, the c<^rtificate remains in the hands of the company, the buyer 
 giving a note for the stock at the current rate of interest. The dividends 
 from the stock are credited to the buyer so that eventually the stock will pay 
 for itself and the certificate with cancelled note becomes the property of the 
 sales manager. The note, of course, is a demand note to provide for any un- 
 foreseen break in the rela'iions which the sales manager enjoys with his house, 
 
 the feeling eiists among concerns who have tried various plans for giving 
 employees stock, that it is better to have them pay cash for it whenever 
 possible, and it is seldom wise to make a stock gift outright. This is because 
 a man values a thing more highly if he has to make sacrifices to obtain it. A 
 stock gift is more or less a salary increase based on the success of the busi- 
 ness, and the holder of such stock soon falls into the habit of looking upon 
 it as a part of his salary. 
 
 In co-partnerships or non-stock campanies, the same end may be served by 
 
 some sort of a division of profits. One concern in Elmira, who request that 
 
 the use of their name be withheld, uses the following plan: 
 
 Three executives in the following plan are involved:- The General 
 Manager; the Sales Manager; the «ork8 Manager. Assume the annual business 
 for the past three years averaged $2,000,000. and that the salaries 
 were agreeably adjusted based on that volume of business, as a basis. 
 
 Assume that the total salaries of the three executives amounted to 
 |20.000, which equals 1^ on sales. Next, agree on a per cent on gross 
 sales secured above the t'#o million to be divided among the three 
 executives. 
 
 b 
 
 7 
 
 From personal observation, thisi plan re.sulted in team work where 
 little existed before. The General Manager took lively interest in all 
 plans. The Works Manager hustled out orders and new ideas and lines, and 
 the Sales Manager was kept busy increasing his field, and all three made 
 a handsome bonus the first year. 
 
 In our investigation, we have tried to arrive at some definite conclusions 
 
■i^ 
 
 - 22 - 
 
 as 
 
 to a formula that might be followed in working out a profit-sharing arrange 
 
 ment for the sales manager. Conditions are so different in every business, 
 
 even 
 
 businesses in similar lines, that the figures we gathered would be of no 
 
 possible use. As a general principle, we find that it is generally accepted 
 that the sales manager should be entitled to 6 per cent of the profit shown by 
 his department, after all over-head, tases, etc. have been deducted. This 
 amount to be in addition to his salary. The following agreement submitted by 
 one concern, may be of interest in this connection: 
 
 January 1, 1919. 
 
 Ur. ' 
 
 Louisville, Ky, 
 
 Dear Sir:- 
 
 In addition to your salary or drawing account as Buyer and 
 Department lianager, you will receive as additional compensation, 
 6% upon the profits shown by your Department after deducting all 
 expenses, but without first deducting such Federal Tax as may be 
 due, same to be effective as of January 1st, 1919, 
 
 Pinal settlement is to be made as soon as our books are closed, 
 audited by expert accountants and our final report accepted by the 
 Board of Directors. 
 
 ^fours very truly, 
 
 KSUiLT 
 
 V. P. & General Manager. 
 
WHSRBI FURTHUR INFORMATION ABOUT PROFIT- SH ARING PLANS MAY BE . SECURID 
 
 Vv. 
 
 BENEFIT PLANS FOR THE BaaFLOYEBS OF THE INTERNATIONAL HARVESTER CO. 
 
 A booklet -- l^rite: George A, Ranney, Treasurer, 
 
 Interoational Harvester Company, Chicago, 
 
 STUDEBAKBR CO-OPERATIVE PLANS -- A booklet 
 
 Write: N, R. Feltes, Treasurer, 
 
 The Studebaker Corporation, South Bend, Ind, 
 
 PROFIT-SHARING -- Report No. 14 - To tjubscribers only • not for sale 
 
 Alexander Hamilton Institute, 
 
 As tor Place, New York. 
 
 REVISED PLAN FOR PROFIT-SHARING DTVIDISNDS FOR EMPLOYEES -- A booklet 
 
 Write: Mr. William Cooper Proctor, 
 
 Pro(3tor & Gamble Co., Cincinnati, Ohio. 
 
 PROFIT-SHARING AS AN AID TO CONTENTED LABOR -- A report 
 
 Write: Mallory. Mitchell & Faust, Adv. Agts.. 
 Security Building, Chicago. 
 
 CO-OPERATIVE PLANS OF THE A. W. BDRRlTT CO. -- A booklet 
 
 frite: A. W. Burritt, Treasurer, 
 
 A. fl. Burritt Company, Bridgeport, Conn. 
 
 SEARS » ROEBUCK & COMPANY'.^ PROFIT-SHARING PLAN -- A pamphlet 
 
 Write: Williatn C. Graves, Sec*y. to Julius Rosenwald, 
 Sears, Roebuck A Company, Chicago. 
 
 INDUSTRIAL PARTNERSHIP PLAN OF DENNISON MFG. CO. -- A booklet 
 
 Write: Henry 3. Dennison, Framingham, Mass. 
 
 PROFIT-BHaRING PLAN OF SWEET, CaOSEY FOSTER & CO. -- A booklet 
 
 Write: Sweet, Causey Foster A Co., 
 
 Equitable Bldg., Denver, Colo. 
 
 Series of articles in Chicago Tribune by Arthur M. Evans -- 1918 and 1919. 
 Article in "System Magazine" A. W. Shaw Company, Chicago - January 1919 issue. 
 Article by Forrest Crissey in Saturday Evening Post - for October 4th, 1919* 
 Bulletin #208 U.S. Dept. of Labor, Government Printing Office. Washington, D.C 
 An investigation of the Ford Profit-Sharing Plan -- Detroit News. 
 Book by A. W. Burritt. Harper Brothers, New York (l918) 
 
>N 
 
 ^^^t^EEtjjjjj, 
 
 'i^m/UlatSttiaetrA'SitvMmym 
 
 ■^n?Sy^ 
 
 ^yj. 
 
 9AirTHCt,i | yjEWvtCC 
 
 
 VALUABLE both for the data it contains, and as a place 
 for systematically keeping information and statistical 
 data of your own. Letter sized. Divided into twelve 
 sections by leather tabbed indexes. Each index tab is lettered 
 in gold: "Market Data" "itook and Articles" "Mailing Lists" 
 Stimulating Sa esmen ', et«:. Under each classification are 
 filed numerous loose-leaf pages summarizing sales plans and 
 Ideas, statistical data and other vital information needed in the 
 management of a modern sales department. 
 
 Z 
 
 
 HMiiiiiiiiy 
 
 Over 10,000 of These Desk Books Now in 
 
 Use by Sales Managers 
 
 No well-equipped sales department <an afford to be without it. It will repay its 
 cost many times every month. It summarizes in a few hundred boiled down letters 
 the picked sales plans of America's most successful sales executives. Invaluable for 
 working out sales campaigns, re-organizing the sales force, for house organs and sales 
 bulletm material, assigning sales quotas, etc. Every plan fully described with all 
 working information. 
 
 Some of the ^formation the Nfew Dartnell Desk Book Contains: 
 
 Plans for Speeding Sales: Graphs that show 
 salesmen business they are missing; Ratz plan for rout- 
 ing salesmen; plan for developing all around efficiency; 
 checking methods to show territory conditions, etc., 
 etc. 
 
 References for Sales Executives: List of 
 articles that have appeared in Sales Management 
 Magazine, Printers' Ink, Advertising & Selling, The 
 Mail Bag, and other publications of value to a sales 
 executive. Lists of books relating to sales manage- 
 ment and selling. How to anange this data. 
 
 Vital Sales Statistics : Statistics for reassigning 
 quotas; analysis of auto registrations by states; chart 
 analysis of retail selling data; charts showing when 
 farmers buy; market data for developing the small 
 town market; automobile expense data; etc. 
 
 Model Forms for Sales Uses: Application 
 blanks for salesmen; Report forms; Territory analysis 
 records; form of notes used in giving salesmen stock; 
 salesmen's employment records; salesmen's contract 
 and dealer agreement forms; etc., etc. 
 
 Price, complete with black leatherette ring binder, set of leather tabs, 
 extra note sheets, and two hundred pages of reference data^$7.50 
 
 Sent on Approval, Subject to Return, if Not Satisfactory 
 
 The Dartnell Corporation 
 
 
 
 Publishers of Books and Reports for Sales Managers and Salesmen 
 
 1805 Leiand Avenue, Ravenswood Station, CHICAGO 
 
,4rt«*tf«A«ii^^s^^**^ iSp 
 
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 Profit sh^ng plans for 
 salesmen* 
 Special Report S9m 
 
 
 
 
 
 
 
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 ■AY 8 1927 
 

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END OF 
 TITLE