THE PREMIUM PLAN OF PAYING FOR LABOR. i \ o CCCCXLIX* THE PREMIUM PLAN OF PAYING FOR LABOR. BY F. A. HALSEY, SHERBROOKE, P. Q., CANADA. (Member of the Society.) This pian has been devised in order to overcome the objections inherent in the other plans in general use. It accomplishes this purpose without introducing corresponding objections of its own. Its merits are best shown by contrasting it with the other plans in common use, and it wull be discussed with them in the following order : I. The day's-work p^tn. II. The piece-work plan. III. The profit-sharing plan. IY. The premium plan. ' - ’ i • V. I. THE DAY’S-WORK PLAN. Under this method the workman is paid for and in proportion to the time spent upon his work. The ol Sections to the plan are well known. Analyzed to their final cause, they spring from the fact that any increase of effort by the workman redounds solely to the benefit of the employer, the workman having no share in the consequent increase of production. He has consequently no inducement to exert himself and does not exert liimsefn Under this system, especially in a manufacturing business, matters naturally settle down to an easy-going pace, in which the work¬ men have little interest in their work, and the employer pays extravagantly for his product. II. THE PIECE-WORK PLAN. Under this plan the workman is paid for and in proportion to the amount of work done. It is a natural attempt to overcome the objections to the day’s-work plan. It has the appearance of being * Presented at the Providence meeting (1891) of the American Society of Mechanical Engineers, uud forming part of Volume XII. of flie Transactions, J&6 THE PREMIUM PLAN OF PAYING FOR LABOR. just and of being based upon correct principles. Nevertheless, extended inquiry lias convinced the writer that it seldom works smoothly, and never produces the results which it should. An employer who has become dissatisfied with the results of the day’s-work plan, and decides to adopt piece work, usually reasons that work which is costing in wages, say one dollar per piece, could, with some extra effort, be produced on the existing scale of wages for about eighty cents; and desiring to give the workman some inducement offers him ninety cents per piece, thereby dividing the expected saving with him. The trouble be¬ gins at once. The workman does not believe that he can “ make wages ” at the rate offered, and objects. He is, however, finally induced or compelled to try it, and immediately proceeds to as¬ tonish himself and all others by increasing his output far beyond the expected 25$. His earnings increase with startling rapidity, hut the cost of the work remains, where set , at ninety cents per piece , and the employer soon finds that instead of a substantially equal division of the savings he is getting but little, and the workman practically all of it. He accordingly proceeds to cut the piece price, and the fatal defect of the system appears. This cut is in appearance and in fact an announcement to the workman that his earnings will not be allowed to exceed a certain amount, and that should he push them above that amount he will be met with another cut. Cutting the piece price is simply killing the goose that lays the golden egg. Nevertheless, the goose must be killed. AVith- 4 out it the employer will continue to pay extravagantly for his work; with it he will stifle the rising ambition of his men. The diffi¬ culties of the day’s-work and piece-work plans are thus seen to be the exact antitheses of one another. Analyzed to their final cause, the difficulties with the piece-work plan spring from the C act that the piece price once set, any increase of effort by the workman redounds to his own benefit alone—the employer having no share in the consequent saving of time. To obtain a share he cuts the piece price, with the consequences stated. Under this system matters gradually settle down as before to an easy-going pace in which the workmen approach the limit of wages as nearly as they consider prudent. Their earnings are somewhat more and the cost of the work is somewhat less than under the day’s- work plan, but there is no more spirit of progress than under the older method. The employer is constantly on the lookout for a chance to cut the piece prices, that being his only method of THE PREMIUM PLAN OF PAYING FOR LABOR. 757 rH '/] z / reducing cost; and the men are constantly on the lookout to defeat the employer’s well understood plan, knowing, as they do, that any one who is so unwise or so unfortunate as to do an ( increased amount of work will be in effect punished for it by having his piece price cut and himself thereby compelled to work i harder in the future for the old amount of income. The system makes the interests of the employer and employee antagonistic, and lienee of concerted effort toward a progressive reduction of cost there is none. This I believe to be the usual and natural history of the piece-work plan. I know it to represent the situa¬ tion in some of the foremost machine shops of the country. An 1 additional objection to the plan grows out of the fact that it requires a knowledge and record of the cost of each piece of a complicated machine, and oftentimes of each operation on each piece. This limits its range of application to products which are produced in considerable quantities. III. THE PROFIT-SHARING PLAN. This plan was originally devised in the effort to avoid the ob¬ jections to the two former plans. Under it, in addition to regular j wages, the employees are offered a certain percentage of the final profits of the business. It thus divides the' savings due to in¬ creased production between employer and employee, and at first I sight appears to meet the difficulties of the plans thus far dis¬ cussed ; but, nevertheless, on analysis, will be found to be as ; defective as they, both in principle and application. The leading objections to the plan are the following : Firs/. The workmen are given a share in what they do not earn. Increased profits may arise from more systematic shop manage¬ ment, decreased expenses of the sales department, or many other causes with which the workmen have nothing to do. Anything given them from such sources becomes simply a gift, the result of which is wholly pernicious — in fact the entire system savors of patronage and paternalism. Second. The workmen share, regardless of individual deserts. | An active, energetic workman cannot have the same incentive to 1 increased exertion under a system which divides the results of his efforts among a dozen lazy fellows at his side that he would I have under one in which his earnings depend on himself alone; on the other hand, a lazy workman would naturally consider it much easier to take his portion of the earnings of his fellows than I ; 758 THE PREMIUM PLAN OF PAYING FOR LABOR. to exert himself and then divide the results with all the others of the force. Third. The promised rewards are remote. The incentive can¬ not be as great under a system which computes and divides the savings once or twice a year as under one which pays out the extra earnings week by week. Fourth. The plan makes no provision for bad years. We hear much of profit sharing, but nothing of loss sharing. And yet the workman cannot expect to share the profits while others assume the losses; and, per contra, those who assume the risk of loss can¬ not be expected to share the profits with those who have nothing at stake. Fifth. The workmen have no means of knowing if the agree¬ ment is carried out. With their exaggerated ideas of the profits of business, the results must be in many cases disappointingly small, and they will doubt the honesty of the division. What is to be done in such a case? Invite the workmen to appoint a committee to examine the books, and. report ? Most employers will demur at this, and yet without it the employees can have no assurance of good faith ; and were it done, what good could result? How many workmen’s committees are there who are sufficiently versed in modern accounts to form any idea of the pro¬ ceeds of the year’s business from an examination of the books ? In this light the profit-sharing plan is seen to be an agreement be¬ tween two parties, the first of whom has every temptation and opportunity to cheat the second, while the second has no means of knowing if he has been cheated, and no redress in any case. In the present state of human nature this cannot be expected to be satisfactory to the second party. The fact that the plan has worked with apparent success in some instances and for consider¬ able periods of time proves nothing. The most disastrous boiler explosions and bridge failures have been preceded by long periods of apparent safety. Even the Conemaugh dam held water for many years. It is a truism that the most rickety and unsafe devices often serve their purpose for long periods. At the beginning the workmen look on the amount received at the annual division as a bonus, and anything is better than nothing ; but later on they will look on it as theirs by right of having earned it, and the above situation is certain to arise. The fact is, that the profit-sharing plan is wrong in principle, and cannot be in any large sense a solution of the wages problem. THE PREMIUM PLAN OF PAYING FOR LABOR. 759 IV. THE PREMIUM PLAN. Taking up now the subject proper of this paper, it aims at a j division of the savings due to increased production between the [ employer and employee, but by a direct method instead of the I circuitous one of the profit-sharing plan. The plan assumes two slightly different forms, according to the nature of the work; one form being suited to work produced in such quantities as to be reducible to a strictly manufacturing basis, and the other form to the more limited production of average practice. In both forms the essential principle is the same, as follows: The time required to do a given piece of work is determined from previous experience, and the workman, in addition to his usual daily wages, is offered a premium for every hour by which he reduces that time on future work, the amount of the premium being less than I his rate of wages. Making the hourly premium less than the hourly wages is the foundation stone on which rest all the merits of the system, since by it if an hour is saved on a given product the cost of the work is less and the earnings of the workman are greater than if the hour is not saved, the workman being in effect paid for saving time. Assume a case in detail: Under the old plan a piece of work requires ten hours for its production, and the wages paid is thirty cents per hour. Under the new plan a premium of ten cents is offered the workman for each hour which he saves over the ten previously required. If the time be reduced successively to five hours the results will be as follows: 1 2 3 4 5 Time consumed. Wages per piece. Premium. Total cost of work = col. 2 + col. 3. Workman’s earnings per hour = col. 4 -f- col. 1. Hours. $ $ $ $ 10 3.00 0 3.00 .30 9 2.70 .10 2.80 .311 8 2.40 .20 2.60 .325 7 2.10 .30 2.40 .343 6 1.80 .40 2.20 .366 5 1.50 .50 2.00 .40 This table illustrates the manner in which the cost of the work diminishes and the workman’s earnings increase together until, to cite the extreme case of the last line, if the output be 760 THE PREMIUM PLAN OF PAYING FOR LABOR. doubled, the wages paid per piece will be reduced 33^#, but the workman’s earnings per hour will be increased 33£$. Were the premium less than ten cents per hour, the reduction in cost for each hour saved would be greater, and the ’work¬ man’s earnings less. On the other hand, the workman would have a smaller incentive, and the time would not be reduced so much. The output would be less, and the net result might be worse for both employer and employee. This raises the inevitable question: What should be the rate of the premium ? Nothing but good sense and judgment can decide in any case. In certain classes of work an increase of production is accom¬ panied with a proportionate increase of muscular exertion, and if the work is already laborious a liberal premium will be re¬ quired to produce results. In other classes of work increased production requires only increased attention to speeds and feeds with an increase of manual dexterity and an avoidance of lost time. In such cases a more moderate premium will suffice. Any attempt, however, on the part of the employer to be greedy and squeeze the lemon too dry will defeat its own object, since if a trifling premium be offered, the workman will not consider it worth while to exert himself for so small a reward, and the expected increase of output will not take place. On the other hand, if.the premium offered be too high, the employer will simply pay niore than necessary for his work, though less than he has been paying. If the rate of premium is decided upon judiciously, it may and should be made permanent. No cutting down of the rate should ever be made unless, indeed, improved processes destroy the significance of the first time base. Every increase of earnings is necessarily accompanied by a corresponding decrease of cost, and if the premium be such as to give these a satisfactory rela¬ tion, the workman may be assured that there will be no limit set to his earnings; that the greater they are the more satisfactory they will be to the employer. The importance of this cannot be too strongly insisted upon. If the premiums be cut the workmen will rightly understand it to mean, as under the piece-work plan, that their earnings are not to be permitted to pass a certain limit, and that too much exertion is unsafe. The very purpose of the plan is to avoid this by so dividing the savings between employer and employee as to remove the necessity for cutting the rate, and hence enable the workman’s earnings to be limited only by his own ability and activity. The baneful feature of the piece-work THE PREMIUM PLAN OF PAYING FOR LABOR. 761 plan is thus completely obviated, and instead of periodical cuts with their resulting ill-feeling, the premiums lead the workman to greater and greater effort, resulting in a constant increase of output, decrease of cost, and increase of earnings. The broad-minded employer will not fail to recognize that his own gain from the system comes largely from the increased pro¬ duction from a given plant, since not only does the system reduce the wages cost of the piece of work in hand, but in so doing it increases the capacity of the plant for other work to follow. The advantages from this source are so great as to render unnecessary any refined hair splitting as to the rate of the premium. Such is the premium plan, and the writer confidently predicts that the more it is studied the more perfect will appear its adap¬ tation to the requirements of industrial enterprise and human nature. Surely, a system which increases output, decreases cost, and increases workman’s earnings simultaneously, without friction, and by the silent force of its appeal to every man’s desire for a larger income, is w r orthy of attention. In addition to the com¬ manding features noted it has others of lesser note. The transi¬ tion to it from the day’s-work plan is easy and natural. It does not involve a reorganization of the system of bookkeeping, but only an addition, and a small one, to the existing system. No op¬ position to it, organized or otherwise, is possible, since there is nothing compulsory about it, and nothing tangible to oppose. It is simply an offer to gratify one of the strongest passions of human nature, and the difficulty often found in introducing piece work cannot occur with this. In carrying out the plan in connection with work which has been reduced to a manufacturing basis, the writer finds the fol¬ lowing form of time ticket convenient: Time Ticket 762 THE PREMIUM PLAN OF PAYING FOR LABOR. Machine set by ... Time .. hours . THE PREMIUM PLAN OF PAYING FOR LABOR. 763 This ticket is issued by the foreman, the blanks at the top being filled up by him. If desired as a check he punches a hole on the line, indicating the hour when the work is given out, repeating the same when the work and ticket are returned. The record of the time is kept by drawing a line between the various hour marks, an operation which the most illiterate can perform.* The ticket provides for several days’ work, and is not returned until the work is completed, when it contains the record of the entire job.f On the back of the ticket is printed the following: “ According to previous experience this work should require . . . hours. If completed in less time than that a premium of . . . cents will be paid for each hour saved.” When the ticket is returned, a comparison of the back with the front shows the premium earned. This is entered opposite the workman’s name, in a book kept for the purpose, which is a com¬ panion to the usual time book or pay roll. On pay day the accrued premiums are paid to each workman along with the regular wages. The cost book is written up from the ticket in the usual way, except that as the ticket usually contains the record of several days’ work, the labor of keeping the cost book is much abridged. On work which, while produced as a regular product, is still not produced in sufficient quantity to justify recording the cost of each part, the premium offer is made to the group of men who carry out the work. The proposition is made as a posted notice, or otherwise in the following form: “ According to previous experience this work should require . . . hours. If completed in less time than that a premium of . . . cents per hour saved will be divided among those working on the ma¬ chine, division to be in proportion to time spent on the work.” In this form the system loses the advantage of dealing directly with the individual, and the second objection to the profit-sharing plan is introduced, though in a modified degree, as a small group * Attention was called to this form of time ticket by Professor Hutton in Vol. IX. of the Transactions, page 386. f This rule holds, even when the job after being partly finished is interrupted by something more pressing. In such a case the ticket is taken up by the fore¬ man in order to insure that the entries have been made for the completed work. He issues the ticket again when the work is resumed, and when all is completed this ticket goes to the office, where a single entry in the cost book records what, under the usual method, might require a half dozen or even more entries. 49 764 THE PREMIUM PLAN OF PAYING FOR LABOR. of men is dealt with instead of the entire force. The remaining objections to the profit-sharing plan are not introduced, and on such work the plan proposed is distinctly superior, though lacking theoretical perfection. The piece-work plan does not apply to work of this kind, and hence there can be no comparison between it and the plan under discussion. On contract work undertaken for the first time the method is the same, except that the premium is based on the estimated time for the execution of the work. The system is thus applicable to all classes of machine-shop work except “jobbing ” or work done by the hour, and there is no very vociferous demand from the shops for a method of reducing the time on that class of work. The writer believes that, judiciously administered, the plan pro¬ posed will produce a larger output and cheaper work, and at the same time pay higher wages than any other whatsoever. DISCUSSION. Mr . John T. Hawkins .—In this paper we have still another attempt to protect—to be plain—unfair workers and employers against encroachments upon each other’s rights. It is of a piece with about all former attempts to substitute for the proper spirit of fair dealing between man and man in the two capacities, some¬ thing which shall force both to observe what the whole history of this question shows cannot be so controlled. If men would deal justly and fairly with one another in this matter, it is self-evident that the day’s-work, or better, the hour’s- work plan, is the ideal one ; but human cupidity on both sides interferes with its proper working, and the only remedy, in the * writer’s opinion, is to be found in some system of educating employers and workmen alike up to the fact that their common interests lie solely in each doing to the other what he would have the other do to him. But with such an observance of the golden rule would come the millennium ; and there is no very imminent prospect of great possibilities in this direction; nor will there be more than is brought about by the gradual but sure development of the race to higher ethical planes, unless some organized effort is made to school both sides up toward this ideal. The writer fails to see in the proposed plan any surer escape from the evils of the time in the relations of employer and work- THE PREMIUM PLAN OF PAYING FOR LABOR. 765 man, than in the older ones which the author of the paper mentions. In point of fact, it is far below the piece-work plan, which has shown itself to be the only ameliorating sys¬ tem where practicable. The author assumes a case in detail, and also assumes it pos¬ sible, in this case, to reduce the time required to produce a given price of work by 50$. If we apply this to an average manufacture, in which the labor constitutes one-half and mate¬ rial and expenses the other half of the total cost, with 10$ profit to the employer to make up his selling price, we have the unex- istable conditions that the employer will thereafter realize tabout 25$ profit and the workman obtain 33$ advance of wages On its face this looks very well and would seem to deal quite- fairly between the two; but the true state of the case is that no manufacturer has any right to such a profit, and if the out¬ side world would stand it, a much larger part of the saving should accrue to the workman, whose labor produces the given article ; this is of course providing we are prepared to condone in the workman the fact that he was capable by a fair day’s work of doing double what he actually performed under an agreed day’s wages. But there are others deeply interested in such a result What of the consumer? He would say that these people were’ getting rich at his expense and altogether too rapidly, that both were in a fair way to become those terrors of the times, “ robber barons; ” and he looks about him for means of putting a little of this undue enrichment, of this—as he would probably term it—monopolistic combination of workman and employer, into his own pocket; then, appealing to the cupidity common to em¬ ployer and employee, and taking counsel of his own, he pro¬ ceeds to procure the starting up of rival concerns, who will be satisfied with more legitimately low profits, and who would obtain workmen at lower pay than that gotten by the workmen in the aforesaid combination, and thus the initial wages rate upon which 10 cents for each tenth of the time saved is ad¬ vanced on the rate of premium, and the 25$ profit of the manu¬ facturer both succumb to the inexorable laws of trade and man¬ ufacture. The author, in discussing the piece-work system, shows that when the workman has “ astonished himself and all others by increasing his output far beyond the expected 25$,” and “ his 766 THE PREMIUM PLAN OF PAYING FOR LABOR. earnings increase with startling rapidity,” “ while the cost of the work remains the same,” and says that under these conditions the employer, in cutting the prices, practically announces to the workman that “ his earnings will not be allowed to exceed a certain amount,” concludes that this cutting amounts to “ kiliing the goose which lays the golden egg.” Nevertheless this gpose must be killed in any event. If the employer doesn’t kdl it, the consumer, through his competitors, will not only kill it, but him. The fact is that no such golden eggs are to be had in industrial pursuits, and it would be most unrighteous that they should. As the writer has had occasion to contend in a previous dis¬ cussion of this subject: If a workman at piece work succeeded in producing a piece of work in one-half the length of time he previously employed himself upon at day wages, there is no es¬ cape from the fact that, when working by the day he was not only robbing his employer, but the consumer of his product as well; and it is to the credit of the piece-work system that it furnishes the means of discovering such a state of things. The piece-work system, in the writer’s opinion, furnishes the only relief from the unsatisfactory relations between employer and workman which so largely obtain under the day’s wages plan ; while the older and still prevalent plan of paying a given sum for a given time, with a quid pro quo rendered, is that which will continue to prevail and improve—as it, of all the proposed systems only, is capable of improvement—as men themselves improve. It does not lie either in profit sharing or premium paying to ameliorate the regrettable features of this older plan^ nor can any such amelioration come from any system which' overlooks the iron laws of supply and demand. In all the systems proposed, and in the newer more than in the original day-wages plan, human rapacity or cupidity defeats itself and with it the most promising of these new systems, whether it exists in the workman or employer or both; and when workmen learn that their interests lie in doing the best they can for an agreed compensation by the day or hour, and the employer similarly is persuaded that his success in the long run depends \ipon his paying the best wages that the market for his product will permit, commensurate with a fair profit to himself; paying always the highest wages to the best and most efficient workman, as a proper and legitimate incentive to THE PREMIUM PLAN OF PAYING FOR LABOR. 767 increased effort on his part, we will have as nearly the ideal conditions as are possible in any industrial system. Mr. E. F. C. Davis .—I have known several instances where the bonus plan was adopted, by which a certain amount of time was arrived at as being customary for certain work, and then cards were given out stating that half of the time saved would revert to the mechanic and half to the shop ; and that established what might be considered a minimum amount of time which each job would be likely to require with the appliances then in hand. Those shops which are doing this have arrived at what may be considered fair piece-work prices, and, after using the premium plan a little while, have dropped it as being too cumbersome, and come down to the simple piece-work plan. But by start- ing out with the bonus plan first, they avoided the necessity of such extensive cutting and have gotten at fair piece-work prices by the bonus system, which was too cumbersome to keep up; but I have never known anybody who carried out Mr. Halsey’s plan for any great length of time. Mr. William 0. Webber .—I think Mr. Davis has rather hit the nail on the head. Success in using the piece-work system results largely from making your prices right in the first place, and I think that can be easily done by a manager who thoroughly understands his business. On the other hand, I think that Mr. Hawkins has given one of the strongest points about the whole wage problem, and that is the willingness between both the employer and the employee to be absolutely fair with each other. We have found in the Erie City Iron Works, at Erie, Pennsylvania, that treating our men in that way has resulted not only to their advantage, but to ours. We have even had men come to us and say that the piece-work price for a certain piece of work was too much, comparing it with similar pieces of a differ¬ ent size. Now, we take that as a pointer, and if we find that, as in many cases, the prices seem high for a certain piece, we do not see anything unfair or unbusiness-like in going to the work¬ man who is doing that work and suggesting a revision of those prices. Sometimes they can be revised with good reason. We recently had a workman in our works come and say this. We were paying him a certain price for planing cylinders. He said if we would give him a more modern planer, he would plane those pieces for 20?£ less. That was certainly a fair proposition on his part, and we immediately took it up. I think that the 76o THE PREMIUM PLAN OF PAYING FOR LABOR. piece work system is the only one which will ever be successful in any way, and to make it a success, there must be a complete fairness between the employer and the employee, and the mak¬ ing of prices right in the first place, which any man who under¬ stands the business ought to know how to do. Mr. William Kent .—I regret that Mr. Halsey has not given us actual data in his paper. I regret still more that Mr. Hawkins has presented an argument which is altogether a priori without any facts, except those drawn from experience with other sys¬ tems than the premium system. Mr. Halsey some three or four years ago proposed to me this premium plan, and I fortunately was then in a position to put it in practice at once, and it has been in use in the shops of the Springer Torsion Balance Com¬ pany now for three years, with satisfaction to both employer and employed. I heartily endorse the plan as admirable in every respect. It has given no trouble at all. I may admit with one of the other speakers that this plan may result finally in the piece-work plan pure and simple. Whenever experience has gone so far that you cannot improve the method of manufacture, and the workman has got into a rut, then the amount which he gets under the premium plan will be a certain amount per piece. You might just as well in that case pay him by the piece; but as long as there is any chance of improvement, and men have not reached the utmost limit of their skill or inventive powers, so long will the premium plan be a good incentive to the work¬ men. In practice under the working of this premium plan, we have perhaps a small piece of machine w T ork to do, and we have no previous experience in making it, but we put a boy to work upon it, and find that by his ordinary skill in attending a machine, doing as he is told, he turns out say 100 pieces in a day. We tell him that there may be some quicker way of doing that work if he can find it out, and we tell him we will give him a quarter of a cent premium upon every piece he makes over 100 a day. Now, we have had the number of pieces turned out jump up to three hundred a day, and that simply by some little knack that the boy discovered, which he was under no obliga¬ tion to discover, and which he had no incentive (except the pre¬ mium) to discover; he was not cheating his employer by not inventing or discovering that method before, but when w T e gave him an incentive to try and discover something, why, he went to work and he succeeded and added 50^ to his wages. This is an THE PREMIUM PLAN OF PAYING FOR LABOR. 769 actual case, and not a hypothetical one. So I close as I began, by saying that I heartily endorse Mr. Halsey’s plan, and I hope that gentlemen will not condemn the plan unheard, or until they have more data as to its actual working. Mr. Frank H. Ball .—I am very glad indeed to hear what Mr. Kent has said on this subject. I recall—and I presume other members here recall—a paper entitled “ Gain-Sharing ,” that was read at the Erie meeting by our ex-president, Mr. Towne, describing a method very similar to the one which Mr. Halsey proposes. The difference between the two plans is simply this: In the plan of gain-sharing which Mr. Towne described, the business was divided into departments, and the men in each of these departments were given a share in whatever they would save over certain fixed prices. For instance, in a foundry they found that it cost a certain amount per ton for labor, and his plan was to divide with the men what they would save over this fixed cost. Mr. Halsey goes one step further and brings it down to the men individually. The argument which Mr. Towne made for his method as against the profit-sharing plan, was substan¬ tially the same as Mr. Halsey’s argument, and he gave us iG understand that the results were very satisfactory. Mr. Halsey proposes to deal directly with each man, and I think the idea is an excellent one. It seems to me that it has advantages over any other system that has been proposed. If any system other than day wages will work well, it seems to me this system will. Mr. H. H. Suplee .—The gain-sharing plan has been in use at the works of the Yale & Towne Manufacturing Company, Stam¬ ford, and both parties are thoroughly satisfied with its opera¬ tion. In discussion of this paper with Mr. Towne—and as I think he would have discussed it himself if he were present— he at once noticed the similarity of the method as being the gain-sharing method reduced to a smaller difference of sub¬ division—the same in principle, but only different in applica tion. Mr. Henry L. Gantt .—I think Mr. Kent’s remarks are subject to another interpretation. If that boy using the same tools could by a little knack increase the product 300^, it seems to me that either the foreman was careless in giving him directions, or was lacking in knowledge ; at all events, something was wrong to start with, and the problem resolves itself into the original question : What is a day’s work ? 770 THE PREMIUM PLAN OF PAYING FOR LABOR. Mr. Thos. H. Almond .—I wish to call to the attention of the members something that was stated soon after Mr. Towne’s paper at one of the meetings in New York. A gentleman from Altoona stated a case which came under his immediate observa¬ tion. There were two men who were requested to do their work by the piece, and during the three or four days that they were doing the work by the piece one of them went to the fore¬ man and said, “ I cannot make day pay this way,” while the other man said, “ I am making twice as much as I was by the day.” Now, here was a case that you could not account for in any way excepting as stated by the foreman in the answer he made to the man : “ The trouble is not between yourself and me; you must go to the Creator.” Mr. Hawkins .—I am prepared to admit the a priori character of the discussion that I presented (and I wrote it very hastily and with a view of simply eliciting discussion); at the same time, while the arguments of Mr. Kent and Mr. Suplee seem to be conclusive, from the fact that up to the present time the two systems adopted by the Springer Balance Company and the Yale & Towne Company “ have been successful,” they give us no measure of this supposed success, and I contend that the time is entirely too short within which they have been put into practice to settle anything in the question. The time will come with both those concerns when they will be ready to drop their new plans, or it will revert practically into the piece¬ work or day-w r ork system, if it is one of those kinds of manu¬ facture in which the piece-work plan is practicable. Unfortu¬ nately, in the machine business it is not practicable in many places. While I have no data, I venture to say that if data -ould be obtained from piece-work establishments, the work¬ ing of that system as against the profit-sharing or the pre¬ mium-paying plan would be shown to have been very much more successful. I can point to an establishment as long ago as from 1850 to 1860 where they established the piece-work system and expected to carry it out thoroughly in all departments, but they have practically dropped even this plan except in those par¬ ticular special parts of the machine to which it could be most practically applied. It requires a long time to settle this ques¬ tion or any of these new ideas in connection with labor, and I venture to say that they will all finally come back to that one idea: that they must learn to treat one another right. THE PREMIUM PLAN OF PAYING FOR LABOR. 771 Mr. R. Van A. Norris .—This seems to be very much like the Pennsylvania Bailroad’s method of paying the engineers and firemen on their line a premium on coal saved. They allow a certain quantity of coal for the run, and then they pay a pre¬ mium on all the coal that is saved. A plan resulting very sim¬ ilarly was in use in one of the copper mines in Michigan some years ago, where the mining was found to be very expensive and the powder bill was extremely high. The amount of powder used per cubic fathom of rock by each miner was posted on a bulletin board each month and a prize given to the man using the least. That resulted in a reduction of about one-third in the powder bill, and, as all work was done by contract, the result was a reduction of the contract prices and an increase in the amount of money made by the men. Mr, E, F, 0, Davis .—I think most of the objections raised against piece work are by people who have never had a good opportunity to observe how it works. It is very automatic and self-regulating in its workings. If one man is making too much on a job, and, by any particular appliance is making very much more than his employer thinks he ought to make, there are ten chances to one that somebody else in the shop will notice the money he is making and will come forward and make a bid to get that work at what he considers a fair profit for himself. So that the thing works all the time to the benefit of both parties. Whenever any new appliance is put to work, particularly by the foreman or the employer, no reasonable mechanic ever objects to having his prices changed in proportion. I think that the fact of the matter is that both the premium plan and the piece-work plan come down to very much the same thing. So far as my experience has gone, I think that people who have tried the premium plan have generally abandoned it and adopted the piece-work plan, as being a simpler way of getting about the same thing. The piece-work plan makes a little less book¬ keeping. Mr. James McBride .—The remarks this evening have pro¬ ceeded entirely upon skilled labor. I want to make a few remarks about unskilled labor. The New York Dye Wood Extract and Chemical Company, of which I am superintendent, employs very largely unskilled labor. About two years ago the firm decided that they would set aside a portion of the earnings of the concern each year, to be divided among their employees 772 THE PREMIUM PLAN OF PAYING FOR LABOR. —not committing themselves in any way to their employees, but simply giving to them a certain amount of money, in Jan¬ uary each year, when the laboring man needs it more than at any other season, all in a lump sum. That plan was adopted two years ago. The result, while not altogether satisfactory, has been a great improvement to the old system of simply paying them day’s wages. We find among the skilled mechanics that those who can reason to a conclusion are very much in favor of it. Among the unskilled laborers, while a good many of them do not exactly comprehend it, they think a good deal of it, so much so that when they get a man in among them who was born tired they make it so hot for him that he is glad to get out. Our pay roll has decreased in some departments very materially from the fact that a good man refuses to work alongside of a poor man. I am in favor of some method by which a portion of the earnings can be divided among the employees. I do not know what is the best plan. We adopted this plan, as we thought it the best for our purposes, and so far as we have gone with it we are satisfied it has been an improvement. This disturbed condition of labor points to the conclusion that manufacturers in the future, in order to pacify their workmen and keep them quiet, will have to devise some means by which the workman can become a sharer in some way with his employer. Prof. G. /. Alden .—Will the gentleman be willing to state what sum unskilled labor received, and what sum skilled labor received of this division of profit each year ? Mr, McBride .—The first year we paid the common laborers 5$ upon the amount of money which they had received during the year, and we made it obligatory that the men should be prompt at their work ; if they lost twenty days in the year, this per cent, was either kept from them, or it was reduced. We gave the skilled laborers 10^ upon the amount which they had received during the year, and those men higher up received a little more. The first year every man received a percentage, but the second year we were obliged to make a discrimination, and those who were tardy in arriving at their work, instead of getting 5% got only 2J#, and the skilled men got 5 ft instead of 10^. The result of this discrimination has been that those men who have been docked have since been very regular in attendance ; they have become the laughing-stock, as it were, of their fellow workmen, and they have tried to make a better record. THE PREMIUM PLAN OF PAYING FOR L4BOR. 773 Mr. William H. Weightman .—I think that we might strike at the employers on this question. They are as ambitious for a profit as the employees. My dealings have been more with those operating shops, and I have found that I can save 50$ by calling for contract prices, over what it would cost by arrang¬ ing to pay “ the actual cost ” with a certain percentage of profit. I had the same party do two similar pieces of work. The first one he did by contract, and he admitted that he made 30$ profit. Some six months after that I had a similar machine made, where there was a possibility of having to alter it, and, sooner than have any trouble in regard to these alterations after the contract was made, I told the party to keep track of the time and allow his own profit afterward. This one cost us three times as much as the other, in spite of the fact that we found there was no necessity for the alteration. So that of the two machines, one cost $80, the other cost $150; and while in the first instance he stated (he had forgotten the admission he had made) that he had made 30$ at $80, in the other he stated that he made the exact amount that the 30$ on $80 was. Thus while the em¬ ployer and employee can hardly trust each other, sometimes the employer is a little doubtful himself and “the golden rule,” a factor all around. Mr. Hawkins .—In 1877 I took charge of a machinery establish¬ ment in the city of Brooklyn, and carried out the old plan. I did not know a single one of the workmen in the whole concern, but I called them all together and I talked to them just as an employer or superintendent should talk to a number of men, expecting them to do the best they could. I gave them to understand that if they did the best they could, due considera¬ tion would be given them, and reward to those who did the best in the way of wages; and a dismissal or reduction of pay of those who did the worst. In the course of two or three weeks I found it necessary to discharge half a dozen men, from the fact that I could of my own observation see that the work which they were doing was being “ nursed.” I discharged them as examples, and I found my action resulted in great improve¬ ment on the part of the rest of the men. I also took the other course and raised the wages of the men who were doing the best, and that made a still greater improvement. I carried that system through in that shop so long as the shop was carried on, and I think with a great deal of success ; and I will 774 THE PREMIUM PLAN OF PAYING FOR LABOR. place this success against that of Mr. Kent and Mr. Suplee, and I venture to say that if I were to start a shop to-morrow, I would adopt that course, keeping in proper touch with the men, and I would undersell every one of you who pay these premiums or adopt these other methods. (Laughter and applause.) Having undersold you, the law of supply and demand steps in and forces you to modify or abandon your scheme in self- defence. The great trouble with all these proposed systems is, that they only partially, if at all, discriminate between a man’s ability and his willingness to do. The old system, properly adminis¬ tered, enables an employer to reward superior ability, with as good a means of discriminating against idleness or unwilling¬ ness ; in which, of course, the employer is called upon to act fairly. The latter rewards a man in proportion to his ability, while the former too largely offers incentives merely to perform what was the man’s obvious duty in any case. “ Capital and labor could get on well enough together if there were not so many men trying to get capital without labor.” Mr. Daniel Ashworth .—I have listened very attentively to these remarks. The difficulty with so many fine-spun theories and Utopian ideas such as we have heard, is, that they are trying to get rid of one important factor, and that is the force of circum¬ stances from the commercial side. Mr. Hawkins touched upon a very important point, when he spoke about carrying out a cer¬ tain scheme to undersell his competitors. Now, mark you, this is one of the turning points. I know it from teachings of expe¬ rience among many branches of industry in the United States. Systems have been developed upon this question, upon which a manufacturing concern would step forward in the market by some process of distribution of the pay, in the shape of pre¬ miums and piece work, and the gentlemen on the other side would immediately figure it out how much cheaper they could sell these goods, and eventually they would invent some plan worse than before, because these competitors would be stirred up. There is the weak point. Cupidity dominates trade, and it is a constant attempt of one to over-reach the other. There is the figuring in the office very elaborately, and it is presented as an ultimatum to the employees, “ that we propose to carry out this system,” and it is carried out. As has been repeatedly said, it is just like the old story of the naval distribution of prize THE PREMIUM PLAN OF PAYING FOR LABOR. 775 money: you sift it on a ladder, and that which remains on the rungs is for the men, and that which falls through is for the officers. I can point you to industries in the Ohio Valley, which for the last twenty years have had a species of competition beyond a parallel in the history of any industries in the world, and they have been going right along. I hey have been indulging in deception upon the great mass of their intelligent employees ; they said there was no money in the business at all, that ruin was staring them in the face, and yet those establishments have been increased from one to four furnaces, and they have branched out in the different valleys where the natural fuel would reach them. With all our boasted civilization, we ignore the fact that these workmen are becoming more and more intel¬ ligent every day. When you will take the intelligent working masses and say to them, “ Send your representative to us whom you see fit to appoint to discuss these questions,” then you will have a starting point, and then you will have the data which have been so much talked about to-night. And right there I wish to say, as has been said by Mr. Webber, start right. When, in God’s name, ever was the time that the manufacturer had the right figure ? Why, he would change it in six months. (Laughter.) I stand here to-night to champion the other side of this ques¬ tion, because I know I am in the minority, and yet I know I am right. ,We might talk until the crack of doom, and it would be one man trying to over-reach the others. Intelligent men, such as our mechanics are, should be, and they are, able to agree with their employers upon an equitable basis. Mr. Thomas R. Almond .—A case has come under my notice to-day which illustrates what Mr. Ashworth says. This morning I went to see a prominent business man of this city, who said: “ I have never met you before, sir. I had an impression that you were a tall, thin, dried-up kind of a fellow whom I didn’t wish to see; your letters to me were so peculiar, your prices were always so stiff, that I formed an opinion of you that was far from pleasant; but, sir, I have learned to like your way of doing business.” And he added: “ It is because we are all cutting- each other’s throats, and trying to get each other’s business that our profits are 10$ instead of 20 i or 25$. If manufacturers would all keep their prices so that we could rely upon them, we. could all maintain our prices.” I take it, sir, that Mr. Ashworth 776 THE PREMIUM PLAN OF PAYING FOR LABOR. is decidedly correct. I said to my foreman four years ago : “ I want yon to make those goods and fix the prices yourself, and if these are satisfactory to me, I will not cut them as long as you work for me, and the market prices can be maintained.” Since then I have increased his prices. I do not wish to laud my own actions in any sense, but I do believe Mr. Ashworth is correct every time when he says that the manufacturers and the dealers are more at fault than the workmen. Mr. Weightman.— These experiences always result in four or five different concerns reducing their prices until they get to the point of cutting each other’s throats, when they conclude to form a trust, binding each other to maintain a certain fixed price, by means of which they are safe against having their business ruined. Instances can readily be cited where concerns agree between themselves that they had been cutting the prices down too low on the strength of this style of competition, using em¬ ployees as assistants in reducing the prices, until the concerns get in such a condition that they are not doing a safe business. They immediately conclude to form some plan by which they can control each other and keep from going down too low. A combination is formed, an agreement signed, and they work along smoothly with moderate safety. The employees still get their profits. The result is a slight advance, so that the com¬ panies as well as the employees are for the time being satisfied. If you can get employer and employee to trust each other and to believe in each other there will be some sort of an under¬ standing in, though hardly a definite conclusion to, the labor problem. Mr. Robert W. Hunt .—During a somewhat busy life I have been constantly thrown in contact with labor questions. In the great development of the Bessemer business we had constantly to meet new conditions, which caused all of us—both the men and the employers—considerable trouble. The product of last year would be a ridiculous amount to be satisfied with this year, and yet the same number of men would execute the work. This because inventive genius had devised, and much money had been expended in providing mechanical appliances which ren¬ dered it possible. These conditions had to be met in some way. Certainly under such conditions the men ought to be willing to work for less pay per ton, while still earning more per day. I do not wish to detain you by giving reminiscences, and will close THE PREMIUM PLAN OF PAYING FOR LABOR. 777 by saying that in my judgment any st p which is taken in good faith, looking toward the solution of this labor trouble, is worthy of respectful consideration; and before its trial it is dan¬ gerous for us to say that it will not work. If any gentleman at the head of an establishment is willing to make the experiment, in the name of humanity let us bid him God-speed. Let him try it, and then let him give us his results, and thus help his neighbor in his efforts to better humanity, and his own interests. Undoubtedly the foundation for the solution of these difficulties is the relations existing between the employer and the em¬ ployee. If a manager is an able and fair man, he will succeed much more easily than if he is incompetent and unfair. Un¬ fortunately there is another difficulty which has to be constantly encountered, and that is, that some man who does not work for you will come in and be supported by your men in his right to assert his authority to discuss with you your relations with your employees. I think that this is the most serious difficulty any fair-minded employer has to meet. Mr. Fred. A. Halsey *—It is all very well to say, as Mr. Hawkins and others have done, that the true solution of the wages prob¬ lem is for men to deal justly with one another, which in this connection means for the employee to exert himself to the utmost, and for the employer to pay as high wages as he can afford. Unfortunately, however, this is not in human nature ; and, whatever the millennium may bring, the problem before the employers of to-day is to deal with human nature as it is. It is a truism that the average man will not work for others as for himself, and the average employer desires to get his product as cheaply as possible. This may seem culpable to Mr. Hawkins, but to the writer it seems natural, just, and proper. At all events it is inevitable, and it is the purpose of the premium plan to provide for, and make use of, these features of human nature by giving the employee an opportunity to work in a measure for himself, and by giving the employer the assurance of a more than proportionate increase of product from a given increase of wages. Mr. Hawkins’s objection that the plan involves the “ unexist- able ” condition of a profit of 25and that the manufacturer has no right to such a profit, seems to me irrelevant. Such arguments do not prevail against facts, and while, of course, it is not to be * Author’s Closure. 778 THE PREMIUM PLAN OF PAYING FOR LABOR. expected that the system will produce a general increase of output of 100/,* it is nevertheless true that in individual opera¬ tions that figure has often been exceeded, and that too when such foremanship talent as was available had not discovered anything wrong with previous records. Mr. Hawkins’s third objection, that rival concerns would spring up, and by avoiding the premiums, produce the work that much cheaper, is based upon the assumption that the premiums are a charge upon production, i.e., that the same production can be had without as with them. This is the kernel of the question, and here I believe Mr. Hawkins to be wholly wrong. He here, as, indeed, all along, confounds plans based on the profit-sharing principle, viz. : the division of a percentage of the profits among the employees in the general faith that the promise of such divi¬ sion will buy their good will, and thereby lead them to increase their product, at least enough to make up the amount divided among them, but ichich amount is to be divided whether the increase really takes place or not, with the present system in which the pre¬ miums are paid only in case of actual increase. With the first system the increase must take place, or the cost of production is raised, but with the second system this is impossible. There could be no better place to try the question to a conclusion than such a shop as Mr. Hawkins proposes, where the day’s-work method is employed in the most enlightened manner. Mr. Hawkins may find a few men (I have never found one) who will produce as much on the day’s-wages method as when offered the inducement of the premium plan; but that is not, and never will be, the case with an entire force, and if a single man of the force is susceptible to such induce¬ ment the plan applied to him will cheapen the product. If it does not reduce the cost there will be no premiums to pay. The fact is, that the average employer, foreman, or workman who has seen machine tools operated only on the day’s-work system, does not know what they are capable of producing; and to those who have seen them worked under systems analogous to the one proposed, to claim that as good results can be obtained under day’s-work methods, seems absurd. *Tlie table on page 759 is given merely as an illustration to explain the work¬ ing of the system. There is nothing about it, or in connection with it, to justify the implication that the last line of the table represents an average result to be expected from the system. THE PREMIUM PLAN OF PAYING FOR L^BOR. 779 Turning now to Mr. Davis’s remarks, I have no shadow of doubt that his workmen could, and to one possessing their con fidence would, draw a very different picture from his as to the “ automatic ” feature of piece work. Mr. Davis seems to have succeeded in getting his men to compete with one another. Few have succeeded in this, the usual reduction in the piece prices being brought about by a direct cut by the employer. However, the results are the same. Each workman knows that if he push his earnings above a more or less clearly defined limit, some other workman will' underbid him, and he would be foolish indeed were he too active. When men know, as under piece work all do know, that their earnings will not be allowed to exceed a certain limit, it is idle to expect them to exert them¬ selves to pass that limit, and right here is the essential differ¬ ence between the piece-work plan and the one under discussion, which some seem unable to see. The piece-work plan neces¬ sarily sets such a limit, while the present one does not. As to the system furnishing a mere stepping stone to the piece-work plan, its case is exactly analogous to a mathematical limit. When improvement can go no further, the system may be turned into piece work ; but that, like a mathematical limit, is a condi¬ tion which we forever approach but can never reach. As the system proposed has excited considerable interest I add a few practical hints to any who may feel disposed to give it a trial. The first of these is a caution against expecting the work¬ men to receive it with any enthusiasm ; on the contrary, they will in most cases look upon it as piece work in disguise, and that sys¬ tem is so excessively and justly unpopular, that they will at first regard the present plan with suspicion. A little patience on the part of the employer, and a little experience on the part of the employee, will correct this, as the workmen find that the pre¬ miums are not a myth. It has been pointed out in the body of the paper, that the sys¬ tem enables an employer to deal liberally with his men. At the same time there are two directions which this liberality can take. One method—and the wrong one—is to take the best record obtainable as a base, and then offer a liberal premium for its reduction. No force can be composed entirely of “ stars,” and if the above plan is followed it will be but a question of a short time when an inferior man will be put upon that job, who will soon find that he cannot equal the base rate, and he will 50 780 THE PREMIUM PLAN OF PAYING FOE LABOR. cease trying. At the same time, a really superior man on the same job might push his earnings so high, in consequence of the large premium, as to tempt the employer to the fatal step of cut¬ ting down the premium. To meet this condition, I have adopted the settled policy of being liberal with the time rate rather than the premium rate, thus giving all a chance, and keeping the premiums within satisfactory limits. Whatever may be the final policy in this particular, the system should be inaugurated at least with moderate premiums, since if its experimental premiums are made too low, no one can object to their being raised, whereas, should they be too high, it is another matter to lower them. In this connection, the table on page 759 was intended solely as an illustration of the principle of the system. As a matter of fact, a premium rate such as is there given would be altogether too high for the ordinary run of light machine-shop work, while for other and more laborious work, it might be altogether too low. As a matter of fact, I have produced excellent results with premiums as low as three cents an hour. Finally, it is but just to himself that the author should add that this method has been in no way suggested by Mr. Towne’s excellent gain-sharing system. In point of fact, the present plan was clearly formulated before the publication of Mr. Towne’s paper. Its publication has been deferred in order that it might first receive practical trial, and be presented with a cor¬ responding measure of assurance. It has now been tried in three establishments, and in each case with results such as have been described.