THE CHAIRMAN: The first order of business this afternoon is the report of the Nominating Committee, and for routine purposes I will ask Mr. Herbert if he will act temporarily as the secretary of the meeting.

FREDERICK SMITH: In the consideration of recommendations for officers and members-at-large, your Committee has endeavored to select a personnel that will continue to carry out the progressive program established during the present and past administrations and takes great pleasure in submitting for your approval:

For Chairman

E. J. Fowler, Commonwealth Edison Co., Chicago, Ill.

For Vice-Chairmen

Wm. Schmidt, Jr., Consolidated Gas, Electric Light & Power Co., Baltimore, Maryland.

W. E. Long, Philadelphia Electric Co., Philadelphia, Pa.

W. A. Jones, H. L. Doherty Co., New York City, N. Y.

For Members-at-Large, to serve for a term of two

years

Oliver McCormick, Middle West Utilities Co., Chicago, Ill.

R. R. Reidford, Pacific Gas & Electric Co., San Francisco, Cal.

P. R. Ferguson, The Southern Sierras Power Co., Riverside, Cal.

Introduction

To emphasize certain characteristics of bonus systems which, in the opinion of the Committee, are of an importance not generally realized; to place bonus systems in their proper relation to the various other methods of compensating labor; to tie in the work of the Committee with that of the 1920 Committee it is believed a brief review of the previous year's work is advisable.

History

A discussion at the 1919 Convention of the tendency of employes on routine work to lay back on their oars after a more or less extended period of employment caused a committee to be appointed to study and report on the use of bonus systems as a

possible means to overcome this tendency and for the further purpose of increasing the efficiency and improving the conditions of labor throughout the organizations of member companies. There appeared to exist a very considerable and rather favorable interest in the subject.

The Committee members were naturally selected from among those companies known to have made some use of such systems or particularly interested in them, and as a consequence the Committee began work with an expectation of finding considerable virtue in the use of bonus systems.

The preliminary investigations and discussions immediately developed the need of three things:

1. A clear definition of the meaning of "bonus systems."

2. An exposition of the underlying principles of the systems in use and of the factors requiring consideration when the use of bonus systems was contemplated.

3. Some classification of bonus systems in order to analyze the plans reported in effect among member companies.

As no literature on the subject could be found at the time, the Committee was compelled to develop the entire matter for itself, devoting considerable thought and time to its definitions.

In particular, it divided bonus systems into five classes based upon the primary object each class was designed to accomplish, it being recognized the primary object was the controlling factor in determining the form of any plan adopted. The Committee also particularly called attention to the strong tendency all systems in use seemed to have of back-firing into more or less undesirable secondary effects.

It investigated the extent of actual use of such systems in the 141 companies in the United States that served all cities with population of 50,000 or more or that had 10,000 kw. or more of generating equipment installed; 133 of these companies reported, among which only 24 had made use of bonus systems to any extent whatever. The majority of the plans in use were found to be of very recent origin, and, moreover, in practically every case, were applied to a relatively few employes in any one company. While a number of the 24 companies reported well-authenticated records of increases in the quantity or quality of work that had followed the introduction of their systems, there were, on the other hand, nine cases reported of the abandonment of such systems after more or less extended use. Just two companies were found that had made a sufficiently extensive use of bonus plans to justify consideration of their experience as a proof of the possible advantages or disadvantages accruing from the use of such a system. These two companies had in effect a plan developed by the holding company with which both were affiliated and used it to pay upward of 70 per cent of the total number of employes. Neither was prepared, at the time, to express an opinion for or against the plan and the Committee was unable to report concerning it.

The lack of any available experience within our own industry caused the Committee to initiate investigations outside among a number of large industries that were known to be experimenting with various methods of compensating labor, including a number of true bonus plans, but no marked tendency in any definite direction was developed to justify further extended study.

In its conclusions the Committee called attention to the insignificant use that had been made of bonus systems and to the large number of other plans of compensating and encouraging labor excluded from consideration on account of lying outside the Committee's definition of bonus systems, to which its work was confined.

Present Year's Developments in Use of

Bonus Systems

The work of the present Committee was confined by its instructions to the further consideration of bonus systems only and in view of the status of such systems as outlined above and the radical changes that have taken place during the year in industrial conditions generally and in those connected with labor in particular it was felt the year's experience with such plans as were in effect should show more or less conclusively their value as a permanent method of satisfactorily compensating labor and avoiding the acknowledged defects of the straight daily wage.

The same 141 companies serving all cities with populations in excess of 50,000, or that had in excess of 10,000 kw. of generating capacity installed, were requested to report any increased or decreased use that had taken place during the year and any particular advantages or disadvantages their plans had developed with the changing industrial conditions.

Reports were received from all of these 141 companies and are tabulated herein. Briefly, of the 24 companies reporting bonus plans of any sort in effect one year ago, 16 now report no change of any kind, four report complete abandonment, one partial abandonment and three an increased use. Three companies report the inauguration of bonus. plans during the year.

Several of the companies reporting no change expressed dissatisfaction with their plans and an intention to change or abandon them at the first opportunity. Various reasons were assigned for the abandonment of the systems so reported.

Of the three companies reporting an increased use, one that had in effect in 1920 a quantity bonus plan to meter readers only extended the plan to cut-off and renewal of service employes.

The second of the three companies reporting what appeared to be a greatly increased use during the year advised as follows:

"This statement may be said to represent a composite of my views and those of heads of departments in which the bonus plans are in use.

The employes who are working under our plan are by the nature of their work of two general groups, each of which is composed of several related occupational classes, viz.:

The existing bonus plans were devised and placed in operation, at various times, between March, 1918, and May, 1920. Prior to 1918 there was a bonus plan tried out among a group of workers now replaced, under the present billing system by Bill Ledger Typists.

It will be noted that this Company has had practically its whole experience in the use of bonus plans during the abnormal conditions of war time, and the reconstruction period which followed.

The most recent extension of the bonus plans occurred early in 1920 when Wiring Inspectors and Bookkeepers were added to the groups already under a Bonus Plan. Both Wiring Inspectors and Bookkeepers are closely related and associated with such groups and suffered

equally from those adverse conditions which resulted in excessive turn-over and lowered efficiency. Likewise these two classes also are comparatively large groups of routine workers, a circumstance favorable to the application of bonus plans.

As a whole the bonus plans in use in this Company, during the period in which they have been in operation, have had a considerable measure of success in accomplishing the purpose for which they were intended.

It is doubtful, however, had conditions been normal during the past several years, that there would have been occasion for their employment even to the limited extent in which use has been made of them. The further extension of bonus plans under present conditions is practically precluded. Presupposing a return to normal condition, there is grave doubt as to the advisability of extending a bonus system any further along in the organization. With the return of normal efficiency the undesirable secondary effects, inherent with bonus plans, become more apparent, and are likely to be cumulative as the scope of the bonus system is broadened. It is my opinion, as I have already advised the Committee, that there is nothing in the experience with or extension of the bonus plans of this Company to justify giving them special significance or weight of prominence or special mention.'

The third company reporting an increased use is referred to later in this report.

Of the three companies reporting the inauguration of plans during the year, two started a quantity bonus to meter readers and the third a quality bonus to meter readers and an economy bonus to firemen.

Present Status

The present status of bonus systems would seem to be fairly definitely determined by this record of the total experience with their use in our industry throughout the United States.

The Committee appreciated, however, that this total experience represented the actual application of bonus systems to less than one per cent of the total employes of all member companies and felt it should investigate all other possible sources of information that could assist it in reaching correct conclusions.

Other Investigations

(a) Among Executives.

It addressed a letter to several of the chief executives of the larger member companies, who have been active during past years in Association affairs, asking replies to the following two questions:

1. Do you consider it advisable to encourage the inauguration of bonus systems in the payment of public utility employes and to increase the extent of their use?

2. Along what lines is the payment of public utility employes most likely to develop in the future; that is, will the tendency be to continue the straight daily or monthly wage or will some form of piece work bonus payment, profit sharing or other system be found the most satisfactory and consequently the most probable of adoption?

The answers, where permission to publish was granted, are given in full hereinafter. They express

the judgment of men having to do with large numbers of employes, and it is interesting to note the similarity of the conclusions reached and how the results of your Committee's investigations support these conclusions.

(b) The National Industrial Conference Board's Report on Profit Sharing.

Your Committee also found that the National Industrial Conference Board, of which the National Electric Light Association is a supporting member, had made a rather thorough study of the whole field of profit sharing, the results of which were published in June 1920 under the title "Practical Experience with Profit Sharing in Industrial Establishments" (Research Report No. 29). The method of wage payment your Committee has defined as "Bonus Systems" is substantially the same method that the National Industrial Conference Board designates as "Savings Sharing Plans," as will be noted from the following definition taken from its report:

"Savings Sharing Plans endeavor to provide a direct incentive to better team work by sharing with the workers in a given group or department the savings achieved in the cost of production. They are based directly, on the extra group effort put forth by the workers who are rewarded in proportion as they bring about lowered production costs, irrespective of profits or losses in the establishment as a whole."

The Committee has gone into this phase of the subject much more fully than has the National Industrial Conference Board, and, as will be remembered, divided "Bonus Systems" (or "Savings Sharing Plans") into five distinct classes.

Some of the comments and conclusions of the National Industrial Conference Board are quoted as follows:

"In the first place this plan is the least popular of the five methods of wage payment described in the report, only 12 out of 137 described plans being of this type.'

"Savings Sharing (Bonus) Plans are of recent development and are few in number.

"That such a plan must be limited in application is obvious since a trustworthy basic line (standard of performance) is possible of determination only in establishments that manufacture a fairly uniform and standardized product."

"These (Savings Sharing or Bonus Plans) undoubtedly secure cooperation and loyalty in establishments able to employ such plans with all the elaborate paraphernalia involved."

It will be noted that these comments and conclusions are also substantially in agreement with the results of the Committee's investigations.

The use of different terms to denote the same idea is very unfortunate and was one of the great difficulties the Committee had to contend with in its preliminary discussions. It is suggested that in any further study the Association may see fit to give the subject, the terms used by the National Industrial Conference Board should be adopted.

(c) The One Case of Extensive Experience.

The third company, previously referred to as reporting an increased use during the past year, is the one example of the wholehearted acceptance of

bonus payments as a satisfactory method of compensating all employes of a public utility regardless of the particular kind of work in which they are engaged. At the Committee's request, this company very courteously placed all of its great collection of data at the Committee's disposal and assisted with explanations a special investigation the Committee made of the plan and its allied activities, although the company disclaimed any desire to pose as an advocate. It is believed a brief report of the Committee's finding will be of interest.

It was the Committee's intention to confine its investigations to the use of the bonus system and the advantages and disadvantages such a relatively extensive experience had developed. The bonus system was found to be so interwoven with certain other activities it could not be fairly considered without a presentation of this company's relations with. its employes as a whole. These relations are the result of a development extending over a period of years and can now be considered as a rather definite plan of dealing with labor which on first view has a decidedly radical appearance. Being a development and not entirely a preconceived plan, its outlines are not everywhere clearly defined.

The Committee has not an intimate knowledge of the plan in detail and the following sketch is given. only for the purpose of definitely placing the bonus

system.

The plan centers in and is an outgrowth of the Employes Mutual Benefit Association. This Association has been developed into what is practically a selfgoverning Industrial Union designed to embrace all employes and resembling a Fraternal Order in its use of a ritual, lodge rooms, etc.

This is the outstanding feature of the general plan. It has a board of directors, chairman, president, vicepresident, secretary and treasurer, with assistants and a number of directors' committees and special committees to look after the various activities under its jurisdiction. It also maintains its own medical staff. All the directors are at present elected by the employes, giving them complete control.

Its activities cover at present:

1. An arrangement whereby the Industrial Union enters into a contract with the Company for the supply of practically all needed employes, this contract being subject to revision from time to time as necessity may dictate. The employment bureau is thus operated by the employes themselves.

2. An arrangement whereby the wage paid consists of two parts, a basic factor measuring the worth of an employe working at the average rate and an additional factor or bonus resulting from increased efficiency or production.

3. An arrangement whereby the basic factor in the wage comes up for reconsideration semiannually with the idea that it will be adjusted to keep pace with the cost of living.

4. An arrangement whereby any employe or

group of employes can bring dissatisfaction with labor conditions to the attention of the officers of the Company at any time.

5. An arrangement whereby the employes agree not to leave until the Company has had sufficient time to replace them, thus theoretically eliminating the possibility of strikes.

6. An arrangement whereby members receive medical attention and sick and death benefits through the association. The medical attention also applies to members' families and at present the furnishing of dental service is under consideration.

7. An arrangement whereby members may obtain certain supplies like coal, flour and potatoes at reduced rates by cooperative purchase. 8. An arrangement whereby members may obtain life, health and accident insurance "at cost." This is in addition to the actua! sick and death benefit feature referred to above. 9. An arrangement for carrying on various athletic, educational and recreational activities. 10. An arrangement whereby the safety work is put into the hands of the employes. There is also a Building and Loan Association, regularly incorporated, and consequently not directly operated by the Employes Mutual Benefit Association, but its subscribers are all employes and its work also interwoven into the general plan. These activities are usually grouped by other member companies under the following heads and handled separately:

(A) Hiring and Control of Employes.
(B) Welfare Work.

(C) Remuneration of Employes.

These groups are not necessarily inter-related, but the management of this company believes it is essential to consider them as a whole and undoubtedly the average employe so considers them.

(A) Hiring and Control of Employes

By virtue of the General Labor Contract the Association is the Employment Bureau of the company and furnishes all required labor on demand at the agreed rates of wages. It also provides for a system of Labor Adjustment Committees elected by the employes who handle all matters relating to working conditions, hours, etc. It is not possible in the limits of this report to go into this phase in detail. Committee Comment

In spite of its radical appearance there does not seem to be, in practice, any very great difference between the operation of this plan and that ordinarily used by other companies. It is our understanding a head of department can send his choice to be hired or can refuse anyone supplied.

Where collective bargaining has been accepted, the formation of adjustment committees is also the usual procedure.

(B) Welfare Plan

The welfare work of this company, as will be noted from the list of activities above, is quite extensive, and includes medical service to the families of employes and has under consideration dental service also.

Committee Comment

It is hardly necessary today to discuss the advisability of welfare work in view of its practically universal acceptance. The Committee would call attention, however, to the admirable way in which this plan eliminates, or at least disguises, the paternalistic features that have brought so many well-meant welfare plans to grief.

(C) Remuneration of Employees

The base wages are fixed by the General Labor Contract, which also provides they shall be subject to adjustment every six months. The adjustment is made by increasing or decreasing the first fifty dollars of the base wage in accordance with the change in the Times Annalist Index Number of the cost of living.

Committee Comment

This somewhat scientific method of wage determination was subjected to strenuous trial during the past year owing to the rapidly changing conditions of supply and demand of labor. During the early part of 1920 the demand exceeded the supply and an adjustment having nothing to do with the Index Number was necessary to enable the Association to furnish the required additional labor.

The Bonus System

It is to the basic wage determined in this manner that the bonus system is added.

From time studies and a thorough analysis of all available data and records, a standard of average performance is set up which is given a money value. Any saving due either to increased efficiency or greater production is divided 20 per cent to cost of inaugurating and administering the bonus, 40 per cent to the company and 40 per cent to the employe. Half of the employe's share is paid in cash and the other half invested for his benefit.

The bonus plan does not differ essentially from many of those already described by the Committee. It has been developed over a period of some seven years, during the last four of which it has been greatly extended until at present approximately 85 per cent of the 4500 employes are compensated for increased performance in this way.

Unusual care has been used in working out and applying the system and practically every point to which your 1920 Committee called attention under the headings "Establishment of a Bonus System" and "Notes on the Theory of Bonus Systems" has been considered and applied. The difficulty of finding suitable standard units of measurement has been fully realized, and, where possible the unit worked. out in man-hours, which, multiplied by the rate of base wage, is the standard cost. Where this was not

possible, the special investigators have used other standards based upon the factors their investigations have shown to be of primary importance.

The reduction of accidents, the evaporation of water, the reduction of outages and various other factors have been used.

The various details, such as the preservation of the identity of the bonus by separate statement of amount, allowing a standard to remain after having once been determined, providing equal opportunities to earn the bonus, etc., which your Committee noted as being essential to the successful use of such systems, have been carefully provided for.

There is one use made of the bonus system that is especially interesting. The payment of only onehalf the employe's share of the bonus in cash leaves a fund for investment. The Employes' Mutual Saving, Building and Loan Association has outstanding over 75,000 shares of $100 par stock. This is a record and a stabilizing factor of which any company can well be proud.

Committee Comments

We can only submit this case for consideration. There is shown in the appendix the increased production and savings in three departments that followed the introduction of the bonus system which were submitted as typical. Similar figures have been submitted by other companies to justify other bonus plans and other methods of compensating labor. The Committee was unable to use either these figures or any other figures obtainable for comparison with similar figures from companies not using a bonus system. Moreover, any figures submitted to show the results before and after the inauguration of a bonus system always raise the question as to what proportion of the saving has been due to improved methods unearthed during the preliminary investigations and what portion to the bonus itself. The total savings reported in most cases, considering the many contributing factors and the variation in local conditions between one territory and another, are not sufficient to make a comparison of results conclusive.

Regardless of any impression the above comments may appear to justify, the Committee believes it is most impressive that in spite of the great labor that has been required to inaugurate and develop a plan of this kind, and the difficulties and discouragements of setting up standards and keeping the idea sold to employes, the management of this company, after seven years, is thoroughly satisfied the work in their case has been well worth while and that, as they express it, "The thing works."

Conclusions

From the results of its investigations, the Committee concludes:

1. Our industry has made a most limited use of bonus systems, as defined herein, and there exists no record of experience sufficient to justify any general statement concerning the advantages or disadvantages of bonus systems largely applied.