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INTELLIGENCE MEMORANDUM PROFIT-SHARING IN FRANCE - - SMALL BENEFITS FROM A GRAND DESIGN ?
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CIA-RDP85T00875R001600030178-2
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Document Creation Date:
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Document Release Date:
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Sequence Number:
178
Case Number:
Publication Date:
December 1, 1970
Content Type:
IM
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DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Profit-Sharing In France--
Small Benefits From A Grand Design ?
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Its transmission or revelation of its contents to or re-
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CONFIl)EN'.CIAL
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
December 1970
INTELLIGENCE MEMORANDUM
Profit-Sharing In France
--
Small Benefits From A Gran Design?
Introduction
General De Gaulle's attempts to reform the
French economy were based in large measure on his
vision of a "third way" to harmonize relations be-
tween labor and capital. A key feature of De
Gaulle's concept was intereasement, or worker par-
ticipation in enterprises. Profit-sharing, a
major step toward such participation, was decreed
in 1967. Th9 extent and effects of profit-sharing
are important elements in assessing the stability
of relations between labor and capital, and ulti-
mately the permanence of De Gaulle's imprint on
the economy.
This memorandum describes the evolution of
French profit-sharing plans, from De Gaulle's
initial reform efforts following World War II to
the profit-sharing law implemented in 1968. The
application of the law and the effects of profit-
sharing on business profits, workers' incomes, and
government revenue are discussed. Finally, the
more general economic effects of French profit-
sharing plans are assessed. The arithmetic of
profit-sharing is included in the Appendix.
Note: This memorandum was produced solely by CIA.
It wa i prepared by the Office of Economic Research
and was coordinated with the Office of Nationa,Z
Estimates and the Office r if Current IntelligenckQ.
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UVNPIV N'flAL
Worker Participation --- De Gaulle's "Third Way"
1. The roots of worker participation in France
go back at least to the immediate post-war period
when General De Gaulle, in an effort to undermine
Communist influence within the French working class,
stated that the first order of business for the
provisional government was to show workers they
would not only play an active role constructing a
new, unified French society but would also share
the benefits resulting from its creation. Labor
relations in France have had a stormy history.
Bitter strikes and violent confrontations rather
than collective bargaining traditionally have
characterized the almost feudal state of French
labor-management relations. As a result, the
working class has been relatively poor, alienated
from management and largely alienated from the
rest of society, and politically oriented to the
left.
2. De Gaulle's early post-war measures were
limited mainly to nationalizing enterprises in
certain key sectors and establishing an extensive
social welfare system. The General, however, never
lost sight of his ultimate objective of a "third
way" ?-- a visionary blend of capital and labor
which he termed "pancapitaliam." Pancapitalism
would adopt the positive features of both Communism
and capitalism, but would discard the authoritative,
inefficient features of the former and the material-
istic, dehumanizing aspects of the latter..
3. After returning to power in 1959, De Gaulle
instituted a voluntary profit-sharing system for
wor,1cers. This effort, which foreshadowed the
present profit-sharing scheme, had little success.
Labor exhibited an almost total lack of interest,
and employers were reluctant to conclude agree-
ments with the "most representative" employee
union -- often the Communist-dominated General
Confederation of Labor (CG`r). Later, in 1965,
the Ne'.tional Assembly adopted the so-called Vallon
Amendment, committing the government to prepare
legislation granting workers the right to a share
in increased net worth resulting from a firm ir-
vesting retained earnings.
- 2 -
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LONI'!DENTJAL.
4. Partisans of the Vallon Amendment argued
that only by giving workers some proprietary in-
terest would it be possible to supplant the French
workers' feeling of being exploited by their em-
ployers. Prime Minister Pompidou and the Minister
of Economy and Finance Debre reportedly were un-
enthusiastic about the idea, and in 1966 a
government-appointed coinm.i:tee reported that "the
time is inopportune for such reforms."* Workers
also showed little interest. Only De Gaulle's
interest kept the idea alive.
5. In the spring of 1,967 De Gaulle asked for
emergency powers to reorganize the social insurance
system and to introduce participation of wage
earners in enterprises which practice self-financing.
At that time most observers felt that any measure
adopted by the government would provide inducements
for firms adopting profit-sharing plans but that
such plans would be obligatory only after several
years. In mid-July, however, De Gaulle announced
his decision that the new system would be mandatory
immediately, at least for large firms. The profit-
sharing decree was issued in August 1967, but it
was not implemented at that time. Instead, the
final decisions on exact forms of participation
were put off until the following year.
The Beneficiaries Disapprove
6. Labor and management representatives were
almost unanimously hostile to the initial profit-
sharing law. Although profit-sharing schemes have
been in force for many years in a number of coun-
tries, labor unions traditionally have been cool
to participation plans. They usually hold that
the best way for workers to share in business
earnings is by obtaining the highest wage rates
and best working conditions that the enterprise
can afford. The unions also have suggested that
profit-sharing would give firms reason to hold
down wage increases. All of these arguments w',~re
The time was more opportune than the committee
thought; Zess than two years later the French
economy came to a grinding halt as workers joined
students in a massive general strike.
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loudly advanced in opposition to the French profit-
sharing scheme.
7. Management's fears also were volubly ex-
pressed. Employers saw profit-sharing as one more
threat to the already low profit margins of French
enterprises. They also feared that this would mean
increased bargaining strength of French labor and
a concomitant weakening of employers' managerial
prerogatives. Management representatives were
indignant at the obligatory natura of the decree.
8. It was only a matter of weeks, however, be-
fore the wave of criticism receded. Both sides
quickly realized that the ordinance -- sweetened
by several amendments -- was not all that far
reaching. Several examples of the effects of
profit-sharing appeared in the press, showing that
many firms, whose profits fall below 5% of net
worth, would not have to distribute any profits
to workers. Moreover, the provision to provide
tax credits for firms participating in profit-
sharing dissipated most of the remaining fears and
criticisms of management.
9. The riots and general strikes in May and
June 1968 put participation and the need for ex-
tensive reforms bacl: into the spotlight. Following
the crisis and the announcement of reforms designed
to promote participa?t:.1on in every branch of French
life, including indust .ry, speculation again arose
concerning the extension of the provisions of the
profit-sharing law. The most radical proposal
came from Minister of Justice Capitant, who advo-
cated introducing a new type of enterprise, jointly
directed by representatives of labor, management,
and shareholders.
10. Management spokesmen quickly claimed that
Capitant's proposals implied "sovietizing" French
industry. The French National Employers' Cc.incil
(Patronat) expressed vigorous opposition and
asserted that '.f translated into law, these pro-
posals can only destroy efficiency and ruin the
national economy. Efficiency requires unity of
control by the head of the enterprise, who owns
it or is responsible to the shareholders." In
the face of this opposition, President De Gaulle
4 -
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and his Prime Minister, Couve de Murville, quickly
repudiated much in Capitant's statements. in July
1968 they stated that the government saw worker
participation less in terms of profit-sharing
(emphasized by Capitant and by the decree issued
11 months before) than in terms of restructuring
labor-management relations within enterprises.
The purposes of the reform were to organize
"regular participation by all employees in the
process of fact-finding, inquiry, and discussion
leading up to the main decisions," and to apply
recent regulations on participation to such
matters as gains in productivity and the sharing
of increases in assets. These statements repre-
sented a significant lowering of De Ca+ille's goals
for a "third way." Still, the profit-sharing law
was to be implemented -- although not as quickly
nor as completely as was originally thought (or
feared).
The French Profit-Sharing Law and Its Application
11. The profit-sharing law of 1967* is (at
least rhetorically) the first stage of a "three-
stage rocket," designed to enmesh French workers'
in the web of interesaement.** Stage one, profit-
sharing, involves giving workers a financial
interest in the success of the companies for which
they work. Stage two, shareholding, is designed
to allow the worker actual part ownership. This
stage is exemplified by the distribution of
company stock at the nationalized Renault plants.
The stock, representing 25% of Renault's assets
and valued at about $50 million, will be given to
* Ordinance No. 67-693, Participation by Em-
ployees in the Benefits Resulting from Industrial
Expansion, 1? August 1967.
** The "three-stage rocket" became part of the
government's rhetoric after it became clear what
direction the implementation of profit-sharing was
taking. Stage two -- the distribution of company
stock -- is presently one of the options available
to firms and-sr the profit-sharing Zaw. However,
very few contracts have been signed utilizing this
option. Pompidou, who appears to favor the share-
hoZding,idea, has praised it as a higher, more
advanced form of participat o+n.
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all workers who have been at these plants for five
years or more. if the plan proves successful at
Renault, the government is hoping to apply share-
holding to other state-owned non-monopolistic com-
panies, an obvious example being clearing banks.
The government will encourage private concerns to
follow its example. A high official in the
Ministry of Labor, Dechartre, has stated that
shareholding may even be enforced by law -- just
as profit-sharing, which from 1959 to 1967 was
only encouraged by fiscal advantages, has now
become a legal obligation. Stage three involves
granting responsibility to the French worker.
Industrial organization is to reach a level where
a worker is no longer "hired" by a company but is
"associated" with it -- whatever this may mean.
12. The French profit-sharing law now makes
it compulsory for wage earners to share in the
"excess profits" of any enterprise, public or
private, that normally employs more than 100
workers. One underlying idea is that, whenever
an employer uses the need to plow back profits
as a reason for refusing wage increases, the
workers have a certain claim on the resulting
increase in assets. In the words of the ordinance,
workers acquire a "new right" based on the prin-
ciple that "progress, being achieved by all, must
be for the benefit of all, meaning that all must
share in the ensuing increase in assets." Accord-
ing to the Report of the President of the Republic
accompanying the ordinance, the requirement "is
designed to promote economic efficiency and
progress, increase the investment capacity of
enterprises, foster saving and encourage the
establishment of a new relationship between
employees and employers."
13. The workers' share of company profits is
calculated by adjusting net profits after deducting
the 50% corporate profits tax. (For details of
the calculation, see the Appendix.) in brief,
profits equal to 5% of net worth are first set
aside from after-tax profits for payment of divi-
dends. "Labor's share" of the remaining profits
is then determined according to the proportion of
the wage bill to total production costs. The
amount of shared profits accruing to the workers
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is then one-half of this amount. Management, how-
ever, stets at least part of this money back in
the form of a tax credit. The workers' share of
profits is deductible from taxable income, and
management has the option of investment up to this
amount from its retained earnings on a tax deduct-
ible basis. Thus the tax saving may approach or
even equal the additional labor cost.
14. The lack of clarity in the French profit-
sharing law, the many options and provisions
applicable to difftrea.t firms, the traditional
reticence of the Freno ''La disclose business
accounts, and -- most impor i::??.,?,-- the year-to-
year variations in business profit, 'r'..?.nreclude
accurate calculations of the effects of prori,.--
sharing on the individual firm or on the e,.;onomy
as a whole. In the following example, however, we
suggest the effects of profit-sharing on a
"typical" French corporation. Three assumptions
are made:
a. Capital coefficient (ratio
of net worth to production
costs): 1.0
This is the most important
assumption; net worth is the
base on which the 5% "prior, re-
turn" is calculated before the
distribution of profits. Un-
fortunately this assumption is
also the most tenuous. The ratio
varies widely, from less than
0.5 (for a firm with few assets
but high turnover) to over 2.0.
b. After-tax profits as a percent
of net worth: 10%
The rate of return on capital
obviously varies widely from firm
to firm, industry to industry,
and year to 'ear. The average
profit of 10t on capital per year
is too high for 1967 and 1968,
but may be fairly accurate for
large firms in 1969 and 1970.
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c. Labor coefficient (ratio of
labor costs to total produc-
tion costs): 0.6
A labor coefficient of 0.6
is fairly representative; the
ratio generally falls in the
range between 0.4 and 0.7.
Assuming that this "typical" corporation takes
advantage of the tax credits allowed it, profit-
sharing as a percent of wage costs (the effective
wage increase) would bg 2.5%, and profit-sharing
as a percent of net profits would be 15%. (For
calculations, see the Appendix.)
15. To illustrate the range of effects when
alternative values for (1) return to capital and
(2) the capital coefficient are considered, we
calculated the matrix in the table. The labor co-
efficient was held constant at 0.6.* Within this
matrix, figures in the top row (profit-sharing
revenue as a percent of the net after-tax profit),
opposite each alternative return to capital, show
the calculated shared profit as a percent of net
profit; the figures in the middle row (profit-
sharing revenue as a percent of total wages) show
shared profit as a percent of total wages (thus,
the equivalent percentage increase in the average
worker's wage); figures in the bottom row (equiva-
lent tax rate) show the effective tax rate on the
corporation. We also assumed the corporation is
in at least its second year of profit-sharing.
The full effects of tax credits on profit-sharing
Because of the application of the labor coeffi-
cient before profits are distributed to labor, the
intensity of labor in a firm has no effect on the
ratio of shared profit to total wages. It does
not, therefore, affect the workers. However, the
labor coefficient does have a direct effect on the
accounts of the firm. As the labor coefficient
rises, profit-sharing as a percent of net profits
rises also, but the firm's tax eyedit for invest-
ment increases at the same time in an equal amount.
The effect of varying the labor coefficient, given
full utilization of the provisions of the law, is
.therefore marginal.
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UI-PIN ? 1.U1S1V I JAL
I:ypochetical Results of Profit-Sharing
Thider Various Assumptions
After-Tax
Return to Three Capital Coefficient
Capital Major
(Percent) Results
0.5
1.0
2.0
0
0
0
0
0
0
50.0
50.0
50.0
15.0
15.0
15.0
1.25
2.5
5.0
42.5
42.5
42.5
20.0
20.0
20.0
2.5
5.:
10,0
40.0
40.0
40.0
22.5
22.5
22.5
3.75
7.5
15.0
38.75
38.75
33.75
a. Profit-sharing revenue as a percent
of net after-tax profit.
b. Profit-sharing revenue as a percent
of total wages.
c. E'ffecrtive 'tax rate*
d. Results for "typieaZ" corpovation in
Appendix.
and investment are thus included. The results of
these calculations indicate that the French govern-
ment's prediction of an effective wage increase
of 10% (as a result of profit-sharing), probably
is overly optimistic.*
* The figures in the middle row indicate that a
combination of an abnormally high after-tax return
and a relatively high capital coefficient is
necessary t,;~ achieve an effective wage increase
of 10%. It is likely that this combination will
occur in only a few situations.
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Methods of Distributina Profits
16. Three basic methods were outlined in the
ordinance under which that part of the company's
profits constituting the addition to the workers'
reserve would bo set aside for the employees:
(1) shareholding, (c) company investment funds,
and (3) labor-management mutual funds. if labor
and management could not agree to the use of one
of these options in a specified time, the second --
a company investment fund -- would have to he used.
Regardless of the option, no cash would be paid
the workers when profits were distributed. Instead,
they would receive a claim, redeemable after five
years.
17. Under the first option, the company would
distribute shares or fractional shares of its stock
to the workers, who thereby would become part
owners of the firm. The stock could come either
from a new issue or from treasury stock (a sup-
plementary decree allowed French firms to buy up
to 10% of their own shares on the Bourse). Workers
receiving stock under this option must retain it
for five years. If they want to sell after this
period, the stock must be sold to the firm or a
fellot, worker.* Tinder the second option, a special
investment fund would be established and the em-
ployees would acquire creditor status against the
enterprise equal to the amount of shared profit.
In practice this fund has usually taken the form
of blocked, or frozen, accounts.
18. The third option, providing for a type of
mutual fund jointly regulated by representatives
of labor and management, is difficult to inter-
pret-- even after the issuance of a supplementary
decree. Presumably, a board composed of labor and
management representatives will establish an in-
vestment portfolio or turn the f?nds over to an
established investment corporation. If the fund
is managed within the firm, the investment board
may include in its portfolio stock of that firm,
* The government, however: is considering a pro-
posal allowing firms to set up stock option plans
which would give the workers greater freedom of
disposal of their shares.
- 10
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medium-tarm loans to the firm, or issues purchased
in the market. When such funds are reinvested in
the firm, they may be used only for the purpose of
capital formation. An yet little information is
available concerning the act'nal application of
thin option.
Economic Effects
19. The most significant economic aspect of
the French profit-sharing law is the tax credit
available to the firm. The law was designed to
encourage enterprise investment from retained
earnings. As shown in the Appendix, if a company
exercises its investment option, the effect is
equivalent to transferring the entire cost of the
program to the French Treasury.* If the enter-
prise does not invest an equal amount (as in
the last column of the Appendix table), the cost
of the program is shared by the government and
the firm.
20. The law also waii designed to allow enter-
prises limited access to funds placed in the
workers' reserve. However, some of the various
options available to utilize the workers' reserve
effectively block the company's access to these
funds. For example, the second option was de-
signed specifically to increase a firm's oppor-
tunities for obtaining investment funds, but in
practice this method of profit-sharing usually
has taken the form of frozen accounts controlled
by the workers. The same is true to a lesser
extent for the mutual fund option. In this case,
the firm may be but one of several recipients of
the funds allocated by the investment board.
Even for the economy as a whole, there is no guar-
antee that the funds in the workers' reserves will
find their way into productive investment.
21. For the worker, it appears at first glance
that participation in profit-sharing creates a
When the firm invests retained earnings in an
amount matching the transfer to the workers' re-
corve, the firm's net profit after taxes for the
second (or subsequent) year of profit-sharing is
unaffected by profit-sharing because the tax
caving is equal to the share of profits credited
to the workers.
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coat-free increase in his present and future in-
come. That is, ho is given some type of intor nt-
or dividend-bearing certificate redeemt,ble in five
years. Unless profit-sharing deereages the firm's
ability to increase wage rates (wage increases
averaging over 10% annually in the past three
years have done much to dispel this fear), the
worker's preoent income should be increased by
the return paid on his share, ant his future in-
come should be increased by the crash payment he
receives when he sells his stock or redeems his
debt instrument. However, the government's loss
in corporate income tax revenue must be replaced
largely by increases in other receipts. Because
the French tax system is highly regressive, with
direct and indirect taxes on consumption providing
the bulk of tax revenues, the net economic gain
accruing to workers will he substantially smaller
than the nominal increases in income that result
from profit-sharing.
Preliminary Results
22. In October 1970 the Ministry of Labor pub-
lished incomplete but useful statistical informa-
tion concerning the results of implementing the
profit-sharing 1a+v. When the profit-sharing
legislation was enacted in 1967, approximately
10,000 enterprises employing 5 million workers
were expected to proceed with intra-firm negotia-
tions leading to adopting profit-sharing plans.
According to the Ministry of Labor, over 6,200
enterprises and 2.7 million workers are now
covered by profit-sharing plans. More than two-
thirds of the profit-sharing contracts were con-
cluded by companies employing under 500 workers.
Although the legislation is compulsory only for
enterprises with more than 100 employees, over
10% of the signatory enterprises had smaller, work
forces.
23. Although over half of the enterprises
covered by the law have now concluded contracts,
the degree of implementation varies widely by
industrial sector. The bulk of the contracts
(86%) are concentrated in the construction and
public works industries. Other sectors, in de-
clining order, are mechanical and electrical
industries, commerce, textiles, financial institu-
tions, and agricu:Ltural and food processing
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industries. No contracts have yet been signed in
the metal processing sector.
24. Of the three methods under which shared
profits could be made available to omplovoor --
shareholding, company investment funds, and labor-
management mutual funds -- two were highly pre-
ferred. The second option -- a spacial investment
fund within the company -- was selected in 56% of
the contracts.* Forty-three percent of the con-
tracts chose the third option, for investment funds
jointly regulated by labor and management. Less
than 1% of the contracts adopted involved allo-
cating company shares to employees, demonstrating
French labor's lack of interest in shareholding
plans.
25. Since the initial decree in 1967 and the
final passage of the profit-sharing bill in 1968,
much of the criticism voiced by both labor and
management has evaporated. The big labor unions
appear to have accepted the principle, or at least
the inevitability, of participation through profit-
sharing. At the same time, the industrialists, who
at first cried out against "sovietizing" French
industry, now recognize certain positive qualities
in the system. Both managers and stockholders now
admit -- albeit reluctantly -- that profit-sharing
may increase the amount of investment funds avail-
able to the firm without reducing after-tax profits.
Also, it now appears that profit-sharing will in-
volve little or no dilution of managerial cont,ril.
26. The number of profit-sharing contracts
continues to increase, and workers' reserves are
being created. However, the question remains:
will profit-sharina an now practiced in France
have any significant economic effects? The answer
4 This form of profit-sharing is favored by the
CGT. In 1958 the CGT obtained 55? of the votes
in onterprioc committed elections and was thus
the dominant voice in the "company works counciio"
that represented labor in moat of the profit-
sharing contracts. The Communist-dominated union
finds this the least odious form of participation --
that is, it provides the smallest chance for the
corruption of French workers by "capitalist greed."
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(XI)NI' 11)ENT1AL.
wi1'. deponrl primarily on three factors: (1) the
extent of future implemnntition, (2) futuro profit
margins of P.tench industry, and (3) the extent to
which onterprincjri can -- and if t11?y can, will.
take advIantage_ of fiscal bene.fitri in order to
increase investment in plant tind o1 ipment.
27. Preliminary and tentative information indi-
caten that in 1969, with approximately half the
plan implemented, a little over $100 million in
profit-nharing revenue was dintr.ibutecl (an average
of $50 for each of the approximately 2 million
recipients, less than 2% of total wacten paid these
workers). At, mont, the increase in funds avail-
able for investment in 1970 as a r.en,ult of profit-
sharing could amount t;o $200 million.? Although
thin num appears larcre, it would represent lens
than 1% of total not business investment. And,
again assuming that trench onterprisea fully
exercised their option to invent and receive a
tax credit in corresponding amount, the french
government's tax loss of approximately $100 mil-
lion would be le n than 0.5% of total governrrent
receipts. Therefore, even under these most opti-
mistic (and unlikely) annumptionn, french profit-
nharinct in 1969 war, relatively innignific.ant in
terms of workers.' incorren, business investment,
and fort tax revenue.
/i C 4:! 4.' 1. (r .. ~ .- L' !i C 1 f% L$ L3 (! u' 1' SJ ~ ? .s r s". .+ ...
i'e . s;Ilit o I. l; G ror u' rG-
nc er- r
!"i2~d17RB ?(! 7C`lirJ'i i'ii~'.(`!: rk. ! 1;G oat:r0r0' rvgGj'
:.Jr?o~ it>Yif nr""c2rf'Gt.; or ~.r.;.?c.?~'"?G77;i, i l;{i (.t) j
oqual +. i c- i t 3 l! 1. G L i. ti L +: a= G j!
rroi( no b0
?1'1t.,i1 r `1:G f a i'rti?se r .
-
14
CONFIDENTIAL
Declassified and Approved For Release 2011/10/31 : CIA-RDP85T00875R001600030178-2
Declassified and Approved For Release 2011/10/31 : CIA-RDP85T00875R001600030178-2
CO 0 N I I I:1?.N'1.'IAi
c'c,nc .1usionn
2fl The ntorm of criticism aroused by the
profit-nharinq law has rr-codod. The poleml.cp
that omanated from both labor and man*q m" nt, have
been replaced, not by approval of thu law but by
widespread apathy toward profit-nharinq. Although
induvtrial reform, achieved throe;;) ryrenter worker
participation in french enterprises, remains a key
aspect of Gaullist economic doctrine aA inter-
preted by PPO mpidou, the oovornment's enthunianm
and roseate prpelictions now appear somewhat forcac-l.
29. It is unlikely that profit-nharinq, even
when fully implemented, will provide are important
source of inveatmant capital; it also is unlikely
that it will affect significantly workers' incomes
or labor productivity. however, in a country
where labor-management relations traditionally
have been riven with mutual distrust and where
the mechanism of collective bargaining in almost
unknown, the impact of profit-sharinq may trann-
cand direct economic effects. Labor-management
nogotiationa leading to profit-nharinrl contracts,
an well an labor's limited but important role In
manattinq the ra_aultincl workers' renervas, a-e
giving the rrench worker nears sense of tnvolverent
in enterprin+e affairs. Although it is impoaaible
to predict whether a lasting iwprovamant in d'renc'h
labor t lationa will result from profit-nharinri,
government afforta to lntroage worker participa-
titn Gar, be f,iv!?n Edo;-e credit for the pdosent
quiet on th% rronch In).-or front.
- 15 -
CONFIDENTIAL
Declassified and Approved For Release 2011/10/31 : CIA-RDP85T00875R001600030178-2
Declassified and Approved For Release- 2011/10/31 1 : ~CIAt -TRAD{P85T00875R001600030178-2
CON l I)J. PlVTlAt,
The Arithmetic of Profit-SIvAiring
At the end of its findncial year, a "typical"
company covered by a profit-sharing scheme credits
a spacial section in its accounts with the share
of profits accruing to the workers. This share
in calculated first by taking the not profit
(after deduction og corporate taxation at a rate
of 50%) and subtracting a priority charge equal
to 5% of capital for dividend purposes. Then, In
a separate calculation, the company's wagge bill
in divided by a concept known as the tonal value
added, which in basically total production cc:ntss
(total labor coats, duties and taxer, with the
exception of turnover taxes, financing costs,
amortization allowances, mandatory contingency
funds, and dividends). The result of the second
operation is then multiplied by the first and
fsatf the resulting amount is credited to the
employees. roc a "typical" corporation (in which
net worth in approximately equal to total produc-
tion costs, not profits are 10% of net worth, and
labor coats represent 60% of total production
costs), the calculations for the first and second
years of profit-sharing are given in the a+ccom-
pnyinct table.
In the first year of profit-nharinct (1".G9 in
the ..able,, the C or rvratiin receives no tax
credits and must finance the entire cost of
profit-sharing from its after-tax profits. The
amount availst-le for additions to reserves,
dividends, and the like, is thug reduced by the
full amount of the workers' reserve. If the
corporation in the second year uses its inrest;~~-r,t
option (see the table), the corporation is only
:-.arginally affected by profit-sharing. In 1960
the enrr.^rj.
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