MEMORANDUM

DECEMBER 3, 1941.

To: Chairman Lee.
From: Ganson Purcell.

Re telegram from Mr. Cardwell of Louisville, Ky.

Mr. Cardwell, of J. J. B. Hilliard & Son, of Louisville, Ky., was one of the group of brokers who appeared before the Commission on the occasion of the Commission's hearings on the application of Louisville Gas & Electric Co. to sell common stock of the company. Subsequent to the time that I offered a statement regarding the Louisville company's financing for the record pursuant to Congressman Boren's request, Mr. Cardwell has wired you protesting some of the assertions which I made in that statement. As I understand Mr. Cardwell's telegram, he contests the statement, which he says I made, that the Louisville dealers and the Louisville Gas & Electric Co. finally parted on some question other than price. Next, he says that it is not accurate to make a statement which I did that Mr. McDowell, of Blyth & Co., Louisville, Ky., "did not dwell at all on the question of price."

As to Mr. Cardwell's first point, I think he is in error. One must distinguish between basis of the dealers' opposition to the method of financing as they gave it at the hearings, and the issue on which the dealers and the company finally parted. My statement in the record was confined to the former and I did not mean to indicate that that was the basis on which the dealers and the company finally disagreed. You will note from my statement that I spoke about what "the Louisville dealers were really interested in" and "the real basis of the dealers' opposition."

As to Mr. Cardwell's second point, I am afraid that my statement which he quoted did do Mr. McDowell an injustice. A rereading of the record before the Commission does disclose that he did speak at some length on the question of price. What I should have said was that Mr. McDowell did not address himself primarily to the question of price which, I think, the record bears out. since he also laid considerable stress on his objection to the utility company's selling its own stock through its own employees.

The CHAIRMAN. Yesterday afternoon it was stated that we would again take up this morning the subject under discussion when we adjourned yesterday. We have a number of witnesses yet to appear. Doubtless there will be more or less a duplication in the testimony from now on, in view of the extent to which the field has been covered already, so I trust those who are appearing will recognize the necessity of the committee of economizing time. We do not want to prevent anyone from getting in the record a full and fair statement of his case, but if you can see fit to take advantage of the committee's rule which permits the extension of your remarks and thus reduce the time occupied, we will appreciate it.

I believe the first witness this morning is Mr. Sturtevant. STATEMENT OF RICHARD D. STURTEVANT, ASSISTANT SECRETARY AND ATTORNEY FOR THE JEWEL TEA CO., BARRINGTON, ILL.

Mr. STURTEVANT. Mr. Chairman, my name is Richard D. SturteI reside at Barrington, Ill., which is the location of the home office of the Jewel Tea Co., of which I am assistant secretary and attorney. I am also one of the trustees of our employees' profit-sharing and retirement plan.

I asked for the privilege of appearing before this committee both because of the direct effect which the action of the committee on the proposals of the Commission will have upon our plan and also because of the very deep interest which our company officials have in the principle of profit sharing.

We have a very sincere belief that the extension of the profit-sharing principle to a large percentage of this country's commercial and industrial enterprises is a matter of vital importance.

In this connection I would like to refer to the report of the subcommittee of the Senate Finance Committee, which a year or two ago made such an exhaustive study of profit sharing. I feel that there was at least some implied indication in the testimony of Mr. Purcell that this committee report indicated a disapproval of profit sharing and an indication of abuses to some extent.

Now, I have examined since yesterday the entire report of the committee itself, and I find no reference at all to abuses. I assume that the quotations which he gave are a part of the staff report of the committee, for which the committee states it assumes no responsibility; but an hour's time spent in going through the staff report was insufficient to enable me to find any language relative to abuses. The entire report is, on the contrary, devoted to explaining the nature of profit sharing and the number of plans which are in existence and the whole tenor of the committee's report is commendatory.

I would like to read just a brief statement from the report of the committee. I quote from page 5 of the report:

It would be folly to assert that a profit-sharing plan without proper management and without absolute sincerity in administration would produce the favorable results which have been found to exist in such companies as Procter & Gamble, Eastman Kodak, Sears Roebuck, Westinghouse, Joslyn, Nunn-Bush, Jewel Tea, and several hundred other companies whose profit-sharing plans and experience over a long period of years we have carefully studied.

And then skipping one paragraph:

The committee finds that profit sharing, in one form or another, has been and can be eminently successful, when properly established, in creating employeremployee relations that make for peace, equity, efficiency, and contentment. We believe it to be essential to the ultimate maintenance of the capitalistic system. We have found veritable industrial islands of "peace, equity, efficiency, and contentment," and likewise prosperity, dotting an otherwise and relatively turbulent industrial map, all of the way across the continent. This fact is too significant of profit-sharing's possibilities to be ignored or depreciated in our national quest for greater stability and greater democracy in industry.

The CHAIRMAN. Who wrote that report?

Mr. STURTEVANT. That is a report of the subcommittee signed by Senator Herring and Senator Vandenberg.

There are many other indications of congressional approval of profit sharing which I will not take further time to develop, but I do believe that the evidence of such approval is overwhelming, and that this committee should approach the proposals of the Commission with a view to determining whether or not they are in harmony with this long history of congressional approval.

It is our belief that the proposals which have been advanced by the Commission will seriously interfere with many existing good profitsharing plans and other employees' benefit plans. It is our belief that they will stand in the way of the extension of those plans to additional companies, and for that reason we are definitely opposed to their adoption.

Before going further into our beliefs as to the advisability of these proposals, I believe it proper to give you as briefly as I can some idea as to the kind of plan which the Jewel Tea Co. has.

In the first place, let me say that we have a rather long and successful history of profit sharing, our first plan having been adopted in 1924. During the early years we limited our plan to cash distributions of bonuses; but we found as the years went on that this was not accomplishing the entire objective which we had in mind; that too many employees used the "windfall," so to speak, for purchasing things which they did not need; that the funds were not being accumulated for the future.

We felt the plan could do a great deal more for our employees if it were expanded to include a retirement feature and consequently we gave a great deal of study to that possibility.

On December 24, 1938, we established the present plan which is known as Jewel retirement estates, and that plan was adopted after a series of experiments in trusteed plans and after several years of study during which I personally examined at least 50 other plans of various companies. These plans were of various types, including insurance plans, and we consulted with the trust officers of all of the leading trust companies in Chicago and some in New York, in order to gain the value of their experience. We finally developed and approved a plan which we felt was adapted to our own company's needs and which would give the maximum amount of value to our employees.

Under the terms of that plan, the company is one of the parties to a trust agreement. The company agrees to deposit with the trustees an amount equal to 25 percent of the net profits of the company after deducting a basic and minimum return on capital. That return is set at $1.50 per common share, which is, I might say, considerably below our annual normal dividend payments, which are now $2.40 a share; but after the company earns $1.50 per share on its common stock, 25 percent of all net profits go to the trust fund.

That money is irrevocably paid over to the trustees and there is absolutely no way in which the money can ever revert back to the company.

The second party to the trust agreement are the trustees, three in number. The corporate trustee was selected with considerable care, and is the Continental Illinois National Bank & Trust Co. of Chicago, which is one of the largest trust institutions in the country. They have complete and sole custody and care of the assets and of the accounting, and an equal voice with the other trustees in the investment program. The other two trustees are two individuals: The treasurer of our company, Mr. J. H. Friedlander and myself.

The three trustees acting together invest the funds which come into their possesison and distribute them according to the terms of the trust agreement.

The third party to the agreement are the employees.

The plan is voluntary and contributory.

We feel that the value of a plan such as this is enhanced if the employees are given the opportunity to determine for themselves whether or not they wish to participate. Consequently, we force no one to make contributions. The employees may, if they desire to become members of the plan, do so by signing an acceptance card and agreeing to deposit from $1 to $4 a week in the trust fund. They may also choose at their own discretion the amount between those limits which they wish to deposit.

The CHAIRMAN. About what percentage of your employees are members?

Mr. STURTEVANT. The total number of eligible employees-there are certain eligibility requirements, such as a year in service-is about 2,400, and 1,928 out of that total are currently members.

The CHAIRMAN. Do you concede that the plan of your company now subject to the Securities Act?

is

Mr. STURTEVANT. No, sir; we do not. The employees, as I say, have the privilege of depositing $1 to $4 a week. We do provide that after acceptance of the plan they must deposit at least a minimum of $1 for at least 26 weeks. We do not want them to come in for 1 week and out again. But, after 26 weeks, they may discontinue their deposits or may change the rate at any time they wish. Having discontinued deposits, they may resume at any time and may go back and make up their deposits to the end of the year, if they wish. The maximum, however, is $4 per week.

Now, the employees' funds are deposited not with the company but with the trustees, usually through a salary-deduction plan, which is the most practical method of getting the money to the trustees. The company is authorized to deduct from the salary and pay over to the trustee the amount which the employee wishes to deposit.

The CHAIRMAN. Do the anticipated profits come out of the earnings of your company or out of the investments, or both, or how are they received?

Mr. STURTEVANT. Out of both.

Each individual employee has an account set up in his name at the Continental Bank, to which is credited each deposit which he makes.

Then, annually, when the company makes its profit-sharing contribution to the fund, the company's contribution is spread among those accounts on an equitable basis. One-half of the contribution is credited to accounts on the basis of the deposits of the employees. In other words, it is of advantage for the employee to deposit the most money that he can, because he shares more largely in the company's contribution if he does so.

The other half of the company's contribution is divided on the ratio of the salary of each employee for the weeks during which he makes deposits, to the total salary of all employees making deposits. Thus we recognize two principles. The first is to reward the employee who provides for his own future, and the second is to share profits among those who produce them in the proportion in which employees contribute to those profits.

Now, if the employee remains in the service of the company until retirement he receives the full benefits of the plan and there is distributed to him his full proportionate interest of the trust assets.

If a man having joined the plan, however, leaves within the first year, we merely give him back his own money without any addition. We feel he ought to be in the plan at least a year before he starts sharing in the additional accumulations. If he leaves after 1 year, but before the retirement age, he gets a graduated percentage of the cerdits to his account over and above his own deposits. He always gets his own money back, plus a varying percentage of the company's contributions and the share of the earnings of the trust fund and the forfeitures from other accounts.

I think I should say in mentioning forfeitures that the forfeitures from one employee's account do not come back to the company. They are merely accumulated in each year and spread among the accounts of those remaining. To illustrate, if an employee leaves the service of the company after having been a participant in the plan for 3 years, he would get back, under our table, 9 percent of the excess over and above his own deposits. That graduates sharply upward as his period of participation continues until after 20 years' participation he gets 90 percent and at retirement, of course, the full 100 percent.

The retirement ages have been fixed in three ways: First, at the company's option, if a man is let go at any time after he reaches the age of 50, he is considered as a retirement and gets a full 100 percent of his participation in the plan. If the man, however, leaves of his own volition while he still has many productive years ahead, he is not considered to have retired unless he has reached the age of 57.

After 57 he may at his own choice leave the company and get full participation.

Then the third age is 65, which is the automatic retirement age. Of course, that is subject to exceptions on special approval of the president of the company or the board of directors.

Our plan has been in operation, as I said, since December of 1938that is the date of the execution of the trust agreement. Employees started participating with the beginning of the year 1939. I have two examples that I just picked at random of employees who are participating showing the status of their accounts at the end of the first 2 years of operation of the plan. The first employee is 52 years of age. He deposits $4 per week from a salary of $4,600 a year, and at the end of 1940, after 2 years, his account showed his own deposits were $412. His share of the company contributions was $928.29, and his share of net earnings and forfeits was $101, or a total of $1,441.29. Being 52 years of age, if he should be let go, he would, of course, get that full $1,441.

Example No. 2 is a man who deposits $2 a week. He is 50 years of age and has a salary of $1,600. His account after 2 years showed deposits of $204; the share of company contributions was $510.69, and the share of net earnings or forfeits was $64.90, or a total of $779.59.

One other example may be of interest as to employees who leave the service of the company. I believe this particular employee, who is a girl, left to get married after having been in the plan for 2 years. Her deposits were $104 and she received a total of $137.96 from the trust, or $33.96 more than she put in, which, on the basis of the average amount on deposit, is a 65-percent return. So that even those who do not stay to retirement have fared very well.

As of September 30, 1941, which is the last quarterly valuation of our trust fund, we had assets in the trust fund of eight-hundred-and-seventy-six-thousand-and-some-odd dollars, and of that amount the employees had deposited a total of $320,000. And I should call attention to the fact that those assets represent 234 years of employee deposits and only 2 years of company contributions, as the 1941 contribution, of course, will not be made until after the close of the year.

We hold just under $470,000 of United States Government bonds and cash in the trust fund to cover the employees' deposits of $320,000. The balance is invested in municipal and industrial bonds, preferred

and common stocks.