stantial added benefits of ownership of Sears stock plus the money they receive from their share of the fund's general investments. The revision of our profit-sharing plan does not mean that we have altered our belief that Sears stock ownership in the long run is a valued financial resource for our employees, nor that we have a reduced interest in the desirability of the profit-sharing concept. That is why the basic thrust of our profit-sharing fund-investing in Sears stock-has remained unchanged through the years and through both the ups and downs of the market. OTHER STOCK OWNERSHIP PLANS In addition to encouraging ownership of Sears stock through our profit-sharing fund, the company, for more than 50 years, has encouraged direct ownership of our stock by employees through a variety of stock purchase plans. In the past 25 years alone, we have issued more than 67,000 stock option contracts to employees, granting them the right to buy more than 32 million share of our stock. Moreover, our option contracts have not been limited to top management, but traditionally have been issued to most of or salaried employees. In 1978 nonqualified option contracts were distributed to more than 18,000 salaried employees. Our thought has been that it is advantageous to both the company and our employees to have the maximum number of regular employees sharing an ownership stake in the company either through profit sharing, direct stock ownership, or both. We estimate that our present and retired employees, either through profit sharing or their personal holdings, own more than 120 million shares of the company's stock, or approximately 40 percent of the stock outstanding. VALUES IN EMPLOYEE STOCK OWNERSHIP We see great value for our employees and for the company in the employee ownership of our stock. Last year, the employees withdrew 3.4 million shares of Sears stock from the fund when their membership ended. Most of these shares went to persons retiring from the company. As the newly registered owner of the stock, they received all the rights and privileges of share ownership. For many, this was the first time they had ever received a dividend check, and this became an important part of their retirement security. They were now also entitled to sell or otherwise dispose of the stock. But, even in a year when the market value of Sears stock declined, withdrawing members took deliver of two shares of stock for each share they asked to be converted to cash as their employment ended. And we know that retirees maintain their attachment for the company's stock. We estimate approximately 40 million shares are owned by former employees-not including shares that have passed by gift and inheritance to later generations. I have brought some examples of comparison of average retirees fund accounts. These examples show both employees retiring in 1977 and 1972. Employees retiring in 1977 with 25-29 years of service took out an average of $56,792 from profit sharing. Employees with 30-34 years of service took out an average of $76,731 while employees with 35-39 years of service took out $153,083. I would like to point out that these are averages. It is worth noting that because Sears stock is distributed in kind to departing members, severe declines in the value of the stock are not as traumatic for these members as would be the case if they received cash payouts based on asset values at retirement. The market value of the stock becomes a critical consideration at the time the stock is sold. Most members do not expect to sell their stock when their accounts are closed and the record clearly shows they generally do not do so. The profit-sharing fund is also of great value to the company. While it is difficult to attribute significant business success or failure to any single factor or any single policy, much of our success has been due to the motivation which Sears stockownership has provided for hundreds of thousands of our past and present employes. Stockownership is another avenue through which our employees gain a direct economic stake in our enterprise, and they know their labors can influence the rewards flowing to them-through changes in profits, dividends, and stock price. We are, as you know, the country's No. 1 retailer. And we think it is significant that we also have had a policy of encouraging employee stock ownership longer than most other retailers. The importance of profit sharing is reflected in the fact that the turnover rate of our employees is significantly lower than other employers. This is indicated in the following table which compares Sears turnover of full-time employees with that of U.S. manufacturers. We do not have information as to the turnover of other retailers so a comparison with them is not available. However, we do know that Sears State unemployment compensation tax rates, which reflect merit rating, are consistently lower than other major retailers indicating a lower turnover for Sears. We believe our policy of encouraging employee stock ownership is among the factors explaining our lower turnover. It is difficult to establish the value of profit sharing to Sears in terms of dollars and cents. But, Sears management is convinced that profit sharing and employee stock ownership is a unifying force in the company and is important in maintaining good employee morale. COMMENTARY ON S. 3241 Allow me to conclude my statement with a brief comment on S. 3241. The Tax Reduction Act of 1975, as you know, allowed an additional 1 percent investment credit on qualifying new machinery and equipment if an employer would contribute this additional amount to an employee stock ownership plan. But because retailing is labor intensive and retailers seldom make heavy investments in new machinery and equipment, the incentive this credit was intended to provide often is slight. In our case, for example, the additional credit would result in only small additional allocations to our many profit-sharing fund members, and larger expenses in administering our plan. S. 3241 recognies the problem of labor-intensive businesses like ours. As an alternative, it allows a 1-percent credit on participants' annual compensation. Thus, we feel S. 3241 provides the type of incentive that employers in labor-intensive industries need to start or strengthen their stock ownership plans. Mr. Chairman, because we share your conviction that broad employees stock ownership is good for business, good for employees, and good for the country, we are pleased to endorse the principle of S. 3241 and its formula, and the work you are doing on its behalf. We hope our comments today have helped clarify the issues surrounding this important piece of legislation. The CHAIRMAN. Thank you, Mr. Swift. I am positive, in my mind, if the free enterprise system of this Nation should ever fail it will not be the fault of Sears, Roebuck & Co. I do think that there should be, in the record, at least some record to the executives of your company down through the years who initiated and favored these kinds of policies. Would you mind just telling us, from your recollection, who the chief executive officers and the principal movers of this type of a farsighted employee participation program has been? Mr. SWIFT. Well, I will not go into much of the history of the company. We started in 1886 with Richard Sears. But Julius Rosenwald, one of our early chairmen in the early part of this century was a very social-minded man and cared for his employees and in 1916, he started our profit-sharing plan. He was the chairman at the inception of the profit-sharing plan in July of 1916. The next person that I should mention is Gen. Robert E. Wood, who took over from Mr. Rosenwald and encouraged the increase in acceptance of profit sharing, plus the stock options which he initiated and which have been very good for our employees as well. I think those really are the principal movers, but we have all inherited that interest and, over the years, it has been a very good thing for our employees. The CHAIRMAN. As it stands today, the 1-percent investment tax credit would only mean about $10 to the average one of your employees? Mr. SWIFT. That is the top. It would not really be average. That would be the most that any employee would actually receive. The CHAIRMAN. So the average would be a lot less than that? The CHAIRMAN. I take it that it would hardly be worth participating to have to incur the burden of dealing with Federal regulations and one thing and another involved in that plan. Are you participating in that, that 1-percent investment tax credit? Mr. SWIFT. We do not claim the 1-percent investment tax credit because it is too small. The CHAIRMAN. It is so small that it is almost meaningless to your employees? Would the labor-intensive credit for ESOP contributions which is contained in S. 3241 be of greater value to Sears? Mr. SWIFT. The 1-percent investment tax credit would be, and it would mean an increase in administrative expense, which would nullify part of it. And we would have to make some changes in the rules of our fund, as well. However, if this bill comes to pass, or anything like it, we would certainly take a very good look at it, and I am sure we would participate. The CHAIRMAN. Senator Gravel? Senator GRAVEL. Thank you, Mr. Chairman, and let me compliment Sears for its progress over the years. I would gather that it is out of the ordinary for 40 to 60 percent of a major U.S. corporation to be owned by its employees and that you are the only one? Mr. SWIFT. I believe that is true. Senator GRAVEL. Just on that alone, I think you and your predecessors in the corporation really deserve a great accolade. I would like to ask one question. You quoted from another sheet that was not part of your testimony. I wondered if I could get a copy of that? Mr. SWIFT. You are very welcome to it, and here it is. Senator GRAVEL. Two, if you do not have it readily at hand, could you supply for the record what the income or dividend distribution is. Mr. SWIFT. It is 386 to 1 since this started. Senator GRAVEL. That is the appreciation of value that comes to the stock. Mr. SWIFT. That is not only appreciation. That is the number of shares. If you owned a share of stock in 1916, you would now have 386 shares. Senator GRAVEL. I realize that; but, you see, that is appreciation. Mr. SWIFT. That is true. Senator GRAVEL. I would like to see if you have some figures as to what the dividend return on the stock has been over the years, so that we could get some measure of what the income stream would have been on a share of stock. I am sure various firms on Wall Street keep records as to what the profit return has been over the years, and I am sure that you do also. Mr. SWIFT. Senator, do you mean if you add up all of the dividends that they received on a share of stock over the years? Senator GRAVEL. Yes. Mr. SWIFT. We could certainly get that information. I have it since 1967 here for the last 10 years. I would be glad to furnish that to you. But way back to 1916-I did not bring that with me. |