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ERIE - LACKAWANNA MERGER STUDY

System Expenses

Study XIV


                             SUMMARY

                                                     Estimated
                                                     Reduction      Savings
Study                                                in Forces    from Merger
            Salaries, Wages and Fees
G   General. This includes the Executive,
      Law and accounting Departments, as
      well as several smaller departments               241       $1,305,350
T   Traffic. This study estimated savings
      from the consolidation of the traffic
      departments, including forces handling
      rates and divisions, sales and service,
      and outside agencies . . . . . . . . . . . .      187        1,146,516
S   Superintendence Operations. The savings
      from consolidation of supervisory forces
      engaged in operating,.and maintaining the
      railroads down to, and including, the
      divisional level, are estimated at . . .  .  .    144          954,252

                                Total                   572       $3,406,118

       Payroll Taxes, Health and Welfare
                   Allowances
G   General                                                        $ 104,428
T   Traffic                                                           91,721
S   Superintence: Operations                                    76,340
                                Total                              $ 272,489
       Total Salaries, Wages, Fees, Payroll Taxes
       and Health and Welfare Allowance, etc.                     $3,678,607

        Office and Traveling Expenses
G   General                                                        $ 350,763
T   Traffic                                                          414,068
S   Superintendence: Operations                                      179,436
                              Total                                 $944,267

                Total Estimated Savings
G   General                                                       $1,760,541
T   Traffic                                                        1,652,305
S   Superintendence:  Operations                                   1,210,028
                               Total                               4,622,874

 Saving in rental - 140 Cedar Street, New York     $90,459
 Increased rental - Midland Building,  Cleveland     5,000            85,459

                                Total - Study XIV                 $4,708,333

System Expenses

General Principles of Organization:

Each of the companies included in the merger study, of course, has its own executive and supervisory organization, its own operating department, its own traffic forces for the setting of rates and solicitation of business, its own set of records to maintain, and its own separate reports to make to the various regulatory authorities. The purpose of Study XIV was to analyze the existing functions of these various departments and the present cost of operation, and to set up a proposed organization which it is believed would be able to handle these functions after merger. The difference between the two would represent the estimated savings from merger. In order to facilitate the analysis, the study was divided into three major sections. Traffic and operations were studied-separately as indicated in the summary on the preceding page, and the executive, law and accounting departments, together with certain smaller departments, were included in the "General" section.

In order to estimate the organizational economies which would result from the proposed merger, it was necessary to decide upon a plan of organization for the proposed merged company. We believe the divisional plan as outlined in this study is a practicable and workable one, will provide an efficient administration responsive to local conditions and needs, and will produce the savings estimated herein. However, it is not intended by this proposal to imply that a departmental plan might not also be practicable, and we believe that either plan would produce the savings estimated herein.

System headquarters are now maintained by the Erie in Cleveland, and by the Lackawanna in New York City. We have been advised that headquarters for the merged company will be the present Erie offices in Cleveland and our studies have been made on that basis. This will permit giving up the Lackawanna space at 140 Cedar Street with an annual saving of $90,459 in rental. It has been estimated that additional space needed in the Midland Building in Cleveland can be rented for $5,000 annually. We have further been advised that the Accounting Department will be divided with the Auditor of Disbursements located at Scranton and the Auditor of Revenues at Cleveland, and that both of these decisions have been made in the interest of reducing capital expenditure.

In almost every department analyzed, it was discovered that practices on the two railroads varied as to organization and the functions handled by the department. In making these studies the first step was to determine what functions are presently handled in each department by the existing organizations. Existing employees handling like functions, regardless of present departmental assignments, were then brought together for analysis. The proposed forces which it was estimated would be required to handle these functions for the merged company were then set up, grouped in what we feel to be an efficient organization, and savings in forces and salaries were determined by a comparison of present and proposed forces. The "Present Forces" shown in this study therefore represent the forces analyzed with respect to functions, after transfers to and from the department were made to put the operations of both roads on a comparable basis. In setting up the proposed forces, meetings were held with all interested Department Heads, and it is believed the estimates meet with the general approval of all concerned. A proposed Organization Chart of the merged company accompanies this report, identified as Map No. XIV-A.

STUDY G - GENERAL


    Summary of Estimated Annual Savings in Force and Other Expenses


                              P R E S E N T             P R O P O S E D
                            Force               Annual
                         Erie -DL&W  Total     Salaries   Force   Salaries
   Forces and Salaries
Executive Office, Pass
 Bureau                   12    7     19      $ 425,919     12    $ 347,352
Public Relations and
 Advertising               7    5     12         93,891     10       76,466
Secretary & Treasurer     24   16     40        281,052     35      242,735
Law Department            17   18     35        535,815     29      445,883
 General Claims           30.5 18     48.5      311,884     40.5    268,036
Land & Tax Department     34   14     48        287,969     38      227,760
Labor Relations and
  Personnel               18    7     25        179,232     20      151,644
                       ------------------------------------------------------
                         142.5 85    227.5   $2,115,762    184.5 $1,759,876
Accounting Department
Vice Pres.-Comptroller    15    13     28       $ 252,123     20      182,726
Statistics                 9     7.5   16.5       105,537     13.2     85,514
Auditor of Revenues      371.5 175.3  546.8     2,671,490    461.5  2,264,748
Freight Claim Agent       68.5  24     92.5       529,903     79      464,612
Auditor of Disbursements 153.5  69    222.5     1,156,579    187.6    963,254
Car Accountant            34    28     62         286,300     50      230,268
Machine Accounting and
  Reproduction           206.5  91.2  297.7     1,348,135    270.7  1,228,641
Valuation Department      30     9     39         245,832     35      216,672
                       ------------------------------------------------------
                         888   417  1,305      $6,595,899  1,117   $5,636,435

Total Force           1,030.5  502 1,532.5     $8,711,661  1,301.5 $7,396,311

Savings                                                      231   $1,315,350

                                 P R E S E N T                PROPOSED
                           Erie      DL&W          Total
Other Expenses
Rental IBM
  Machines             $  298,683   $169,076     467,759  $  442,072
Other Rentals             271,736    53,550      325,286     252,874
Stationery and
  Printing                212,503    90,363      302,866     212,503
Expense Accts.            147,646    49,055      196,701     159,484
Contributions             100,000    21,090      121,090     100,000
Other                     260,249   103,994      364,243     260,249

Total Other
  Expenses             $1,290,817  $487,l28  $l,777,945   $1,427,182
Savings                                                             $ 350,763

Total Estimated Annual Savings                                     $1,666,113


                      Executive Offices, including Pass Bureau

                                              Proposed         Savings
                       Present Forces          Forces      Estimated Annual
                                                               Salaries
                     Erie    DL&W    Total      Total      Forces and Wages

Supervisory           4      2        6          4          2      $51,608

Non-Supervisory       8      5       13          8          5       26,959
                    -----  -----    -----     -----      -----    ---------
       Total         12      7       19         12          7      $78,567

The new executive department would be headed by a Chairman of the Board, but the active operation of the new company would be in the hands of a President, who would be assisted by an Executive Vice President and an Assistant to the President. The Pass Bureau would be included in this office, and appropriate secretaries and other clerical personnel are provided.

Public Relations and Advertising


                                                Proposed     Estimated Annual
                         Present Forces          Forces          Savings
                                                                 Salaries,
                                                                 Wages and
                   Erie    DL&W    Total      Total     Forces       Fees

Supervisory          3       3        6          5         1         $13,230
Non-Supervisory      4       2        6          5         1           4,195
Consultants          -       -        -          -         -           8,537

     Total           7       5       12         10         2         $25,962

Both Erie and Lackawanna maintain departments which handle not only public relations, but also press relations, employees magazines, photography, and other related work. An Assistant to the President of the merged company to handle public relations is proposed, and he is provided with a staff of nine assistants and clerks. This department would also supervise the advertising undertaken by the new company.

Secretary and Treasurer


                                                Proposed    Estimated Annual
                          Present Forces         Forces         Savings
                                                                  Salaries,
                                                                  Wages and
                    Erie    DL&W     Total     Total      Forces    Fees

Secretary               7     -          7         8
Treasurer               7     -          7         8
Secretary and
  Treasurer             -     5          5         -
                     ----- -----     ------     -----    ----     ----------
        Total          14     5         19        16        3       $14,749

Transfer Office         2     5          7         7
N.Y. Corporate
  Transfer Office      Yes   No          -        No        -        12,000
  Cashier's office      8     6         14        12        2        11,568
                     -----  -----      ----     -----     ----     ---------
        Total          24    16         40        35        5       $38,317

The functions of the secretary and the treasurer are combined in one office on the Lackawanna, whereas the Erie divides the work between a secretary and a treasurer. It is believed that the requirements of the merged company would justify separate offices. A total of 19 officers and employees are now assigned to this work by the two companies separately, as compared with a proposed force of eight for the new secretary and eight for the treasurer, or a total of 16. Much of the work performed in these offices is corporate work or is otherwise related to system operations ' and it is assumed that the elimination of one of the corporate entities in the merger would result in a nearly pro rata reduction in work of this character.

The Erie employs two New York corporate transfer agents and also has two men in their Cleveland office assigned to payment of dividends, whereas the Lackawanna handles this work with its own forces. A transfer office is proposed for the merged company and it is believed that the seven men now assigned to this work could take care of the merged company. The only saving would be in the fees paid its corporate transfer agents by the Erie.

Both companies maintain cashiers' offices with a total of 14 supervisors and employees. Merger would result in very slight savings in this work and a reduction of only two men is proposed.

Law Department


                                             Proposed    Estimated Annual
                     Present Forces           Forces          Savings
                                                                   Salaries,
                                                                   Wages and
                   Erie     DL&W   Total       Total     Forces      Fees
Supervisory          9        9     18           16         2       $48,740
Non-Supervisory      8        9     17           13         4        17,591
                  ------   ------ ------      ------     -------   ---------
        Total       17       18     35          29           6      $66,331

Outside Counsel                                                      23,600

        Total                                                       $89,931

The Law Department of the Erie is located in Cleveland, with one General Attorney in New York, whereas all of the Lackawanna's legal forces are located in New York.

A Vice President and General Counsel is proposed for the new company, together with two General Solicitors. It is believed that four Commerce Attorneys would continue to be needed as would the five General Attorneys. Two attorneys now handle real estate and taxes, and it is anticipated that no reduction could be made in this force. One man would continue to be required for labor and marine matters. A single managing clerk, however, would replace the two managing clerks which are now employed, and the number of non-supervisory employees could be reduced from 17 to 13, making a total reduction of six men in the department.

The two companies maintain outside counsel on a retainer fee basis in Washington, D. C., and at sixteen other points. At seven of these points it is believed that no saving could be realized as a result of merger, but at Washington we estimate the annual cost could be reduced from $11,100 to $7,500, or a saving of $3,600, and at nine of the points where outside counsel are retained, it is estimated that the total cost could be reduced from $105,000 annually to $85,000 annually, or a saving of $20,000. Total savings in fees for outside counsel are therefore estimated at $23,600 annually.

General Claims

                                           Proposed       Estimated Annual
                    Present Forces           Forces            Savings
                                                                   Salaries
                     Erie   DL&W      Total      Total      Forces and Wages

Headquarters:

Supervisory          3.5       2       5.5        3.5          2     $14,641
Non-Supervisory      5         1       6          5            1       4,359
                   ----------------------------------------------------------
      Total          8.5       3      11.5        8.5          3     $19,000

Districts:

Jersey City          8         -       8       > 11            4
Hoboken              -         7       7       >
Binghamton           1         1       2       >  5            -
Scranton             -         3       3       >
Buffalo              1         3       4          3            1
Hornell              3         -       3          3            -
Others (6)           9         1      10         10
                 -----------------------------------------------------------
      Total         22        15      37         32            5     $24,848

  Total Claims      30.5      18      48.5       40.5          8     $43,848

At present, General Claims for Erie are under the supervision of the Chief Surgeon, and the same arrangement has been continued. No attempt has been made to study the forces in the Medical Department which on the Erie, in addition to the Chief Surgeon, number 10 persons and on the Lackawanna consist of the Chief Medical Officer and his secretary.

District claim agents are now maintained at the several points shown in the table above, and the proposed reduced forces are also indicated, It is believed that under merger the work can be handled more efficiently at a smaller number of points, and it is estimated that a reduction of five men can be made in the field. This saving, coupled with a reduction of three at headquarters, produces a total estimated saving for the claim division of eight men.

Land and Tax Department


                                          Proposed    Estimated Annual
                    Present Forces          Forces         Savings
                                                                  Salaries
                  Erie     DL&W    Total      Total     Forces    and Wages

Supervisory          4      4        8          4          4        $29,026
Non-Supervisory     30     10       40         34          6         31,183

      Total         34     14       48         38         10        $60,209

The General Land and Tax Agent of the new company would be charged with the maintenance of all basic land records, and would furnish information as required to the valuation and other departments of the railroad. He would also be responsible for property tax returns. All other tax returns would be the responsibility of the Comptroller.

There would be some reduction in the volume of work with respect to taxes following consolidation, but the detailed accounting for land would not be substantially affected. A total of 48 men now handle this work, and it is proposed to set up an organization of 38. Supervisory officers are reduced from eight to four, a reduction of four, whereas clerical forces are reduced from 40 to only 34, or a reduction of six.

The General Land and Tax Agent would be assisted by one officer in charge of real estate, and another officer in charge of taxes, with one chief clerk. The other 34 employees would be assigned to tax work, preparation of documents, valuation work, drafting of maps, and other clerical duties. In view of the local nature of much of the land work, field men would be assigned to district offices located in New York, Cleveland and Elmira.

Labor Relations, Personnel and Training


                                         Proposed     Estimated Annual
                  Present Forces          Forces          Savings
                                                                 Salaries
                  Erie     DL&W    Total      Total       Forces and Wages

Supervisors        9       3       12          10           2     $13,848
Non-Supervisors    9       4       13          10           3      13,740
                 ----------------------------------------------------------
    Total         18        7       25          20           5     $27,588

It is proposed that a Director of Labor Relations, Personnel and Training be appointed who would report direct to the President* and have, complete charge of all wage matters, schedules, negotiations, employment, personnel records, and employee training programs. He would be provided with an Assistant Director.

A Supervisor of Labor Agreements would be in charge of wage schedules and negotiations, and his department would include four Examiners and a Chief Clerk. A Superintends of Employment, assisted by a Chief Clerk, would handle employment problems.

Total supervisory forces provided for the merged company would include the ten supervisory officers listed above as compared with 12 at present, or a saving of two. The volume of work with respect to employment and related records would be only moderately reduced as a result of merger, and it is estimated that total non-supervisory forces of 13 at present could be reduced to ten, or a saving of three, making a total saving for the department of five.

** It may be desirable to separate this department between Labor Relations on the one hand, and Personnel and Training on the other, the former department to report to the Vice President Operations, and the latter to the President. This would in our opinion result in some loss in efficiency (and increase in expense) through separation of the two departments in exchange for increased efficiency through more direct handling of the more important labor problems with the principal departments involved. There is precedent for both types of organization.

Accounting Department

Vice President - Comptroller


                                             Proposed    Estimated Annual
                     Present Forces           Forces         Savings
                                                                   Salaries
                   Erie    DL&W    Total       Total     Forces    and Wages
Supervisory          5      4        9           7         2       $41,125
Non-Supervisory     10      9       19          13         6        28,272
                 -----------------------------------------------------------
       Total        15     13       28          20         8       $69,397

The Comptrollers of the two companies are now located in Cleveland and New York, with total forces of 28 officers and employees. At this level of supervision the separate forces are largely engaged in work which is the same for both companies, such as developing accounting policies, maintaining general books, preparing system statistics and reports, etc. It is proposed to assign 20 officers and employees to this work for the new company.

The new organization would be headed by a Vice President and Comptroller, and it is proposed to assign to him three assistants. The first assistant would serve as the executive officer and office manager as well as handle the general accounts. The second would be responsible for tax work, and the third would be in charge of statistics. The auditors of the various bureaus would report directly to the Comptroller, with secondary lines of responsibility to the Assistant Comptrollers in their respective fields. Three additional supervisory officers are also provided, together with 13 accountants, bookkeepers, secretaries and clerks.

Statistics


                                            Proposed     Estimated Annual
                      Present Forces,         Forces          Savings
                                                                   Salaries
                      Erie    DL&W    Total    Total        Forces and Wages

Supervisory           1.8     1       2.8       2            .8   $ 5,922
Non-Supervisory       7.2     6.5    13.7      11.2         2.5    14,101
                    -------------------------------------------------------
              Total   9       7.5    16.5      13.2         3.3   $20,023

The Erie Railroad has a number Of officers and employees in the Accounting Department doing statistic, work, including an Assistant Comptroller who supervises the preparation of annual reports, operating statistics ,stand other similar statements.

The Lackawanna Railroad has a relatively small statistical bureau engaged in the same type of work.

The merged company should have an adequate organization handle this type of work, and since there is some duplication in the work performed it is believed that two officers would be able to handled the work which is now done by 2.8 supervisors, and that the non-supervistory employees can be reduced from a total of 16.5 to 13.2, making a total reduction of 3-3 officers and employees.

Auditor of Revenues


                                         Proposed      Estimated Annual
                    Present Forces         Forces           Saving
                                                                 Salaries,
                    Erie    DL&W   Total     Total       Forces  and Wages

Supervisory         22.5    16.4    38.9      28.0        10.9   $ 64,332
Non-Supervisory    349.0   158.9   507.9     433.5        74.4    342,410
                 ---------------------------------------------------------
       Total       371.5   175.3   546.8     461.5        85.3   $406,742

It is proposed to place revenue accounting under the supervision of an auditor of Revenues, who would be provided with two assistant auditors. The Auditor would have general supervision and supervision of personnel. One assistant would have supervision over local freight revenue, interline freight accounting, revision work and overcharge claims. The other assistant would handle station accounts, traveling auditors, passenger revenue and other miscellaneous revenues.

Revenue accounting, particularly interline accounting, would be reduced somewhat in volume by merger, and supervision can be consolidated, so that the total existing forces of 546.8 could be reduced to 461.5, or a saving of 85.3 officers and employees.

Freight Claim Agent


                                         Proposed      Estimated Annual
                 Present Forces          Forces           Savings
                                                                Salaries,
                                                                Wages and
Headquarters       Erie    DL&W     Total     Total     Forces    Fees
Supervisory         4        3       7          5           2       $15,337
Non-Supervisory    52.5     20     72.5        61          11.5      49,954
                 ----------------------------------------------------------
      Total        56.5      23     79.5       66          13.5     $65,291

Districts:

Jersey City         7        -       7          8           1 I
Hoboken             -        1       1          -           1
Cleveland           1        -       1          1           -
Chicago             4        -       4          4           -
               ----------------------------------------------------------
      Total        12        1      13         13           -
               ----------------------------------------------------------
Grand Total        68.5      24     92-5       79           13.5    $65,0291

On the Erie the Freight Claim Department is under the jurisdiction of the Comptroller, whereas on the Lackawanna it is included in the Operating Department. it is proposed to place this work in the Accounting Department in the belief that it can there be more readily and effectively coordinated with an over-all mechanization program. Freight claim prevention would be handled in the office of the Superintendent of Transportation in the Operating Department.

The Freight Claim Department now located at Cleveland and Scranton, would be consolidated into one office under the jurisdiction of a Freight Claim Agent and two assistants. A chief clerk and an assistant chief clerk would complete the supervisory forces, and an additional 61 employees would be required to handle the work of the merged company at headquarters.

At present the Erie has three and the Lackawanna one district office. It is proposed to continue the district offices at Jersey City, Cleveland and Chicago, and discontinue the office at Hoboken.

Auditor of Disbursements


                                        Proposed      Estimated Annual
                  Present Forces         Forces            Savings
                                                                 Salaries
                  Erie      DL&W     Total     Total      Forces and Wages

1. Supervision    7.6       4.5      12.1        9          3.1    $ 28,187

2. Payrolls      62.6      36        98.6       81         17.6      94,781
3. Material      36.6       9        45.6       45.6         -         ---

4. Bills         12.5       4.5      17         14          3        16,674
5. Vouchers      10.7       7        17.7       13          4.7      24,806
6. AAR Billing    9.5       5        14.5       11          3.5      15,757

7. Dining Service  .2        .5        .7        1            .3 I    1,584 I

8. Bookkeeping    6.3       1.5       7.8        7            .8      4,287

9. Treasury Work  2         -         2          1           1        4,896

10.  Filing       2         -         2          2           -         ---
11.  Office Boys  3.5       1         4.5        3          1.5       5,521
                 ----------------------------------------------------------
12.  Total      153.5      69       222.5      187.6       34.9    $193,325

The basic functions of disbursement accounting will remain substantially the same after merger as before, and the various categories analyzed are listed in the table above. A total of 222.5 officers and employees are now required to handle this work, and it is estimated that under consolidation only 187.6 will be needed, a reduction of 34.9 or 16%.

Comments with respect to each of the 11 categories listed above are as follows:

Supervision

Disbursement accounting is now handled by the Erie at Cleveland and Hornell, and by the Lackawanna at Scranton. It s proposed to handle all of this work at a central office at Scranton, with one supervisory force instead of three. The proposed supervisory force of nine includes an auditor of disbursements and his secretary, and three Assistant Auditors. One of the three assistants would have general supervision; the other two would be placed in charge of material and payroll accounting, respectively, and each would have a chief clerk. This group would also include an accountant whose primary unction would be the handling of pensions and related work.

2. Payrolls

A total of 67 employees now handle timekeeping for the two companies, including 2.5 supervisors, 26 timekeepers for operating employees and 38.5 timekeepers for non-operating employees. The volume of work under merger will be reduced somewhat because of the reduction in total employees, and there will be certain advantages in consolidating the work in one place. Two supervisors are proposed for this work, together with 23 timekeepers for operating employees and 30 for non-operating employees, making a total of 55 for the entire bureau, or a reduction of 12'employees.

The payroll department will also handle all work in connection with deductions, bond purchases, detailed records with respect to group insurance, the distribution of payrolls, compensation reports, etc. One supervisor would be required for this work as compared with two at present, and the total number of employees handling these miscellaneous functions would be reduced from 31.6 to 26.

3. Material

Erie accounting is by districts, while the Lackawanna maintains system figures only. The one exception to this is in connection with material used in repairs of diesel locomotives where both Erie and Lackawanna maintain records showing material applied to each individual unit.

Under the Lackawanna system, material is charged out on the basis of monthly inventories. This method does not permit budgetary control by operating division or mechanical repair point, although budgetary control can be maintained by classes of material for the entire system. In setting up the proposed forces required for material accounting it was assumed that the Erie system would be adopted. Records of material applied by diesel unit as practiced by the Lackawanna and Erie would also be continued.

The estimated force of 45.6 men for the merged company is the same as the existing total.

4. Bills

The preparation of bills against other companies requires 17 supervisors and employees at present, including several men who check joint facility bills. It is proposed that this be done by a force of one chief clerk, two Joint facility investigators, and 3.1 other employees, making a total of 14, or a reduction of three as compared with existing forces.

5. Vouchers

The preparation of vouchers in payment of bills received from other parties now requires 17.7 supervisors and employees, and it is proposed that this work be done with a total of 13, a reduction of 4.7 employees. This should be possible because of the consolidation of a substantial number of transactions.

6. A.A.R. Billing

Bills against other railroad companies for repairs to cars Delayed in accordance with rules of the Association of American Railroads require 14.5 employees now, and it is proposed to handle this with 11 men, a reduction of 3.5. This redaction is possible for two reasons. First, all billing between the Erie and Lackawanna would be eliminated; and second, it is assumed that mechanization of this work as now practiced by the Lackawanna would,be adopted by the merged company.

7. Dining Service

Less than one man is now required for handling accounts related to dining cars and other related services on the Erie and Lackawanna, and it is assumed that one man could handle it for the merged company.

8. Bookkeeping

After the basic detailed preparation of payrolls, material accounting, etc., has been completed, a certain amount of work is required in preparing journal entries and maintaining the general books of account. It is estimated that seven men would be needed as compared with 7.8 at present, a reduction of .8.

9. Treasury Work

The Erie now has two men in New York on the payroll of the Comptroller one of whom would be eliminated as a result of merger. The work of this man would be absorbed by forces in the office of the Treasurer which are set up elsewhere. The second man keeps a duplicate set of general books in New York as required for the Erie because it is incorporated in New York State.

10. Filing

Although files now maintained in three different offices will be consolidated, it is felt that the two existing file clerks will continue to be needed.

11. Office Boys

A total of 4.5 office boys are now employed, a large part of whose time is required for messenger service. After the proposed consolidation of three offices into one it would be possible to reduce this force to three.

Car Accountant



                                              Proposed      Estimated Annual
                      Present Forces           Forces            Savings
                                                                    Salaries
                      Erie    DL&W    Total     Total       Forces and Wages
Supervisory            2       3      5         3            2     $11,208
Non-Supervisory       32      25     57        47           10      44,824
                  -----------------------------------------------------------
        Total         34      28     62        50           12      $56,032

The methods used for car accounting by the Erie and Lackawanna vary markedly. The Western District of the Erie is equipped to put information for each car handled on cards in all of their principal interchange yard offices for transmittal by teletype direct to the machine bureau. There the information will be automatically punched on I.B.M. cards. However, the Erie will not start their program until the Eastern District yard offices are also equipped with the necessary machines. The Lackawanna has no corresponding program.

Passing reports are furnished by teletype to all main traffic offices by the Erie. The Lackawanna furnishes information for all cars handled through East Buffalo, but for all other cars the Lackawanna Traffic Department must call the Car Accountant or the Transportation Department, and the latter usually makes further inquiry of yard offices by telephone. The merged company would furnish passing reports similar to those prepared by the Erie.

Operating statistics (OS Reports) are in general compiled by the Erie and Lackawanna in the office of the Car Accountant, and it is assumed such reports would continue to be made in the office of the Car Accountant for the merged company.

It was assumed that with greater mechanization and concentration of work the merged company would achieve greater efficiency, and on this basis it was estimated that the total number of officers and employees required for this department could be reduced from 62 to 50, or 12 employees.

The supervisory force for the proposed new office would include a Car Accountant, one chief clerk in charge of per diem, demurrage and wheel reports, and a supervisor of statistics. The other 117 employees in the department would be engaged in handling per diem, demurrage, wheel and passing reports, tracing, home routes and short routes, statistics, and other related matters.

                 Auditor of Mechanized Accounts and Reproduction

                                                                      Estimated Annual
                   Present Forces-           Proposed Forces               Savings
                                                                              Salaries
                Erie   DL&W  Total      Cleve.  Scranton  Total      Forces  and Wages
General
   Supervision

Supervisory      -      -      -           2        1       3         3.0 I $ 23,424 I

Mechanized
   Accounting

Supervisory      8.8    2.3    11.1         6        2       8         3.1   $ 22,883
Non-Supervisory 136.2  55.7   191.9       123.7     50     173.7      18.2     82,615
                ----------------------------------------------------------------------
 Total          145.0  58.0   203.0       129.7     52     181.7      21.3   $105,498

Comptometer
   Division

Supervisory       1.0    -       1.0        1        1        2      1.0 I $ 4,704 I
Non-Supervisory  19.0   11.0    30.0       20        6       26      4.0    16,922
               ----------------------------------------------------------------------
   Total         20.0   11.0    31.0       21        7       28      3.0  $ 12,218

Stenographic
  Bureau

Supervisory      1.0    1.0      2.0        1        1        2      -     $    912 I
Non-Supervisory 36.5   18.5     55.0       38       12       50      5.0     23,145
               ----------------------------------------------------------------------
  Total         37.5   19.5     57.0       39       13       52      5.0   $ 22,233

Reproduction
  Department

Supervisory      -      -        -          1        -        1      1.0 I $  4,740 I
Non-Supervisory  4.0    2.7      6.7        4        1        5      1.7      7,709
               ----------------------------------------------------------------------
 Total           4.0    2.7      6.7        5        1        6       .7   $  2,969

Total
  Department

Supervisory      10.8    3.3     14.1       11        5       16      1.9 I $ 10,897 I
Non-Supervisory 195.7   87.9    283.6      185.7     69      254.7   28.9    130,391
               ----------------------------------------------------------------------
   Total        206.5   91.2    297.7      196.7     74      270.7   27.0   $1l9,494

                  I - Increase

Auditor of Mechanized Accounts and Reproduction

A new section of the Accounting Department is proposed for the merged company, to be under the general supervision of an Auditor of Mechanized Accounts and Reproduction and two assistants. This section would include Mechanized Accounting, the Comptometer Division, the Stenographic Bureau, and the Reproduction Department. These four bureaus are placed in one section because they do work for all other bureaus of the Accounting Department, or for other departments of the railroad, and much of their work is on machines which require various degrees of specialized skill. Since the disbursement accounting will be performed at Scranton, it will be necessary to have a branch of the section at that point.

Mechanized Accounting

The mechanization of railroad accounting is in a period of transition. accounting practices on both railroads are being modified as new machines become available and new applications are developed for older machines. The Lackawanna and the Erie each recently acquired an IBM Model 650 and both roads are planning increased mechanization.

For the purposes of this merger study the existing accounting forces of both railroads now assigned to work on IBM machines, were brought together in one summary statement, as shown in the table above. The estimated force required to handle the work for a merged company was then set up. Possible savings from further mechanization which could be secured apart from merger were excluded, and no provision was made for increased research and programming which might prove desirable in the future. In other words, the estimated savings shown in the table above reflect only the effect of merger upon present operation and existing forces as set up under present management policies.

The proposed machine bureau would be under the general supervision of a Manager, who would be assisted by other supervisors in direct charge of the various principal functions such as station accounting, .revenue accounting, car accounting and disbursements.

A total of nine men, one supervisory and eight non-supervisory, are assigned to research and programming at the present time, and it is believed that seven, one supervisory and six non-supervisory, could. handle the corresponding work for the merged company. This force represents the ultimate saving after the accounting procedures have been correlated and the departments merged in o one. During the transition period, however, a larger programming force would probably be required to effect the merger within a reasonably short period of time.

Both roads now use IBM machines, and 91.2 employees are required as key punch operators and verifiers, and 74.8 as machine operators, and 6.2 as miscellaneous clerks, a total of 172.2. It is estimated that the volume of work will be reduced about 10%, reflecting the use of local freight waybills for inter-company cars now handled in the interline accounts, the elimination of records for cars interchanged

Between the companies, some reduction through concentration of work, and other less important factors. As to the machine operators, here is another saving in that the preparatory time for wiring boards and setting up machines for operation is largely duplicated, and would be substantially reduced under merger. It is therefore proposed that the non-supervisory employees would be reduced to 82 key punch operators and verifiers, 69 machine operators and five miscellaneous clerks, a total of 156 and a reduction of 16.2.

A total of 215 IBM machines are now rented, including two model 650 magnetic drum data processing machines recently installed by the Lackawanna at Scranton and the Erie at Hornell, but excluding 604 to be released shortly by the Lackawanna.

The total base rental, including the 10% Federal tax, is $467,759, for first shift operation. It is estimated that the merged company would need about 90% of the basic machines now rented by the two companies separately, including key punch and verifying machines, collators, sorters, alphabetic and numeric accounting machines, reproducing punches, gang punches, and interpreters. The merged company would probably continue to use the three model 604ts and the two 650's now rented, but better utilization of the machines would probably be realized. On the basis outlined, the total number of machines would be reduced from 215 to 198, or about 8%, and annual rentals would be reduced from $467,759 to $442,072, or 9%. no change is estimated in the minor cost of rental for second shift operation. The saving in annual rentals is included in Traveling and Office Expenses appearing at the bottom of the Summary, Page 1.

The Erie is now using calculating machines for payroll and other disbursement work at Hornell. This work would eventually be placed on IBM machines by the merged company, but no saving has presently been taken.

Comptometer

Both companies are using Comptometers for revenue and disbursement accounting, and these forces would be merged into one in the new company and placed under the supervision of the Auditor of Mechanized Accounting and Reproduction. It is estimated that about 10% of the Comptometer work would be saved as a result of merger.

Stenographic Bureau

Under existing operations many of the bureaus of the accounting Departments have their own stenographic forces. It is proposed that a pooled force be set up for the merged company under the jurisdiction of the Auditor of Mechanized Accounts and reproduction, and the more efficient operation under merger would permit a saving of five employees, or about 9%. In addition to this pool, a secretary has been assigned to the Comptroller, the assistant Comptrollers, and the Auditors.

Reproduction Department

It is also proposed to place under the jurisdiction of the Auditor of Mechanized Accounts a small bureau set up for the mechanical reproduction of reports, statements, maps and other documents. Machines for this purpose are continually becoming more efficient and more expensive, and trained personnel are largely required for their operation, indicating the necessity of a pooled operation.

Valuation Engineer


                                             Proposed     Estimated Annual
                       Present Forces         Forces          Savings
                                                                  Salaries
                     Erie    DL&W     Total     Total    Forces   and Wages

Supervisory:

Engineering           6       2         8         7         1     $12,000
Accounting            1       1         2         1         1       6,552
                  ---------------------------------------------------------
      Sub-Total       7       3        10         8         2     $18,552

Non-Supervisory:

Engineering          20       5        25        23         2     $10,608
Accounting            3       1         4         4         0      ------
                  ---------------------------------------------------------
     Sub-Total       23       6        29        27         2     $10,608

   Grand Total       30       9        39        35         4     $29,160

The work of the Valuation Department combines engineering and accounting, as indicated in the table above, and its principal function is maintaining detailed records of property owned and the preparation of valuation reports as required by the Interstate Commerce Commission. There would be no great reduction in the work performed, and supervisory and non-supervisory forces have each been reduced by two.

The Valuation Department has been placed under the general supervision of the Comptroller because so much of the work done is directly related to accounting.

Study T - Traffic

The purpose of Study XIV-T was to analyze the existing functions and present costs of operation of the Traffic Departments and to set up a proposed force which would be able to handle these functions under merger.

Data with respect to the organization, personnel and expenses of both roads were analyzed and a proposed force was set up after conferences with Traffic Department representatives, including one meeting with the Traffic vice presidents. With one exception, referred to later,, the Traffic Departments of both the Erie and the Lackawanna are organized and operated in a substantially similar manner so far as personnel and policy are concerned.

The Traffic Department headquarters would be located at Cleveland. The Rate and Divisions Department would also have offices at New York and Chicago. Supervision of on-line and off-line sales activities would be controlled from New York, Cleveland and Chicago.

As to off-line offices, the personnel of the railroad having the largest force at a particular agency was usually adopted as the proposed force for the merged company at that agency. In several cases, however, additions were made because not all of the calls being made by the two companies are duplicated and some increase in personnel seemed necessary to permit proper solicitation coverage.

In the proposed organization the Mail, Baggage and Express Department will come under the Traffic Department in line with present Erie practice.

Office and traveling expenses were estimated on the basis of existing costs adjusted to reflect the proposed Traffic Department organization after merger.

A recapitulation of present and proposed forces and expenses as well as the estimated annual savings is shown on Schedule A. The estimated annual saving is $1,560,584.

Traffic - Recapitulation

Schedule A


                         P R E S E N T                   P R O P O S E D
                                             Total Amount             Annual
                          Erie  DL&W   Total   Salaries    Force  Salaries
Force and Salaries
Vice President - Staff     11     6      17   $ 175,284      12   $ 113,220
Industrial Development       9     4      13     100,824      12      94,608
Passenger Traffic Dept.
  General Office           17    16      33     195,876      24     137,616
  On-Line and Off-Line
    Agencies               35    25      60     353,100      54     318,780
Mail, Baggage and Express   4     4       8      45,084       6      35,148
Coal Traffic Department    12     4      16     113,604      14      98,640
Freight Traffic Dept.-
  Rates and Divisions      87    39     126     727,116      98     571,620
  Sales and Service
  General Office           53    42      95     628,848      60     411,012
  On-Line and Off-Line
  Agencies                257   119     376   2,285,280     277   1,697,856
                  ---------------------------------------------------------
       Total              259   744     744   4,625,016     557  $3,478,500

       Savings                                              187  $1,146,516

                            P R E S E N T                    PROPOSED
                          Erie         DL&W           Total
Annual Expenses
Vice Pres - Staff      $ 16,620    $ 31,068 (A)    $ 47,688    $   17,172
Industrial Development   32,088      5,040           37,128        34,992
Passenger Traffic Dept.
   General Office        16,524     13,704           30,228         20,280
   On-Line and Off-Line
   Agencies              64,068     34,488           98,556         86,580
Mail, Baggage & Express   ---          996              996            996
Coal Traffic Department  23,988      3,468           27,456         26,200
Freight Traffic Dept.   236,580     51,384          287,964        273,024
  Rates and Divisions
  Sales and Service
  General Office        133,404     55,740          189,144        145,008
  On-Line and Off-Line
   Agencies             543,696    259,296          802,992        597,768
Miscellaneous           740,592    245,052          985,644        891,708
                  ---------------------------------------------------------
   Total             $1,807,560   $700,236       $2,507,796     $2,093,728

   Savings                                                         414,068

Total Estimated Annual Savings in Traffic Department            $1,560,584


         (A) Includes rents for other departments.  Rents have
             been assigned to individual departments for the
             proposed organization.

Study B - Superintendence: Operations

The Operating Department would be under the control of a Vice President located at Cleveland. Divisional organizations would report directly through Superintendents to General Managers in charge of the Eastern and Western Districts and only indirectly to the other system staff officers. Forces would be reduced about 20%, as shown in Schedule B, attached.

Divisional Organization

Under separate operation the companies to be merged are organized into operating districts and divisions as follows:


Lackawanna                              Miles

 Buffalo                                 213
 Scranton                                449
 Morris and Essex                        266     928

Erie
 Eastern District
 Buffalo-Rochester                       252
 Susquehanna-Delaware                    453
 New York                                304   1,009

 Total in Study Area                           1,937

 Western District
 Allegany-Meadville                      449
 Mahoning                                280
 Kent                                    204
 Marion                                  265   1,198

  Total                                        3,135

Several factors arising from merger permit a reduction in the number of operating divisions required for the new company. Terminal operations at the important common points would be consolidated (Study I, Common Points). It is anticipated that approximately 96 miles of road would be abandoned (Study II, Duplicate Lines). The operation of certain duplicate freight trains would be eliminated (Study III, Duplicate Freight Train Service). Finally, geographic concentration would be permitted to a greater extent than under separate operation because the lines of the Lackawanna and Erie are largely parallel between Jersey City and Buffalo.

Under merger, the proposed district limits would be the same as the present Erie districts, the six divisions in the study area could be reduced to three and the system total from ten to seven. The miles of road included in the divisions and districts, divided between main and branch, together, with miles of trackage rights would be as follows:


                            M i l e s     o f    R o a d
                                Owned                 Operating
                       Main    Branch     Total       Rights       Total

Eastern District
  New Jersey           187       253       440           8           448
  Middle               372       511       883          85           968
  Buffalo               95       250       345           3           348
                ----------------------------------------------------------
     Total             654     1,014     1,668          96         1,764

Western District
  Allegany             183      215        398          51           449
  Mahoning              88      188        276           3           279
  Kent                 119       85        204           -           204
  Marion               245        -        245          20           265
                ----------------------------------------------------------
     Total             635      488      1,123          74         1,197

  Grand Total        1,289    1,502      2,791         170         2,961

The reduction in total m miles from 3,135 to 2,961 or 174 miles reflects the 55 miles of line retired in the Erie-Lackawanna coordination program as well as Study I and Study II abandonments, lines reclassified, and the elimination of trackage rights held by one system company over another.

The size of the staffs of the new divisions were based primarily on anticipated volume of traffic and the size of the proposed divisions, bearing in mind not only road miles and the relative number of main and branch miles, but also the geographical concentration of these miles.

A recapitulation of the present and proposed forces and estimated savings in the System and Divisional organizations follows in Schedule B. The annual saving is estimated at $1,133,688.

Study S - Superintendence: Operations

Recapitulation

Schedule B


                              P R E S E N T                  P R O P O S E D
                                               Annual               Annual
                           Erie  DL&W  Total  Salaries     Force    Salaries

A. Forces and Salaries
     System Organization
   Vice Pres. Operating    19     7     26    $ 261,312     20    $  194,268
   General Manager         20     7     27      207,732     16       134,844
   Superintendent of
     Transportation        29    19     48      292,716     34       219,000
   Chief Engineer          109    27    136      995,580    112       804,888
   Supt.-Sig. Comm.        14     8     22      178,248     20       159,804
   Mechanical              91    39    130      852,156    101       654,252
   Safety Department        1     3      4       31,356      5        36,180
                         ---------------------------------------------------
    Total                 283   110    393   $2,819,100    308    $2,203,236

   Divisional Organizations
   Superintendent          90    54    144    $ 929,820    118     $ 763,452
   Div. Car Foreman        11     8     19      108,240     14        80,592
   Master Mechanic         23     4     27      168,612     22       135,432
   Division Engineer       70    35    105      688,884     89       577,692
                         ---------------------------------------------------
     Total                194   101    295   $1,895,556    243    $1,557,168

     Totals               477   211    688   $4,714,656    551    $3,760,404

   Savings                                                 137    $  954,252

                                P  R  E  S  E  N   T        PROPOSED
                              Erie        DL&W       Total
B. Expenses
   System  Organization    $354,672      $144,312    $498,984   $346,092
   Division Organi-
   zations                  120,252        52,560     172,812    146,268
                         ---------------------------------------------------
          Total            $474,924      $196,872    $671,796   $492,360

 Savings                                                       $ 179,436

C. Total Estimated Annual Savings                             $1,133,688
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