Five years into recovery, Dow companies squeeze workers as investors thrive

By Michael Santoli 

FILE - In this July 19, 2011 file photo, passers-by walk past an American Express logo near the entrance to a bank in the Harvard Square neighborhood of Cambridge, Mass. American Express Co.. reports quarterly financial results on Tuesday, July 29, 2014. (AP Photo/Steven Senne, File)

A recent flurry of four-figure staff reductions by American Express Co. (AXP), eBay Inc. (EBAY), Coca-Cola Co. (KO) and other Big Business stalwarts might seem at odds with the broader picture of a cash-rich Corporate America enjoying record profits and buoyant stock prices.

Yet there’s nothing novel about corporate prosperity coexisting with lean times for workers. In fact, most of the five-year economic expansion and corporate profit bonanza since late 2009 have come with only scant increases in headcount at the largest companies. 

As the chart shows, the 30 huge companies that comprise the Dow Jones Industrial Average have barely nudged their employee ranks higher, by 6.4% since the end of the recession in late 2009, according to data provided by Howard Silverblatt, chief index analyst for S&P Dow Jones Indexes.

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Dow 30 employees vs. profits

Indeed, the number of people who work at these blue-chip firms, in aggregate, has been about static since the end of 2012, even as the U.S. economy has added more than three million net jobs. (Silverblatt notes that a geographic breakdown of these employees is hard to come by, so it could be that most or all of the slim growth in payrolls for the Dow 30 has gone overseas.)

Over the past five years, total profits of the current Dow 30 members surged by more than 42% through the end of 2014, to nearly $320 billion. This has driven the average annual profit per employee up by more than 34% since 2009, to $48,887. It hardly bears repeating that wages across the U.S. economy have barely grown at all in recent years beyond the general rate of inflation.

Most of the financial bounty from this corporate renaissance has gone to investors (and the top corporate executives who reap rewards from higher share prices).

Not only have stock indexes soared some 200% since March 2009, but the big companies have placed shareholders first as they contemplate uses for their copious cash flows. Dividends paid by the Dow 30 are up better than 30% the past five years, according to FactSet.

Doing more with less

There are a variety of forces pushing this trend, many of them underway for decades.

Two generations of corporate executives have been steeped in the productivity ethic, a constant imperative to do more with less, to substitute automation technology for human workers and to defend profit margins zealously even in flush times. Globalization brought new competitors and low-cost labor in other world regions.

One could defend these companies by noting that if they’ve managed record profits while keeping payrolls lean, it says they didn’t need to hire any more people after all.

Meantime, the rapid ascendance of many young technology-centric companies has made paranoia a pervasive trait proudly adopted by CEOs and CFOs. Facebook Inc. (FB) is scarcely a decade old and is worth more than all but a dozen U.S. companies. The entrenched, mature companies that make up the Dow have come to expect to be “disrupted,” and so are loath to bulk up payrolls and are forever receptive to ideas about how to trim down.

Returning value to shareholders

Much has been said and written about the widespread worship of “shareholder value maximization,” a creed that has spread from academia through the corporate ranks, distilling executives’ jobs to enriching equity owners. There is a spirited debate about whether this ethic is constructive, or perhaps gone too far for everyone’s good.

The particular nature of this recovery following the Great Recession also has plenty to do with the skimpy rewards reserved for workers. Economic growth has been slow, staccato and fragile as an over-indebted world struggles to lift demand for goods as developed nations age.

Ultra-cheap debt-financing rates have boosted financial markets and fattened corporate profit margins, yet absolute revenue growth has been tepid, sapping executive confidence in the growth outlook and leaving them hesitant to expand.

If there’s a bright side for the working American, it’s that this trend is showing some tentative signs of having peaked.

The job market has tightened enough that glimmers of wage growth have been intermittently visible. Cheaper gasoline helps households far more than it does companies, and some big businesses linked to the energy game will be hurting. There’s been a recent – and arguably belated – surge in consumer confidence even as global financial turmoil puts investors on edge.

Put together, these are hints that we might be in for a phase when Main Street has it a bit better than Wall Street, after several years of the reverse being true.