Commentary | Wages Incomes and Wealth

Many highly profitable companies cut jobs in 2009

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Early in 2009, Microsoft Corp. announced its first mass layoff ever, cutting 1,250 jobs as part of a plan to eliminate 5,000 positions over the next 18 months. Like just about every company doing business during the recession, Microsoft was facing a challenging business climate and an uncertain outlook. But Microsoft was at the time—and remains today—highly profitable. It earned a net profit of $14.6 billion in fiscal 2009 and was ranked one of the 10 most profitable companies in the United States.

Microsoft was one of many profitable companies that cut a large number of jobs in 2009. While companies typically defend such moves as necessary to prepare for more challenging business conditions in the future, the layoffs they carry out often serve to grow profits for shareholders. Today, the economy is showing signs of growing again but layoffs continue to mount, and this extreme attention on the part of companies to saving money is arguably to blame. President Obama noted this disparity between rising gross domestic product and a lack of hiring early this month at the White House Jobs Summit.

“Cost-cutting has become embedded in their operations and their culture,” he said.

Clearly, business is highly competitive,  and the news of the past year is full of companies that went out of business or had to scale back their operations dramatically to stay alive. But there were also many very healthy companies that cut.

Some examples:

–Wal-Mart. The retail giant, another one of the country’s most profitable companies, did not have massive layoffs in 2009, but it did trim its staff on multiple occasions, including 650 workers from an Ohio facility that it shut, and 800 at its corporate headquarters. In its fiscal year 2009, which ended last January, the company earned a $13.4 billion profit and grew its revenues a healthy 7% to $405.6 billion.

–IBM. The software maker cut close to 10,000 jobs this year, despite being one of the standout high-tech companies that managed to grow its business during the recession. Its profits last year grew 18% to $12.3 billion, and although the company’s sales slumped in 2009, its profits continued to grow, thanks in part to the cost-cutting. IBM CEO Samuel Palmisano earned a total of $22.2 million last year, including base salary, bonus, and stock options, and shareholders have also profited from the company’s aggressive cost-cutting. IBM’s stock price is up almost 50% from the start of the year

–Aetna. The health insurance provider recently cut 1,240 positions in anticipation of falling enrollment. It earned a $1.38 billion profit last year and its revenues have steadily risen in recent years.

–Danaher Corp. The medical device maker laid off 3,300 workers as it moved to integrate two other companies it acquired. Its profits last year totaled more than $1.3 billion. The company’s stock is up about 30% for the year.

–Verizon Communications. The telecommunications giant slashed 8,000 jobs deemed “redundant” after its purchase of rival carrier Alltel. The company’s net profits jumped 14% to $6.4 billion in 2008, and it continued to expand its business through the most challenging times of 2009. Its most recent financial report in October shows quarterly earnings growing by 25%. “Even through the worst of the recession, we have continued to raise our dividend and add new customers, expand markets, and grow revenues,” the company’s CEO recently told shareholders.

–Monsanto. The maker of agricultural products more than doubled its net profit in two short years, to more than $2.1 billion in fiscal 2009. In response to a slowdown in business toward the end of this year, however, it announced a corporate restructuring and cut 900 jobs. In addition to a $2.46 million base pay, CEO Hugh Grant earned bonuses and options bringing his total compensation to $17.4 million.

–Phillip Morris. The maker of cigarettes and other tobacco products saw minimal impact on sales during the Great Recession. But in April it announced 1,100 job cuts, partly a result of plant consolidation. Both revenues and net income are up for the year, and the company’s chief financial officer recently boasted to investors that its strong financial performance “confirms our company’s ability to grow even in these difficult times.”


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