Companies Aren’t Using Their Cash To Hire, They’re Using Their Cash To Fire
Aug. 30, 2010
It’s been a popular question lately: Why aren’t companies using more of their cash to hire workers?
Some say companies don’t have the cash people think they have, and that the question is flawed. Others say it has to do with legal uncertainty. Others say it’s just plain-old lack of demand.
But whatever the reason, the situation isn’t merely characterized by a lack of hiring. Companies are using their cash to fire employees. Really. A lot of jobs are going to get killed in this new M&A boom that we’re seeing, from fertilizer (BHP/Potash), to packing (Reynolds/Pactiv), to tech (HP/Dell/3Par), and pharma (Sanofi/Genzyme). Companies are willing to shell out BILLIONS (so much for all that uncertainty…) for deals that will allow them to shed employees once they’re consummated.
Remember, much of the earnings comeback has not been due to top-line growth, but by productivity gains. Now that that’s over — see the chart below — it’s time to get more aggressive about cutting costs.