Profits zoom, but wages flat at listed companies

In business, there seems to be no relation between profits and wages. While listed companies made bumper profits in the September quarter, wages have grown in low single digits, much lower than in past several quarters, finds private think-tank CMIE.

The net profit of listed companies zoomed to record levels, as they grew

209 per cent in the September quarter. Even in the first half of the fiscal, which covered the entire period of the lock down of different intensities and associated uncertainties, the net profits of these companies grew 23.8 per cent. This growth was even higher than 11.8 per cent, the average growth in the past 60 quarters. The data is based on the financial statements of

1,897 companies available in CMIE’s Prowess database as of November 11.

However, this profit growth seemingly has nothing to do with the wage growth. “In business and for corporate honchos, there is no relation between growth in profits and growth in wages. The two move completely independently. Corporate managers would minimise their wage bill to maximise their profits,” says Mahesh Vyas, managing director, CMIE.

Amidst lay-offs, salary cut and negligible hiring, wage growth was 2.8 per cent in the first half of the fiscal. Even in the September quarter wage growth stood at 3.7 per cent, which was lower than the average year-onyear growth in wages over the past 60 quarters at 13 per cent. “The low singledigit growth in wages in the last two quarters is therefore very low by historical standards and is in stark contrast to the extraordinary profits earned by companies,” says CMIE.

Manufacturing companies saw a 9.1 per cent fall in wages in the June 2020 quarter, which was the toughest quarter for them. Sales had shrunk by 42 per cent and net profits by 62 per cent. Then, in the September 2020 quarter, while sales fell again by 9.7 per cent, profits sprang a surprise by scaling up by a handsome 17.8 per cent. Yet, wages declined by one per cent. Evidently, companies do not apportion resources to labour in any proportion of profits.

In the services sector’s case, except for banking and IT, the remaining sectors collectively saw a 9 per cent fall in wages in the June quarter and a 5 per cent fall in the second quarter.

“Shareholders are being awarded interim dividends or buy-backs. There is still very little interest in investing into new capacities… Employment in the corporate sector could recover if business picks up again,” says Vyas.