11 companies squeeze even more from workers
You may not be able to squeeze blood from a turnip, but companies are looking to do more with less in terms of employees.
Eleven companies in the Standard & Poor’s 500 saw the amount of revenue generated per employee rise at least 25% last year, according to an analysis of data from S&P Global Market Intelligence.
Increased productivity has been a missing link in this economic recovery. Companies continue to add jobs, as demonstrated by the Labor Department’s report Friday that showed 215,000 new jobs in March. But driving worker output has been a frustrating disappointment. Federal Reserve Chair Janet Yellen was asked in a testimony last week why productivity growth has been a disappointing 0.5% for the past five years. “It’s a source of huge concern,” Yellen said. Some strategies: Big successes. Driving new forms of business without adding lots of employees is a secret to boosting productivity. That was the classic case at drugmaker Vertex. The company started generating revenue last year from the cystic fibrosis drug Orkambi after approval from the Food and Drug Administration. Last year, revenue from Orkambi hit $350.7 million, up from nothing in 2014, which is a big reason why its overall revenue soared 78% to more than $1 billion. The company’s full-time employee roster rose just 7% to 1,950, resulting in revenue per employee up 67%.
Business shifts. Some companies refocus using spinoffs and divestitures. EBay, for instance, spun off its online payments unit PayPal last year, which allowed it to reduce its headcount by 64% to 11,600 full-time workers. Since eBay spun off the unit in the middle of 2015, its 2015 revenue dropped just 2% to $8.6 billion. As a result, the company saw its revenue per employee jump nearly 180%. Certainly, much of that increase is due to timing, given the company’s 12-month revenue contains revenue from PayPal for much of the year but the year-end employee count does not. “The spinoff accounts for the difference in efficiency,” says Colin Sebastian, research analyst at R.W. Baird. But he adds that the company is reducing its headcount as it tries to take advantage of a natural leverage in the technology business where a relatively small base of employees can generate growth.
Jobs cuts. A more draconian way to drive more revenue per employee is to reduce the number of employees faster than revenue falls off. Nine of the 11 companies with the biggest increases in revenue per employee saw reductions in their total staff. Diamond Offshore Drill- ing’s revenue fell 14% in 2015 as the price of oil plunged. But the company still boosted revenue per employee by 32% as Diamond cut its headcount by a third to 3,400 workers.
It’s been a similar story at Yahoo, which saw the amount of revenue per employee jump 29%. But Yahoo’s top line rose just 8% last year. The improvement was due to a nearly 17% drop in full-time employees to 10,400. Some investors think even more job cuts are needed to get the company’s profit margins headed in the right direction, says Ron Josey, analyst at JMP Securities. He points out that Yahoo’s adjusted revenue, which excludes revenue acquired from partners, continues to fall. Adjusted profit margins are also falling. That, to most investors, is the true indicator of efficiency at Yahoo, he says. The increase in revenue per employee at Yahoo “is not because the company is more efficient,” Josey says.
Investors and policymakers, too, are banking on productivity gains. For now, investors count on getting more from less as a common theme companies pursue.