Citi is a particularly blatant example of a way of operating that has become endemic in American business: when things get tough, throw as many employees as possible under the bus, and use that to maintain or even increase the pay of the top echelon. In investment banking, the number of folks who are spared from corporate austerity is larger than in other businesses, since those businesses have more profit centers (a single trader can have his own P&L) but the same general principle applies.
William Cohan of Bloomberg highlights this phenenomon:
This is the reverse of how business used to operate. When I was a kid on Wall Street, the line at Goldman was that partners lived poor and died rich. Even though everyone’s pay would suffer if the firm had a bad year (that was the poing of bonuses, you knew your pay depended on firm performance), the partners took more of the variability in pay themselves and did everything necessary to preserve employment levels. The first time Goldman had actual layoffs, as in fired people because the firm was having a bad year (as opposed to for individual performance reasons) was in the early 1990s, and it was highly traumatic. And this attitude was not unusual in Corporate America. A CEO would reduce his pay if his firm was suffering; broad headcount cuts were seen as a sign that a business was in very serious trouble, and the market often did not react well to them.
Now Citi may have some fat in selected areas, and it is a famously badly run firm. But given how aggressive banks have been in wringing efficiencies out of their operations, and how much pressure Citi has been under to rationalize its businesses, these cuts look to be reactive, to reassure the Investor Gods that Action is Being Taken.
On a broader basis, Henry Blodget wrote today how destructive the “cream for the top, crumbs for everyone else” business attitude is:
The first chart shows that big American companies now have the highest profit margins in history.
The second chart shows that the companies are now paying the lowest wages in history as a percent of the economy.
If you happen to be an owner of a big American corporation, these charts could be construed as good news: You’re coining it!
If you happen to be a rank-and-file employee, however–or someone hoping to be such an employee–this is bad news: You’re sharing less than ever before in the success of American industry.
This situation, by the way, is only temporarily good news for the company owners. Because, by pumping so little back into the economy in the form of employee wages (and capital investments–the other area where companies are scrimping), our companies are constraining the growth of the economy.
Because the rank-and-file employees of America’s corporations are also mainstream American consumers–the folks who account for ~70% of the spending in the economy.
Almost every dollar these folks earn in salaries gets spent–on food, clothing, houses, education, entertainment, cars, and other goods and services that big American companies produce.
So, if, instead of hoarding their wealth by hiking their profit margins ever higher, companies invested more in employees and equipment, they would help the whole economy.
And the companies would also, of course, help their employees–the people who are dedicating their lives to helping the companies earn such vast profits…
The business-ethos pendulum in this country has now swung so far toward “profit maximization” that most American companies would never dream of voluntarily sharing more wealth with their employees.
These employees, after all, are not viewed as people. They’re viewed as “costs”–cash outflows that just drain financial value away from owners…
Think about that for a minute.
Some of the richest, most revered companies in this country–companies that are currently generating record-high profits–pay their full-time employees so little that they’re poor.
Even more depressing is the fact that concepts like “fairness” and “sharing” are now seen as evidence of bleeding-heart socialism–as though the only way to be a bona fide capitalist is to treat your employees like costs and pay them as little as possible.
But Citi and its ilk are perpetuating this race to the bottom. We’ve had a radical shift in business and cultural values in a mere 30 years. Neofeudalism seems to serve the elites just fine, and many of those who are not on at top of the food chain seem reluctant to believe that the system has been restructured to exploit them.