Employees As Expense

Mark Hurd, the golden boy CEO of  Hewlett-Packard was forced to resign yesterday amid a sexual harassment scandal. He was the low-profile antithesis to his predecessor, the publicity coveting Carly Fiorina who made a mess of the place before scurrying off to her hoped-for future as a Senator from California. Hurd was a no-nonsense, low key, under the covers (no pun intended) manager who engineered a remarkable turnaround for HP.

On the back of massive employee layoffs. Which leads me to the point of this entry.

No, I am not going to opine about the gargantuan lack of judgment that would lead such a successful executive to risk it all for a shot at an illicit tryst, dumb as that might be. I am more interested in his path to success and hallowed status on Wall Street. He did it the “new-fashioned” way, over the displaced bodies of fired employees, tens of thousands of them. He is not alone in implementing this strategy.

There has been a troubling shift over the last decade or so, one that was hyper-accelerated during the recent great recession. Employees have gone from being considered primarily as human “resources” to human “expense.” Just another line item on the P&L to be rationalized away in the never ending quest for increased productivity. More than one newly appointed CEO has dipped into this well to goose profitability, share price and their profile.

Often, the layoffs are a necessary response to a bloated cost structure and the realities of a global economy and labor market. There is a “right size” to be achieved by rightsizing. But this well proves to be an enticing place to revisit time and again to offset shortfalls, avoid disappointing Wall Street, or over-delivering and increasing the value of the CEO’s stock options.

For evidence of this, look no further than our current “jobless recovery.”  Despite a lion’s share of large corporations beating the Street’s estimates for second quarter earnings and with balance sheets flush with cash, employee hiring has been practically non-existent. Employees have gone without pay increases and company match to 401(K) funds are just beginning to get restored. Why? Because employees are simply another expense to be rationalized and minimized.

Cutting employees can become an intoxicating habit for CEOs. The payoff is immediate. But like most intoxicating habits, it has the potential to become very bad, very fast.

Employees are the only “asset” that a company possesses that is capable of quantum increases in productivity. Every machine has a maximum output. Not so human beings. At least when they are recognized, motivated, valued and rewarded. Sure you can use fear of firing as a motivator to improve productivity, to a point. But when that point needs to be exceeded, good luck.

Sooner or later, the enlightened CEOs (and there are plenty of them out there) will rediscover the power that can be unlocked when they truly value their people. The next big shift will be to those companies that maximize their human resources, away from those who minimize their employee expense.

2 Responses to “Employees As Expense”

  1. Employees are also the only resource that can get up and walk out the door, taking more assets with them! By assets, I mean knowledge or intellectual property. When you cut employees, you don’t just cut your expenses – you cut the virtuous learning cycle and the intellectual assets of your firm.