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Post Leadership
Posted at 11:06 AM ET, 08/04/2011

Big profits and...big job cuts? HSBC and Merck the latest to turn profits—and turn workers out the door

HSBC and Merck are among the big companies that have recently announced massive layoffs, despite a strong uptick in profits. (KAREN BLEIER - AFP/GETTY IMAGES)
Amid all the ugly here-we-go-again economic numbers over the past few weeks—the eight straight days of market declines, the worse-than-expected GDP numbers, the largely flat jobless claims—there were some other big numbers in the mix. Big layoff numbers, that is: On August 1, global bank HSBC said it would cut 25,000 jobs between now and 2013, on top of thousands more previously announced. On July 29, pharmaceutical giant Merck said it would be shedding up to 13,000 jobs. Defense contractor Lockheed Martin has also been trimming thousands of jobs.

Such mass cuts were enough to drive the number of planned layoffs to a 16-month high, according to a report issued Wednesday by the executive outplacement firm Challenger Gray & Christmas. The number of announced job cuts in July reached more than 66,414—up 60 percent from this June and 59 percent from July 2010.

At the same time, many companies have been reporting healthy profits. HSBC, for instance, posted an 35-percent profit increase for the first half of the year on the same day it announced the cuts. Merck reported a second-quarter profit increase and sales that were in line with analysts’ expectations on the same day its mass job losses were announced. And while Lockheed Martin reported lower earnings in the second quarter, it still beat analysts’ projections and raised its profit forecast for the year. 

Granted, these and other companies are facing big issues that have them turning to the chopping block. Growth is slowing in non-emerging markets, blockbuster drugs are coming off patent, and defense budgets are getting cut.

But the dichotomy between big job cuts and continued profits are going to make for some tricky discussions at big companies in the coming months. And that’s not just with the people who are leaving—the even harder conversations are sure to be with the people who survive. They’ll be left wondering how there’s more room to cut when profits are healthy. Survivor’s guilt is sure to set in, slowing down the efficiency of those who remain. Already overloaded employees are sure to groan under the weight of even more work, pushing top performers to start eyeing the door. Slashing jobs may have short-term benefits to the bottom line, but the long-term costs are often ignored.

Corporate profits have been one of the few bright spots on the economic horizon in recent months. While still below pre-recession levels, S&P 500 companies are expected to see profits grow 13 percent this year. That’s below the 47 percent growth they saw in 2010 but still exceptional, considering that 2010’s jump was a leap off of the deep, dark recession days of 2009. That puts corporate profits at near-record highs, but it has only meant greater productivity from trimmed workforces and hasn’t yet translated into new jobs.

Business leaders are sure to be tempted in the coming months to cut even more, as the economy appears poised to turn down again and as business seems more convinced than ever that it’s Washington’s responsibility to do the heavy lifting on job creation. Sure, more layoffs will cut costs. But one can only hope leaders consider what job cuts will cost them, too.

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By  |  11:06 AM ET, 08/04/2011

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