11 companies squeeze even more out of workers
You may not be able to squeeze blood out of a turnip, but companies are certainly looking to do more with less in terms of employees.
There are 11 companies in the Standard & Poor's 500, including online seller eBay (EBAY), drug company Vertex Pharmaceuticals (VRTZ), energy firm Diamond Offshore Drilling (DO) and online media company Yahoo (YHOO), that saw the amount of revenue generated per employee rise 25% or more last year, according to a USA TODAY analysis of data from S&P Global Market Intelligence.
Driving greater productivity has been a missing link in this economic recovery. Companies continue to add jobs, shown by the Labor Department's report Friday that U.S. companies added 215,000 jobs in March. But driving more output from workers has been a frustrating disappointment. Federal Reserve Chair Janet Yellen was asked in a testimony Tuesday why productivity growth has been a disappointing 0.5% for the past five years. "It's a source of huge concern," Yellen said.
But some companies are finding ways to drive more revenue from workers -- though it's due to a wide variety of reasons, including:
* Big successes. Driving big 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 following approval from the U.S. Food and Drug Administration. Last year, revenue from Orkambi hit $350.7 million, up from nothing in 2014, which is a big reason why the company's overall revenue soared 78% to more than $1 billion. At the same time, the company's number of full-time employees rose just 7% to 1,950. The result? The company's revenue per employee jumped 67%.
* Business shifts. A number of companies have been using spin-offs and divestitures as a way to find focus. eBay, for instance, spun-off its online payments unit PayPal (PYPL) last year, which allowed it to reduce its headcount 64% to 11,600 full-time workers. Since eBay spun-off the unit in the middle of 2015, that means its revenue in 2015 dropped just 2% to $8.6 billion. The company, as a result, saw its revenue per employee jump nearly 180%. Certainly, much of that increase is due to timing since the company's 12-month revenue contains revenue from PayPal for much of the year but the year-end employee count does not. "The spin-off 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.
* Job 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 that saw the biggest increases in revenue per employee also saw reductions in their total number of employees. Diamond Offshore Drilling'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 at the end of the year.
It's been a similar story at Yahoo. The company 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. "Some say a headcount of 10,400 is still too high," Josey says, pointing out that Yahoo's adjusted revenue, which excludes revenue that's acquired from partners, continues to fall. Adjusted profit margins are also falling. And 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.
Job creation was be a top focus all week, especially as investors prepared for the official tally of March jobs released Friday by the Labor Department. Investors and policymakers, too, are looking for productivity gains. But for now, investors can see getting more from less is a common theme companies are pursuing.
