Russ Wiles

The Republic | azcentral.com

One of the major economic forces of the past several decades has been the steady rise in productivity. Thanks to computers, better manufacturing processes and demands that everyone work harder and smarter, American companies are doing more with less.

Big U.S. companies, in particular, are squeezing plenty out of each worker. In fact, greater efficiency is one reason that many of these corporations have become so large and successful.

The 100 giant corporations in the Standard & Poor's 100 collectively employ 14.5 million people globally and thus exert a big impact on the world economy. The typical giant company could fill Chase Field three times with its workforce. Walmart Stores alone has a headcount of 2.2 million people, roughly the population of Houston.

But giant firms don't hire people wantonly. Indeed, restrained hiring by Corporate America has been a significant reason the economic recovery has been sluggish. Companies instead have become more efficient. A Labor Day analysis of America's 100 biggest corporations by The Arizona Republic shows that these firms average about $550,000 in revenue from each worker. That's one reason corporate profit and stock-market values of these companies have never been higher.

"Innovation and productivity have allowed us to elevate standards of living without inflation," said Jack Ablin, chief investment officer at BMO Private Bank. "The world has become more efficient."

But the flip side is that productivity disparities might be contributing to the widening wealth divide. Skilled employees at highly productive companies enjoy better pay, benefits and job security. Another, less obvious implication, is that owners — that is, stockholders — have reaped the gains from productivity at least as much, and perhaps more so, than workers have.

This helps to explain why the stock market is hovering at record highs at the same time that two in five Americans say they would have trouble coming up with $2,000 in a pinch, as one recent survey revealed.

"People who own shares have benefited more than people who get paychecks," Ablin said.

Crunching the numbers

In the study, The Republic calculated productivity by dividing annual revenue over the four most recent quarters by the number of corporate employees, as tracked by researcher Morningstar Inc., for those giant firms in the S&P 100 index.

This isn't a perfect measure, as labor isn't the only expense that corporations face. Companies also must buy raw materials, invest in factories and spend heavily on research, exploration or new-product development.

Nor are employee headcounts the only way to track labor costs, because salaries and benefits also matter. Firms with small staffs often pay their people much more than those with legions of workers. Still, this comparison provides insights about relative labor productivity.

Among the largest 100 corporations — those in the S&P 100 — McDonalds is the most labor-intensive or unproductive by this measure. The fast-food chain generates only about $64,000 in revenue from each employee.

Starbucks is another example, with the coffeehouse chain reaping about $88,000 in revenue per worker. Companies in service-intensive businesses typically don't pay high wages and include many part-timers — two factors that lower per capita revenue. Plus, many such firms have global operations, and wages typically aren't as high in other nations. It's telling that Arizona State University partnered with Starbucks to develop its low-cost education initiative, designed to benefit the company's workers.

Then there's Walmart, the largest U.S. corporate employer. It generated $477 billion in revenue and counts 2.2 million employees, which works out to $217,000 in revenue per employee. This also is on the low side for S&P 100 corporations but not atypical for retailing. Home Depot generates $218,000 per employee; Lowe's and Target are both around $200,000.

As with food service, many retail businesses have considerable numbers of part-time workers and foreign employees, which lowers their revenue-per-employee comparison.

But if wages at the low-end start rising noticeably, from market forces or minimum-wage regulations, then companies could start curtailing employment in favor of labor-saving technology. "There's an overreliance on (inexpensive) labor in some industries," said Lee McPheters, an economics professor at Arizona State University's W.P. Carey School of Business.

High revenue per worker

But plenty of big firms squeeze much more out of each employee. One in five S&P 100 corporations generates at least $1 million in yearly revenue per employee.

These more productive companies fall into two basic camps. The first is capital-intensive corporations, which have relatively small staffs because they spend much more on factories, transportation fleets, exploration, processing and other endeavors that don't require a lot of workers.

For example, Arizona's largest corporation and only S&P 100 entrant, Freeport-McMoRan Copper & Gold, invests heavily in exploration, mining, processing and more. It generates about $626,000 in per capita revenue. It also has a sizable contingent of employees in less-developed nations in Asia, Africa and South America.

But the dominant high-revenue examples are oil companies. They put up huge sales and profit figures per employee. Houston's Apache Corp. employs just 5,300 workers — the fewest of any S&P 100 company — yet amassed $15 billion in revenue and $1.2 billion in profit over the past four quarters. Energy giant ExxonMobil employs 75,000 people and generates $5.9 million in revenue per employee.

"The more that capital and technology play a role, the greater the dollar contribution per employee," McPheters said.

Utilities, which also are capital-intensive, generate even more revenue per employee on average. The typical utility rings up about $797,000 in sales from each of its workers, according to the Census Bureau. It's $614,000 on average for oil and gas companies.

In the other high-productivity camp: innovation- or knowledge-intensive businesses. In addition to labor and capital — which includes factories, equipment and other tangible items — economists track an input called "total factor productivity," McPheters said. This measures the contribution of technology, innovation, management skill and other often-nebulous ingredients — neither pure labor nor capital.

"It's that 'something else,' " McPheters said.

Among S&P 100 companies, technology stars Facebook and Apple rank among the 10 companies generating the most revenue bang per employee. Ablin said that Facebook's stock-market value is three times that of General Motors', but the social-media firm has just one employee for every 30 GM workers. It also generates nearly twice as much revenue per worker.

"With innovation, you have fewer but more qualified employees, who are doing much more with so much less," he said.

But even capital-intensive corporations have been squeezing more from workers. U.S. manufacturing output now is hovering near record highs, even though the country counts 8 million fewer manufacturing jobs than it did in the 1970s, Ablin said. In addition to computerization, he cites the decline of labor unions as a key factor that has enabled some companies to be more efficient.

Implications

Although discussions on productivity can get esoteric, the findings boil down to a couple of key points. One is that investors, executives and skilled workers have benefited more from productivity gains than less-skilled individuals. Wealthier Americans have bounced back much faster from the recession. In part, that's because the rich are more likely to own businesses directly or invest in companies through the stock market.

In addition, they tend to have better jobs with fewer layoffs, which is often attributable to more education. College graduates tend to make more money over their careers, notwithstanding the initial costs of education, and they're less likely to be jobless.

"There's a connection between the number of years of education and both lifetime earnings and unemployment rates," McPheters said.

But labor-force requirements don't stay fixed. Once you earn a degree, it doesn't mean you're set for life. Rather, workers would be wise to keep augmenting their skills by pursuing advanced degrees or continuing-education opportunities, adding digital competencies, learning to communicate better and so on.

"The value of a fixed skill set erodes over time," Ablin said. "Just like companies must periodically reinvent themselves, individuals should, too."

Productivity leaders

These giant S&P 100 corporations generate some of the highest revenue totals per worker. The list is dominated by energy companies that have relatively high infrastructure investments and don't require legions of employees to get their products to market. But it also includes some technology and other companies that rely heavily on relatively few workers to get the job done. Employee counts, and revenue figures for the four most recent quarters, are provided by Morningstar.com.

10: Facebook: $1.4 million in revenue per worker: The Mark Zuckerberg-led social-networking website counts only about 7,200 employees — small by S&P 100 standards. But that modest staff generated $10 billion in revenue over the past four quarters. Though we didn't rank corporations by profit, Facebook earned about $331,000 per worker.

9.Altria Group,$2 million in revenue per worker: This leader in cigarettes and tobacco products, the successor to Philip Morris generated about $17.7 billion in annual sales and $4.3 billion in net income. Spread over a workforce of 9,000, that comes out to just under $2 million in revenue and $480,000 in profit per employee for Altria, based in Richmond, Va.

8. Occidental Petroleum, $2.1 million in revenue per worker: Oil and gas companies tend to generate lots of sales per employee, though they also incur high expenses on exploration, drilling, refining and other activities. Los Angeles-based Occidental had $26.7 billion in annual sales and 12,900 workers. The per-employee profit is around $469,000.

7. Apple Inc.,$2.1 million in revenue per worker. The maker of smartphones, personal computers and digital-music devices counts 84,400 employees and generated $178 billion in revenue. The company, based in Cupertino, Calif., also logged $38.6 billion in net income, or $457,000 per worker. Apple has the highest stock-market value of any company.

6. Devon Energy, $2.3 million in revenue per worker. With just 5,900 workers, Devon is one of the smaller employers among S&P 100 corporations. But its oil and gas operations, primarily in North America, generated $13.6 billion in revenue and net income of $1.6 billion. That works out to $278,000 in per capita profit for the Oklahoma City-based corporation.

5. Apache Corp., $2.8 million in revenue per worker. By now, it should be clear that energy companies ring up huge sales using relatively few workers. With a staff of roughly 5,300, Houston-based Apache has the smallest workforce of any S&P 100 corporation. It earned $1.2 billion on $15 billion in revenue. The profit comes out to $228,000 per employee.

4.Anadarko Petroleum, $3.1 million in revenue per worker: Anadarko has operations in Africa, Latin America and North America — and 5,700 employees to oversee everything. The company lost $3 billion over the past four quarters due to a legal settlement, while generating $17.5 billion in revenue. Its loss works out to $532,000 per employee.

3. ConocoPhillips, $3.1 million in revenue per worker. Now we hit the truly large energy corporations. This major independent energy producer, with operations in 27 nations and a Houston headquarters, earned about $9.2 billion on revenue of $60.2 billion. Spread over 19,200 employees, that comes to $478,000 in profit per capita.

2. Chevron, $3.5 million in revenue per worker. This successor to Standard Oil Co., which began operations in 1879, logged about $226 billion in revenue over the past four quarters and net income of $20 billion. The profit works out to $311,000 per capita. Chevron gasoline stations are familiar, but only 3,200 of the company's 64,600 employees work in one.

1. ExxonMobil, $5.9 million in revenue per worker. The world's largest energy company, which operates on six continents, earned $34 billion on revenue of $442 billion in its four most recent quarters. The profit equates to $455,000 for each of 75,000 workers. The successor to Standard Oil of Ohio and Standard Oil of New Jersey added girth from a 1999 merger with Mobil.

Source: Census Bureau



