The US is bracing for a historic wave of unemployment claims as businesses shed staff in an effort to ride out a pandemic that has caused demand for their products to collapse and cut entire industries off from their customers.
In recent days, trade groups have told Washington that 1.7m jobs in retail, 3m-5m restaurant positions and 4.6m jobs in the travel industry could be lost. Yet some of America’s largest companies are sending a different message in this crisis: that retaining employees will be more important to their long-term prospects than any efforts to protect near-term profits.
“The typical go-to move would be to reduce a number of sales and client management positions . . . [but] I wouldn’t do that again because I think it’s a real short-term answer,” Stephen Squeri, chief executive of American Express, told analysts last week.
“Even during the financial crisis, [in] the worst year we had, we made $2.2bn. How bad would it have been if we made $1.8bn and I had more of my sales organisation to get out and hit the ground running even faster [when business recovered]?” he asked.
The coronavirus hit corporate America six months after Mr Squeri and 180 other CEOs signed a letter organised by the Business Roundtable in Washington to treat all stakeholders — including employees — as equals to their shareholders.
“I do hope that this is the moment that they can put action behind that principled commitment,” said Mary Kay Henry, international president of the 2m-strong Service Employees International Union.
The SEIU last week called on companies to “show leadership by looking past their bottom lines to ensure the health, safety and financial security of all workers”, but Ms Henry told the FT that the need for collective action to stem the spread of the virus gave her hope that they could resist the “knee-jerk reaction” of cutting jobs.
Rebecca Henderson, a Harvard economics professor, echoed that those chief executives who were “all-in on the stakeholder approach” were putting staff first in this crisis, having learned the lesson of not doing so in the 2008 financial crisis. But, she added, others were reverting to less “forward-thinking” behaviour.
“Responsible capitalism” now faces its biggest test, Paul Polman, the former Unilever chief, wrote on LinkedIn last week. “Today’s CEOs are knee deep in invidious choices,” he said, but “all but the hardest-hit large firms should be able to protect vulnerable workers”.
The crisis has exposed stark differences in companies’ responses, often driven by the health of their balance sheets.
Several groups, from clothing retailer Eileen Fisher and Walt Disney’s theme parks to casino operator Las Vegas Sands, have said they will continue to pay staff while their operations are shuttered. Others, such as the travel technology company Sabre, have imposed pay cuts or asked staff to take unpaid leave.
Several chief executives have been explicit in telling Washington that their ability to avoid lay-offs will depend on receiving government assistance.
Gene Lee, CEO of Darden Restaurants, told analysts that he had been in touch with the Trump administration and Congress to try to develop a plan “which would use government money to pay [employees] and not have to separate with our 190,000 team members”.
Even the US Chamber of Commerce, which is usually wary of government tying business’s hands, suggested a condition be attached to the loans it would like to see extended to small businesses: that they use the funds to keep their employees in work.
For some companies, the scale and speed of the crisis makes it impossible for some to hold on for the hoped-for bailout.
GE said on Monday it would cut 10 per cent of its aviation staff after Marriott had warned of “tens of thousands” of lay-offs in its hotels. Cowen & Co analysts advised that airlines should “lay off every one of their employees” to conserve cash, while Delta Air Lines threatened to reduce its payroll in line with the cuts to its schedule if it was not bailed out.
So far, the toll has been most severe in leisure and entertainment, according to Challenger, Gray & Christmas, an outplacement company that found that the sector accounted for most of the 9,000 job cut announcements it had tracked by the end of last week.
Flywheel and Solidcore, two exercise companies, each temporarily laid off 98 per cent of their employees, while Cirque du Soleil, the Canadian circus troupe, said it had no option but to cut 95 per cent of its staff for now “to weather this storm”.
Their experience shows the extent to which the crisis has widened the rift between America’s largest companies and its smaller businesses. Torsten Slok, a Deutsche Bank economist, noted that S&P 500 companies employ only 17 per cent of the US workforce, and polls suggest smaller employers are finding it harder to keep staff on: one survey of 64 mid-market CEOs by Stifel found that 31 per cent were already implementing lay-offs.
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A few of the largest US companies are hiring or promising pay rises and bonuses. Amazon has announced plans to hire an extra 100,000 people; CVS and Dollar General said on Monday they would recruit up to 50,000 staff each; 7-Eleven has pledged to hire 20,000 and PepsiCo is taking on 6,000.
Some retailers are also raising pay for staff who are dealing with a surge of shoppers stocking up: Walmart has promised a $150 bonus for hourly workers and $300 for full-time staff, while Target is raising wages by $2 an hour until early May.
Some smaller companies do not have the resources even to keep staff they had before the crisis hit, however. Danny Meyer, a restaurateur who laid off 80 per cent of his more than 2,000 staff, said that reconciling his company’s principles with the needs of the moment was nearly impossible, “and it’s entirely heartbreaking”.