Corporate Profits

militaryhorn

militaryhorn

Prediction Contest Manager
I have an honest question. Big corporations that report profits, e.g. GE who reports 14B in profits, have to put that money somewhere. When we talk about profits, I assume that is after all other factors have been considered (taxes, expenses, payroll, R&D, etc.) where does that money go? Do they increase the average worker in the company salary? If they have that kind of profit, why couldn't they increase everyone's salary with just $1B of that profit equally to all? Let's say that GE has 300,000 employees that are not part of the top executives and board members, that would be an increase of $3,333.33 per year. If they don't then this would lend some credibility to the liberals out there that say that the rich are not helping in redistributing that wealth to the middle class.

I just don't know enough about corporate life to speak intelligently about it but I am curious to know if this happens or doesn't happen.
 
well, i do know that big companies like ge, including the oil companies, spend billions in profit on research and development every year. the money gets reinvested into the company. if the company does well, it may give the top executives a few million dollar bonus. they may take a loss and get a bonus, that is up to the board and the losses could be based on anything from a bad economy to a huge deal gone bad in another country. people depend on the profits to increase the stock price. that is what this is all about. even the government pension funds depend on the stock price going up. its why the democratic rhetoric is a bunch of bs. at my company, everyone gets bonuses and stock every year if there are profits, which there always is. everyone at my company shares the wealth. the companies are beholden to the stock holder as well and there is a lot of pressure to show profits for the stock.

when you hear democrats speak of the middle class being screwed, they are speaking of government workers and union workers and those that are not contributing anything. their money is running out and they are not too happy about it. they do not care about anyone else. the democrats, with the help of bush, managed to double the size of government and the debt in only 10 years, with hundreds of billions of waste and fraud thrown in every year.

the democrats want the big companies to pay more, because the union workers and government workers are running out of money. that is what this stink is about, its not about the "middle class." the democrats dont give a damn about the middle class. if they did, they would be pushing tax cuts for the rich...err, small businesses the employ most of the people in this country.
 
I don't understand you question. But GE will distribute its profit to it's shareholders through a dividend, reinvest in its businesses, and possibly buy back stock shares with its profit. It will pay its employees what the market dictates.
 
Depends on the business. If it's a cash-intensive business where liquidity is a big deal, they might keep it in cash. Some put it in R&D, some just use it to increase spending budget for next year. Just about all of them are going to have some sort of bonus structure, plus paying dividends to stockholders and all that. Lot of ways to handle it - my guess is that in this economy most of them are keeping it in cash.
 
I would add that it makes no sense for a company to convert those profits into raises across the board. Profits are not guaranteed - you come in at a loss next year and you've made it even worse by paying your employees more than you normally could have afforded, and now you have no choice but to lay people off.

There is this idea that since the middle class is only getting cost of living increases, that means they're getting screwed. That's not necessarily the case. The fact is that it makes no economic sense to continue to pay someone higher and higher salary just for continuing with the company regardless of their position or performance. If they add value to the company, then their raise should reflect that. But what happens if you've got a low-level employee that works with you for 30 years and aafter a few years of mandatory raises, his salary is completely out of line with his job.

Rewarding tenure is nice, but it can't be at the expense of allowing your salary structure to be compromised. Bonuses are a better way to go - it's a whole lot easier to cut a bonus than to cut a salary.
 
That is why I asked, I just wanted to know if the employees (you know the ones who do the work) are shown any appreciation. I understand management makes decisions but the everyday worker is the one who makes it happen.
 
Have to give kudos to Rex for once for answering the question well and concisely. And have to give kudos to general for pooping on another thread.


I think it's a great idea for businesses that are not capital intensive- like law firms, banks, consulting businesses, labor based services etc- to give a fixed percent of profits back to the employees when the company performs well. However GE- and many other firms are definitely capital intensive. If they don't do research- their products become old and stop selling soon.

Thus, if you don't re-invest heavily in your future, you stand to fail, right Rick Perry?
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Some pretty good answers. GE is a public company, and so, is owned by the stockholders. GE is one of the better companies at paying dividends. I didnt take the time to look it up, but at one time GE was paying about $.30 dividend per share quarterly. So you would get $1.20 per year per share of stock you owned. Their dividends are in the billions annually.

I do not know the spedicifcs at GE, but most large companies either have employee incentives to buy their shares at under market prices or possibly they match things like 401K contributions with shares of stock. In this way the employees do get some of the profits back through the dividend payments.

Also, I am sure you know, profits for tax purposes or reporting purposes is not reflective of actual cash on hand. If GE earns $14 B some year, it is unlikely that their cash position increased $14 B during the year. They maybe made a nice profit on the refrigerators they sold during the year, but they were making more and more of them during the year that they hope to sell next year. Their cash is tied up in continued operations.

Employees at any job for any company should do well to assume that they will never get pay increases for doing the same thing. of course most will get 2%-4% raises in good times, but that is not enough for most people. If you are a janitor you should be striving to be the shift janitor manager, then head janitor, then shift worker, then shift manager, then corporate liason then executive and so on.

It just does not make economic sense to keep paying someone more each year for the same job, especially if that job is not specialized.
 
A lot of talk of bonuses here. That should already be accounted for (excluded from) "net profit". In most organizations bonus pools are accrued throughout the year based on how the company performs. Bonuses are typically paid in February after a public company makes available its prior fiscal year's results.

And Yo, I don't get your comment about salaries versus bonuses. A bonus - for high-performing employees - ought to occur annually when times are good. It is something that is viewed as independent of any salary bumps. Also, you can leave the company after receiving a bonus, whereas you'd have to stay a year to receive the full equivalent of a bonus via an increased salary. What if the company were sold 3 months subsequent to a salary bump, and the effect of that sale is that you're out of a jump?
 
Prod and Rex are right on many points- I however believe bonuses should include people at all levels- despite the obvious differences in values they are- as Prod noted. And- that doesn't mean the janitor gets 100,000- but even if you give him a $500 or $1,000 cut because the company is performing very well- and the CEO's goes from 1.4MM to 1.1MM- I feel you have improved morale significantly, and likely performance which is key to strong profits.

Its very challenging for executives to turn down money- and few do- but also sometimes a smart idea in their long term interests- or at least that of the firm. (Which are often misaligned too!- Pay me now and f the firm!)
 
Ford recently gave bonuses all up and down the employment range due to their recent profits. I don't recall the numbers, but it was from line workers to the CEO.
 
When I was with Ford, that's how they did it. It just depended on how we did that year, and in good times it was pretty substantial.

Mcbrett, I agree, and a lot of companies do award bonuses across the board based on company success.
 
bronco stop being practical
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I understand all the points being mentioned here and I appreciate the knowledge that I am gaining concerning corporate life. I have been a public worker since I graduated high school almost 20 years ago and I am real close to having to adjust to civilian life again. I hit 19 years in the military in July, so 1 year from then I will be eligible to hang up my uniform for real work
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Anybody looking for a new employee who knows how to manage cargo and supplies in aircraft? LOL, j/k...no, seriously...anyone?
 
Military Horn,

You are (presumably) middle class and a government worker and therefore, according to General are part of the "government workers and union workers and those that are not contributing anything,"


Meanwhile, he's contributed almost 10,000 posts on Hornfans over the last 5.5 years.
 
In the case of GE, perhaps GE isnt paying any taxes because Obama's boy, Jeffrey Immelt agreed to buy 50,000 Chevy Volts from government motors (1/2 of all produced) in exchange for a tax credit.
The Link
 
Most smart companies will include profit sharing plans for all employees. However, if you are a union shop, that would be extremely dicey.
 
Musburger: nice chronology. I worry a fair amount about these trends. In a world of substantial population growth there are going to be loads of unemployed not only in our country but globally as well.

I've read a couple of articles that suggest the new 'normal' on unemployment is going to be upwards of 6%. That's a lot of people. as the saying goes "idle hands are the devils workshop" That kind of unemployment could be very destabilizing long term.

Will US firms acknowledge this irony and pay workers more or will they continue to press wages down and count on global markets to consume their products?

I believe these two dynamics are a priniciple reason we haven't seen real enforcement of our immigration laws. An increase in US inhabitants has the double effect of pushing wages down and increasing the pool of consumers in the US market. Both are good for corp profits but not necessarily so for the average American citizen.
 
Why is it ok for GE to make a profit but not Exxon?
Dom't they have the same basic objective as corporations in the private sector?
 
GE contributes heavily to the Democratic party and the CEO has been appointed to one of Obama's advisory committees.

Perhaps the biggest REAL REASON for higher gas prices is the monetization (QE2) by the Federal Reserve. Although not part of the government, the government could do something about it. Hence the need to deflect criticism on to a scapegoat. Let the people blame higher gas prices on Exxon rather than force the politicians to do something about monetary policy and the Federal Reserve.
 
The biggest reason for high oil prices is the weakness of the dollar. Compare oil to gold and you will see that the price has really be pretty damn stable.
 
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