Soaring Profits, Nervous Employees
Analysts expect another strong earnings quarter. Why earnings growth and job growth aren’t necessarily correlated anymore.
The company was operating at the height of efficiency. Earnings blew past analysts’ expectations, and guidance for the remainder of the year was for even more growth. Investors flocked to the stock, increasing its share price by 50% since the year began. But instead of feeling secure, many of the firm’s employees were more nervous than ever.
It’s a conundrum leaders are likely to face over the next few weeks as firms get set to report second-quarter earnings. Corporate profits are soaring, with analysts expecting quarterly growth of 23% for S&P 500 firms, which would mark the second consecutive quarter of 20%-plus earnings growth. S&P 500 companies started the year on a tear, growing earnings by 27% in the first quarter, the highest rate in more than four years. “We’re in an efficiency era,” says Beau Lambert, a senior client partner in the global financial officers practice at Korn Ferry. “The premium is on leaders who can pair cost discipline with a credible growth story.”
In past years, such good news might have been a welcoming sign for employees or those looking for work. But today’s strong earnings are largely driven by AI finding efficiencies for firms, which puts employees on edge about their future. Or, as Peter McDermott, head of the corporate affairs practice in North America for Korn Ferry, puts it, “Growth and career security aren’t necessarily correlated.” Indeed, investors are rewarding companies that are simultaneously performing and transforming, growing earnings and profit margins while also reducing or maintaining workforce size. Lambert says investors are distinguishing between CFOs who are cutting costs to make their numbers and those who are “re-architecting the cost basis around AI.”
Experts say the combination of soaring earnings and flatlining employment sends employees mixed messages. Normally, growth means a robust hiring environment, and while pockets of activity are driving topline employment numbers, the overall climate in most industries is still low or no hire. Meanwhile, leaders are plowing hundreds of billions of dollars into AI to achieve more productivity and efficiency. “Growth doesn’t always mean the workforce is going to increase by ten times,” says McDermott.
Data suggests that this message is coming through loud and clear. Nearly one-third of workers feel AI will make their jobs obsolete, and 70% believe AI will reduce job opportunities overall. On top of that, workers are still subject to an endless stream of media reports about layoffs and cost cuts. “The noise is relentless, and certainty is in short supply,” says Simon Haines, a senior client partner in the organization strategy practice at Korn Ferry.
Smart firms, of course, are recognizing that AI is at its strongest when it is paired with—not replacing—human workers. In the coming weeks, says Haines, the challenge for leaders will be to bridge the accelerating productivity-and-profitability story they are telling investors in the coming weeks with the reality employees are experiencing. “Leaders that treat AI purely as a productivity initiative are risking deepening anxiety,” he says.
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