Why do companies fire staff when they make billions in profit?

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I cannot imagine that the future of companies like CBA rests on the fate of 192 unfortunate souls deemed to be weighing down the business.

This question came to mind when I read that Commonwealth Bank has been cutting jobs recently. This week, it was announced that on top of 1000 jobs cut in the past year, another 192 are on the line at CBA.Automation and a downturn in retail banking are reportedly to blame, and who could possibly blame the bank whose profit was a mere $10.2 billion in the last year. Those additional 192 staff must make all the difference between profit or loss.

A meta analysis on stock investors’ reactions to layoff announcements published in the Human Resource Management Journal this September, appears to undermine that argument.The researchers considered 34,594 layoff announcements reported across 78 separate studies. They found that if the layoffs are perceived to be the result of proactive management cost-cutting, there was no impact on share price.

Indeed, unless these staff collectively earn more than the $10.2 billion profit, even more than Alan Joyce was earning at his peak, I wonder whether keeping on these staff, retraining and redeploying them, even if this was “relatively costly”, would have any tangible negative impact on the company performance.Set against abstract parameters such as share price, estimated profits after tax and other auditor wizardry, are the very real human impacts of careers perhaps stymied or even shattered.

 

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