cashgripping1.jpgIn 1914 Henry Ford made a "bet the company" decision. Conventional thinkers thought he was insane. Those without Henry Ford's imagination were certain his decision would put the Ford Motor Co. into bankruptcy.

What did this radical industrialist do?

He chopped the workday down to eight hours. He doubled workers' daily wages. He did not do this out of compassion. He had no desire to "share the wealth." He made a hard-headed business decision.

Absenteeism plummeted. Worker turnover virtually disappeared. So did the number of accidents. Ditto the number of manufacturing defects. Productivity soared. And the automotive age was born.

Today, just the reverse is happening. The entire structure that promotes worker security, health, and devoted service is being systematically dismantled. As investors, we benefit from this. But the largest beneficiaries are corporate executives. Every dime they squeeze out of payroll drops to the bottom line. The same money takes them a step closer to realizing gigantic stock-option gains.

No, I'm not a closet socialist. I'm just observing and reporting recent history.

Skeptics should visit the MoneyCentral message board. Read some of the 4,000 responses to my recent column about Home Depot. (And that's just the tip of the iceberg. MoneyCentral reports an additional 10,000 emails.)

Read through those messages and you'll find two things. First, you'll find an outpouring of testimony. It tells us how thoroughly Home Depot management policies burned their customer franchise rather than building it. But the messages also come from present and former Home Depot employees. As one put it, "If you think being a customer at Home Depot stinks, try being an employee."

Messages from Home Depot employees at locations across the country and in Canada tell the same story: The bonus system for managers is geared to cutting payroll hours. So that's what line managers do.

As a result, whole departments are ludicrously short-staffed, with reported instances of a single employee to cover multiple departments. Overtime is verboten. The problem is compounded by short-staffing checkouts.

For you and me, the result is simple: Home Depot maintains its return on shareholder equity and pleases Wall Street. It does this by reducing what one consulting firm calls Shopper Return on Investment---SROI. We value our time, but Home Depot's management metrics have systematically devalued it, just as Home Depot treated employees as liabilities rather than assets.

Frank Blake, who replaced the disastrous Robert Nardelli as chairman and CEO, answers (in message 3860) that he is sorry "for all the stories you have shared." He admits that Home Depot has let its customers down. Then he tells us that it is already increasing staffing at its stores and that Home Depot is "launching a nationwide program to recruit and hire skilled master tradespeople to staff our stores."

Personally, I was touched by his response. He sounds like a straight shooter. He clearly understands what is at stake. Whether he has the moxie to defy Wall Street and change staffing enough to make a real difference is another matter.

You can understand this by walking through the staffing numbers. According to its most recent annual report (2005), Home Depot employs 345,000 people in its 2,042 stores and corporate offices. Of that number, 26,000 are salaried. The other 319,000 are hourly employees. They are the ones you and I depend on in the stores. They are the customer support system. They work up to 38 hours a week and earn about $10 an hour.

Wall Street Journal reporter Ann Zimmerman, after attending an analyst conference, reported that Home Depot planned to add 15,000 net new employees this year.

Query: Is that a lot? More important, is it enough?

It seems like a big number. It amounts to about a 5 percent increase. It's also a lot of money--- about $300 million of added payroll. But when measured against the size of the company, it's a tiny gesture.
  • It's only 0.37 percent of sales.
  • It's a slender 1.7 percent of operating expenses.
  • It's a mere 3.2 percent of pre-tax profit for 2005.
As gestures go, it's way short of Henry Ford. It's timid, not daring, when you consider what's at stake.

Then again, that $300 million is more than the $211 million the board of directors paid one man, Robert Nardelli, to leave.

On the web:

MoneyCentral Message Board: Frank Blake message, #3860

Wall Street Journal article on Home Depot Column response

History of Henry Ford

Home Depot Annual Report, 2005

Economic Indicators, February, 2007: Average Weekly Hours, Hourly Earnings, and Weekly Earnings