April 17, 2024

You’re the Boss Blog: Why I Would Rather Pay My Employees Too Much

Staying Alive

The struggles of a business trying to survive.

Thank you to everyone who commented on my last post, “Why I Pay What I Pay,” about the performance I expect from workers at different wage rates. I was surprised by the number of comments, but I guess that any discussion of pay is going to push someone’s button. That said, I’d like to respond to a couple of points that were raised and also make a few new ones.

First and most obvious: Every dollar I pay my workers has to come out of a client’s pocket. Having cash to make payroll is not a forgone conclusion. We scramble to make sales and bring in revenue every day. The amount of money I have on hand varies widely, but pay day arrives every two weeks like clockwork. This has caused me a lot of stress over the years and often leads me to question whether I am paying the right amount. If I were running a different kind of business — one where I knew with certainty that the money I need to meet payroll will always be there — I would think about wages differently. But I don’t have that luxury. I have to allocate our revenue stream to cover all of our operations, not just payroll, and making a mistake can be fatal. If I spend too much on the wrong thing, there will be no money for some other critical function.

Second, clients don’t care what I pay my workers. In the last three years we’ve had more than 2,000 inquiries for our product, and not a single potential buyer asked about my wage scale. These buyers also do not care whether I make a profit — as long as I deliver what they ordered. And many would probably prefer that I didn’t make any money at all, at least not on their order. As a small-business owner, I understand how important profits can be, so when I’m buying something, I don’t sweat over every penny I spend. I know that I’ll get better service and a better product from companies that aren’t struggling to make ends meet. But that perspective is unusual. Many of my clients have price targets, and they need us to hit them. They are not at all concerned with what I have to do to meet their needs.

Third, the question of how I interact with my employees is up to me. My business model and my history lead me to want to treat them well. I’m with my employees as often as I’m with my family, and I made the decision long ago that I’d rather spend my time with people who are happy to be working for me than people who hate me. It has cost me a lot of money to do this, but I believe that in the long run it has served me well.

I know a number of shop owners, running businesses like mine, who made different decisions about how to pay people. One in particular advertised his shop as a woodworking school, and charged his workers tuition. He then used their labor to build a product line that was sold at regular market prices. On the face of it, it was a brilliant business model, but he closed his doors years ago, and I’m still around. I run into his former “students” now and then, and they all describe the bitter moment when they realized what was going on and how they decided to leave as quickly as possible.

I don’t want that kind of relationship with my employees, and I don’t want to deal with constant turnover. My people are smart and hard-working and that’s who I want to spend my life with. I’d rather err on the side of paying them too much than have to deal with grumbling and turnover. But if I were running a business where turnover is expected — an ice-cream stand in a summer resort, for example — I’d have a different attitude. I’d be a lot more interested in my own reward than the long-term prosperity of my workers. And that would make sense, for that situation. On to some questions.

From kathy d:

I’d be interested in knowing how long a worker spends at each level before he/she can be promoted. Is it simply mastery of the skill set for that level, or is there a regular schedule of promotions/raises?

I’m small, so a promotion path is not a given. It’s just not possible to make that promise in a company this size. I wrote about this in the summer of 2010, and my thinking hasn’t changed.

From Meredith:

Do you offer cost of living yearly increases? Say, 2 or 3%? Or a yearly bonus for excellent performance?

Here’s my question for you, Meredith: Where’s my Cost of Progress Discount? Why am I expected to raise pay steadily when my workers’ skills set is constantly being made obsolete by market forces? Why can’t the workers who are not upgrading their own skills expect a continuous reduction of wages? This would allow their employer to compete in the market through continual, automatic cost reduction. That might sound harsh, but it reflects my reality as a manufacturer.

Seventy-five percent of what we do every day was not possible 10 years ago. I have had to re-invest cash continuously — money that could have gone into my own pocket — on new technologies, new equipment, experiments in process improvement, and employee skills development. Driven by my own desire to make my business more competitive, that effort has kept us in business. It has allowed me to keep my wages where they are. I don’t feel that workers should automatically expect pay raises unless their employer enjoys the luxury of automatic increases in revenue and profit. That’s not happening in my kind of manufacturing. As for bonuses, I have paid them in the past, based on no formula other than whether I was feeling rich and happy at the end of the year. That approach has some drawbacks, so I am implementing a regular, predictable profit-sharing plan this year. I’ll be writing more about it in the future.

From ted:

Can you tell us approximately how much the benefits you offer add to the hourly wage? (vacation, holidays, health care)

I can tell you my projections for 2013. We offer personal days, which can be used either for sickness or vacation, along with six paid holidays. New employees get six personal days in their first year of service and an additional day for each subsequent year, topping out at 16 personal days. Add the six holidays, and my long-term employees get 22 paid days off. The overall cost of doing this is tied to the pay rate and length of service for each worker, but in 2013 the total bill for paid time off will be $50,218. This includes the wages and the payroll tax we pay. That’s 5.76 percent of our total wage bill of $872,581 (excluding my pay, which is budgeted at 6 percent of sales).

As for health costs, the company pays two thirds of the cost of ensuring our those employees, and their families, who accept the coverage we offer. Twelve of my 16 workers participate, and this year the cost to the company will be $51,565. That is 5.91 percent of our total wages. The two benefits, added together, cost $101,784, or 11.66 percent of our wages. Is that expensive? Again, it depends on the context. For me, it’s not. I’d love to shed the hassle of dealing with health care, but the cost is not going to break me. And what I get for my spending on vacations and health care is a stable, healthy work force. That’s important to me, and I think it makes my shop a good place to work. Is it possible to duplicate that in every business? No.

In closing, I thought long and hard about publishing the last post, as it committed me to live up to my words and pay my people based on a clearly understood formula of skills versus pay. Many bosses wouldn’t do that, for lots of good reasons that boil down to this: published wage scales change the balance of power between bosses and employees. They make it much harder to be flexible (boss’s description) or arbitrary (employees’ description.)

In the last few years, I have made a number of changes to how I run my business, in all cases revealing information that many bosses keep secret. I am hoping that empowering my workers, letting them see what really makes the business run, will help all of us figure out how to increase sales and profits, which we can then share.

But that may not be a good idea. If it is the best way to run a business, why don’t more bosses do it? Am I compromising my own financial future for the sake of starry-eyed idealism? Would my approach work in your business?

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside Philadelphia.

Article source: http://boss.blogs.nytimes.com/2013/05/07/why-i-would-rather-pay-my-employees-too-much/?partner=rss&emc=rss

Staying Alive: What I Took Home in 2012

Staying Alive

The struggles of a business trying to survive.

A year ago I wrote a series of posts that dissected my company’s finances and culminated with a detailed accounting of how much money I made in 2011 — $246,626, generated from revenue of $2,155,193. The event that prompted the analysis, writing an application for college financial aid, just happened again this weekend. So I’m going to give you an update on how 2012 went and whether I was able to match what was by far my most rewarding year.

For those who have not read my posts regularly, let me start with a little context. Manufacturing custom furniture is not known as an lucrative profession, and it isn’t. To give you some idea of what I’m talking about, let’s take a look at how my company performed from 2003 to 2012 (I don’t have great records from before then). Sales for that period totaled $16,352,367. The profits? The total for that period is negative.

The vast majority of those losses happened in the years leading up to the crash in 2008 when The Partner and I were doing a very bad job of trying to grow the company. From 2003 to 2008, our losses totaled $1,086,648. The Partner ate much of that when he left the business. The remaining partners — my father, my brother, and me — are owed a large amount of money by the company: $526,754.

Since 2009, I have managed to stop the bleeding, and the company has made profits totaling $401,935. That still leaves an accumulated loss of $684,713. But I have managed, during some very rocky years, to pay my bills. First and foremost, all of the employees who have worked for me got paid, on time and in full. All of the taxes were paid, on time and in full. All of the vendors, and my landlord, were paid in full (not necessarily on time). While the company owes my partners and me a pretty good pile of cheddar, it owes nobody else.

Between 2003 and 2010, my annual salary averaged $78,484, and I loaned, on average, $29,363 of that back to the company (after I had paid taxes on it). That left me an average of $49,121 a year, and I have the lifestyle to match. Aside from a house in a decent neighborhood, my wife and I live modestly.

My 2011 windfall came right on time. My oldest son was supposed to start college in the fall of 2012, and my wife, in preparation for the empty-nest experience, had started a two-year graduate school program. She would need the Master’s in order to get a job teaching. So, 2012 promised some large tuition bills — hence my relief at the outstanding financial results of 2011.

I had no money saved for college. There had been a small amount set aside, but I took that in 2009 and spent it on a new Web site. The big bump in 2011 income allowed me to set aside enough cash to cover both of the tuition bills, which was a good thing, because, as it turned out, that income also disqualified us from receiving any financial aid. I would need more than $80,000 for education.

A boss is supposed to be a competent financial manager, considering the ebbs and flows of money within the company and making financial decisions for the stakeholders with perfect objectivity. My own experience has been that the needs of my family and my own fears for the future have a powerful influence on decisions I make about the company’s money. As a small-business owner, there is little boundary between my company’s financial health and my own. I have, on multiple occasions, signed personal guarantees for company expenditures. In order to get company credit cards, in order to establish a line of credit (since closed), and in order to lease my space, I have been required to pledge my assets. If the situation gets out of control, everything I own is at risk.

Last year started well. I decided that rather than wait to see how much money I would have at the end of 2012, I would pay myself a reasonable salary, which would ensure that I would have enough money for the following year’s tuition. But sales started to slump after two months, and I ended up stopping my salary in April. I did continue to pay interest on the loans I had made to the company, but my pay shrank from $15,000 a month to $3,225 a month. This took me from a position of adding to my savings every month to draining them. In May, the wheel of fortune turned again. Both of my cars (a 1999 Odyssey and a 1993 Camry wagon) died in one weekend: blown head gasket and bad transmission. Meanwhile, sales continued to slump, to the point where I wondered whether I would have to lay off workers.

By the end of June, sales were dropping by 50 percent every month, and our order backlog was shrinking fast. I had run through two thirds of the working capital I had on hand at the beginning of the year, and we were down to a week’s worth of cash. I hadn’t seen a paycheck in two months. As it turned out, the problem was a mistake I made in my AdWords campaign. (I wrote a series about how I figured this out last fall). Part of the solution, aside from rejiggering the campaign, was to hire an expensive sales consultant to maximize the effectiveness of our salespeople.

My personal situation had evolved as well. My son decided to take a gap year instead of starting school. He is a talented programmer, and he was able to find a full-time job in San Francisco and support himself. So now I had another year to worry about his tuition. (He’ll be starting his studies at M.I.T. in September.) My wife suffered an injury to her rotator cuff, which was very slow to heal. So she ended up postponing her second year of graduate school. That freed up enough money to replace the two cars.

Over the summer, the company’s sales came back from the dead, revived by both the training that the salesmen had received and the repaired AdWords campaign. Over the course of the fall and into the last quarter, our working capital crept back to where it had been at the beginning of the year. But I did not restore my salary. I wanted to make sure that we could show at least a small profit and to start 2013 with a decent amount of working capital.

In the end, the company was able to show a profit of $27,530 on revenue of $2,077,770. My share of that, as owner of 40 percent of the company stock, is $11,812. My salary for the year was $66,090. And the company paid interest on the debt it owes to me totaling $35,484. That all adds up to $113,386. Not terrible, I suppose, and certainly nothing to complain about. Many, many people get by with a lot less. But a rather large drop from the previous year. I was just glad that it wasn’t worse.

So, what is the moral of this story? I think it’s that, especially for the owner of a small business, nothing is certain. What do you think?

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside Philadelphia.

Article source: http://boss.blogs.nytimes.com/2013/02/20/what-i-took-home-in-2012/?partner=rss&emc=rss

Proposal Would Force Bank Loan Write-Downs

The proposal appears likely to lead to greater write-downs — and thus earlier losses — than one being considered by international rule makers.

“The global financial crisis highlighted the need for improvements in the accounting for credit losses on loans and other debt instruments held as investments,” said Leslie F. Seidman, the chairwoman of the board. The proposed model from FASB (pronounced FASS-bee) “would require more timely recognition of expected credit losses and more transparent information about the reasons for any changes in those estimates.”

The new rules, which are unlikely to actually take effect for several years, were initiated by complaints that banks were unable to write down the value of loans as soon as they should have as the financial crisis was growing. Under the exposure draft issued by the board, banks would frequently evaluate the expected cash flows from groups of loans and securities they owned, and take write-downs to the extent they expect the cash flow to be lower than called for in the loan documents.

As a practical matter, it seems likely that any bank making a loan would almost immediately have to write down the value of the loan, even though nothing indicated that particular loan was likely to go bad, simply because experience would indicate that some percentage of similar loans do wind up defaulting.

The value would then be adjusted each quarter, based on changes in conditions. An improving economy might make defaults seem less likely and cause banks to write up the value of loans on their books, thus raising reported profits.

But the initial write-down could mean that banks with limited capital would be constrained from making as many loans as they otherwise would make.

The International Accounting Standards Board plans to propose its rule early next year, enabling people to compare them when they file comments. The principal difference is that the rule that board plans to propose would limit the initial write-down to the losses expected during the first year the loan was outstanding, rather than over its entire life.

The two boards had reached agreement on the set of principles contained in the I.A.S.B. proposal, but the American board backed away from them in a joint meeting in July, leaving Hans Hoogervorst, the chairman of the international board, sputtering with frustration.

The Americans switched course at least partly because bank regulators feared that under the agreement banks might be too slow to write down the value of loans that could go bad, making the banks appear to be better capitalized than they really were.

The international regulators privately argued that the pricing of loans reflected the degree of loss expected, therefore there was no need for an initial write-down. They agreed to the limited first-year write-down in what they saw as a compromise with the Americans, only to have the Americans walk away from it.

Under either rule, the change in accounting will be significant. Current rules refer to “incurred losses,” in which loans are written down as it becomes clear that a particular loan is likely to default.

Those rules stemmed from what were seen as abuses in a previous era, as banks used loan loss reserves to smooth reported profits. Now banks will have more flexibility.

The American board said it expected the rule to cover bonds as well as loans, but some details remained vague and were likely to be fleshed out after the two boards considered public comments.

The comment period for the American proposal will end April 30.

Article source: http://www.nytimes.com/2012/12/21/business/proposed-accounting-rule-would-force-earlier-write-downs-by-banks.html?partner=rss&emc=rss

Greece Extends Deadline for Debt Buyback

LONDON — Greece, on the verge of completing a crucial plan to reduce its debt burden, extended for another two days the deadline for foreign investors and Greek banks to sell their deeply discounted bonds back to the government.

Announced a week ago, the deadline for taking part in the buyback was to have been last Friday. But even though Greek banks and hedge funds offered close to €26 billion in bonds, the government fell short of the goal of €30 billion, or $39 billion, that its international creditors have set as a minimum for the deal to be called successful.

The new deadline is noon in London on Tuesday.

Having borrowed €10 billion from one of the European bailout funds to buy back the debt, the goal is for net debt relief of €20 billion — an amount the International Monetary Fund has said Greece must retire if the institution is to keep lending to the country.

Bankers close to the deal say that hedge funds, which for weeks have been coy about whether they might agree to sell at what would be an average price of around 33 cents per euro, have participated in larger-than-expected numbers. And they still expect the buyback to be completed. But with Greek banks reluctant to sell all of their restructured bonds back to the government, the buyback’s success remains very much dependent on foreign investors selling the majority of their holdings.

While Greek banks are believed to own €17 billion worth of bonds, they have not tendered the entire amount. Unlike foreign investors, many of whom bought the securities at knockdown prices, the Greek banks will not be reaping big profits from selling the bonds at around 33 cents per euro. Bankers estimate that foreigners, which own about €24 billion worth of bonds, have offered between €15 billion and €17 billion in debt so far.

At a time when blue-chip collateral is hard to find in Europe, the restructured bonds are seen by the Greek banks as a premium asset that can be used to borrowing much-needed funds from the European Central Bank.

“If the foreigners do not come in we are toast,” said one banker who was involved in the transaction but requested anonymity because he was not authorized to speak publicly.

The head of the Greek debt management agency, Stelios Papadopoulos, in a statement Monday, made it clear to reluctant investors that they may never get another chance to sell their debt at prices as high as the government is offering.

“Investors should bear in mind that even if Greece accepts all bonds tendered in the invitation, it will continue to engage with its official sector creditors in considering further steps to put its debt on a sustainable path,” Mr. Papadopoulos said in the statement. “Future measures may not involve an opportunity to exit investments in designated securities at the levels offered for this buyback.”

Such measures might include a second offering at a lower price, with the government invoking collective action clauses to force holdout investors to accept the revised terms. The government could also try to use provisions in the bond contracts that might allow Greece to keep paying its European creditors while forcing private-sector bondholders to take losses.

Such steps are aggressive, though, and. as the bonds are government by English law, would surely be challenged in British courts by foreign investors. And given the recent successes that hedge funds have had in suing Argentina and Ireland with regard to past bond restructurings, Greece — and Europe — will think long and hard before taking this type of action.

Article source: http://www.nytimes.com/2012/12/11/business/global/greece-extends-deadline-for-debt-buyback.html?partner=rss&emc=rss

You’re the Boss Blog: Pitching a Brokerage Service for Canceled Weddings

Make Your Pitch

Film your business plan and send it to us.

In my last post, I reviewed an organic cigarette company that wanted to appeal to socially conscious hipster smokers. This week, I review a pitch from a woman with an unusual take on the bridal market — a broker of canceled weddings.

You can view the original video pitch and my review of the pitch below.

Here’s the original:

And here’s my review:

First, I want to say that I am thrilled to have a pitch from a female entrepreneur. While women are starting more businesses, the majority of those businesses are small in scope and don’t rise to the level that would warrant significant investment. Women are less likely to seek financing of any sort, which means that their businesses typically end up being a fraction of the size of businesses started by men (both in revenue and profits).

In this case, Lauren Byrne gives a short and focused pitch about the money left on the table from canceled weddings and the opportunity for a brokerage firm to grab some of it. She notes some critical numbers in the pitch, including a $40 billion wedding industry with 250,000 canceled weddings every year. In these situations, the brides- and grooms-to-be lose some or all of their wedding-related deposits — even though, she argues, there are value-driven and hurried individuals who would love to buy someone else’s wedding plans at a discount.

While I give Ms. Byrne credit for addressing some of the issues upfront, I am not sure the opportunity is large enough to attract an investor. If there are 250,000 canceled weddings a year, what percentage could she realistically capture? And how much could a broker make per wedding? If you capture 2 percent of 250,000 weddings, that would be 5,000 weddings a year. Even if the broker makes $500 a wedding, on average, that’s only $2.5 million in revenue. And how do we know the supply doesn’t exceed demand?

I also have questions about scalability. There are thousands of wedding planners throughout the United States who work with brides and grooms. This opportunity might be better served through local brokers (including planners), who have relationships and local knowledge, rather than through a nationwide platform.

I also wonder how many weddings are canceled far enough in advance to find a seller (as opposed to those brides and grooms who get cold feet within a week of heading to the altar)? Plus, how much leg work would go into trying to sell weddings that wouldn’t ultimately find buyers?

And if Ms. Byrne is committed to the platform, how is she going to market it to reach the brides and grooms? That is one of several details lacking in the pitch. There is little information about the team, Ms. Byrne’s background or any connections that would make her entry and position in this market more successful.

Sometimes, when something doesn’t exist, it’s because there is no market for it (or a limited one at best). It is often a less risky proposition to tweak a business model that does exist than to try to create a new opportunity that requires spending time educating the market, which can be expensive.

I also want to call out an issue in the pitch that in my experience seems to plague women in particular — and that is the offering of a caveat. Ms. Byrne says in her pitch that the idea “may seem strange, but …” As an entrepreneur, it’s your job to sell, not to apologize. If there is an objection to overcome, rephrase it, but never call your idea strange, weird, small, uninteresting or any other negative — even if you are going to explain why that’s really not the case. When making a pitch, take a position of strength.

Ultimately, I would not take a second meeting on this concept, but I do think Ms. Byrne could bolster the pitch and remove a lot of risk by proving the concept. It shouldn’t take a lot of capital to get this going on a small scale, which would produce a track record and could change the dialogue entirely. However, I have a more important question for Ms. Byrne, which is, “Is this opportunity big enough to be worth it?”

If you are going to spend your money, time and effort on a business, does this one have enough upside? If not, you might want to cancel your attachment to this idea and find a different opportunity to marry.

What do you think?

Carol Roth is a business strategist who has helped clients raise more than $1 billion in capital. You can follow her on Twitter.

Article source: http://boss.blogs.nytimes.com/2012/09/05/pitching-a-brokerage-service-for-canceled-weddings/?partner=rss&emc=rss

DealBook: Can Square Remain Hip?

Square Register uses the company's reader and an app to turn an iPad into a credit card register.Square Register uses the company’s reader and an app to turn an iPad into a credit card register.

It’s not exactly a hip question right now. But what exactly is Square?

Excitement is building around the payments company, which is led by Jack Dorsey, Twitter’s co-founder. It’s close to raising $200 million of new capital, and Starbucks said in early August that it was going to use Square’s technology.

Disappointed by Facebook and Groupon, technology industry watchers at least have hope for Square. It’s easy to see how nifty card readers and other innovations can make payments much easier for small businesses and their customers. Meanwhile, the Starbucks deal raises the prospect that other large retailers may partner with Square.

But it may too early to anoint Square as the firm that will lead us into a cashless society. The main issue with Square is that it’s not yet clear what it wants to be.

Yes, on the surface, it’s a company that provides payments to hardware and software to merchants. But it may struggle to achieve burgeoning profits from the payments fees paid by merchants, according to an analysis of the economics of those payments.

Square is almost certainly working to develop a much bigger revenue source. The success of that will likely determine the success or failure of Square.

As innovative as Square is, it cannot easily get around the established fixed costs charged by the payments industry, which comprises processing companies, banks and firms like Visa and MasterCard.

Square charges merchants 2.75 percent of the amount transacted when a card is swiped, or $275 a month. That’s at the low end of the fee scale. But it may also be too low for Square to a profit on payments below $10, which are a big part of Square’s business.

Nebo Djurdjevic, chief executive of Cardis International, shows why. He simply calculates the money Square would take in with a 2.75 percent fee on a transaction and then compares that with the money it would have to pay out in fees to credit card companies and processors. (As a note, Cardis has its own product, which aims to cut the costs of smaller credit card payments.)

On a $5 transaction, Square would get 2.75 percent of $5, or 14 cents. But, citing public fee data, Mr. Djurdjevic calculates that, with a premium Visa card, Square would have to pay out 27 cents in fees. The theoretical loss to Square would therefore be 13 cents. The loss may be lower on other types of cards, according to Mr. Djurdjevic, who nevertheless thinks the Starbucks deal is a positive development for Square.

Square declined to comment on Mr. Djurdjevic’s numbers and their significance for Square’s business model.

The challenging economics won’t be a surprise to Square watchers. Enthusiasts may argue – correctly – that Square will make money on each payment that is over $10. And if Square gets picked up by larger retailers, larger payments may make up a large share of its business. Square may even have software that allows it to reduce slightly the amount it has to pay to card operators.

So what will the big, alternative revenue source be? Recent investors in Square must see one, given that the company now has an estimated valuation of $3.25 billion.

The company probably wants to take all the payment data and use it to help merchants with their marketing. Square might, say, take a cut of any business generated from that marketing. In other words, it may aim to be a more sophisticated version of Groupon. Square’s fans may say that, with a wealth of payments data, the company can do better than Groupon.

The more merchants that use Square’s payments system, the more data it will have. And with its low fees, Square may well draw in large numbers of merchants.

But as Mr. Djurdjevic’s numbers show, those low fees can also generate losses. And it’s not like other companies are standing still. For instance, PayPal and Discover recently announced that PayPal customers will next year be able to use the service in stores, not just online.

In all, it’s too early to tell whether Square is leading us, or itself, into a cashless future.

Article source: http://dealbook.nytimes.com/2012/08/31/can-square-remain-hip/?partner=rss&emc=rss

Fundamentally: Dividend-Paying Stocks May Save the Day for Investors

Even as the pace of economic growth in the United States fell to 1.7 percent in 2011 from 3 percent in 2010, profits among companies in the Standard Poor’s 500-stock index climbed by an estimated 15.8 percent. Revenue, meanwhile, surged by a surprisingly strong 10 percent.

Yet as investors usher in a new year, their faith in the profit outlook is starting to wane — and for good reason. Corporate earnings are projected to rise only around 4 percent through June, and 8 percent for the full year, according to estimates by S. P. Capital IQ. That’s down from earlier projections of 13 percent growth for 2012.

The recent adjustments to the predictions were to be expected, said Christine Short, senior manager at S. P. Capital IQ. “There’s a cloud of uncertainty engulfing Europe,” she said, “and analysts don’t know how to position their forecasts.”

There are other reasons to be concerned, said John Butters, senior earnings analyst at FactSet, a financial research firm. “When you look at 2012, the two sectors that are expected to drive growth are financials and technology,” he said.

Mr. Butters said the modest 2012 growth projection for the overall S. P. was dependent on financial sector earnings climbing by around 25 percent this year. Last year, banks, brokers and insurers collectively saw their profits rise just 6 percent. The forecast also depends on tech sector profits expanding by around 10 percent this year.

“The question is, do people have a lot of confidence that financial companies will perform so well?” he asked. As for technology, Mr. Butters pointed out that one tech leader, Oracle, recently reported worse-than-expected revenue growth, which could be a harbinger of the challenges faced by the broader tech sector as well as the general economy.

Technology revenue growth, for instance, is expected to slow to 7 percent this year from 12 percent in 2011. Similarly, sales growth for the entire S. P. 500 is expected to slow to around 4 percent in 2012, a sign that the global economic slowdown is starting to seep into corporate results. Global gross domestic product growth is expected to slip to 2.7 percent this year, from 3 percent in 2011, according to IHS Global Insight.

So if investors can’t rely on strong earnings growth or a rapidly expanding economy, what’s left to keep the bulls hopeful?

One possible answer may be dividend growth, market observers say.

“In an environment where economies around the world are slowing, growth is starting to get scarce,” said Thomas Huber, a portfolio manager at T. Rowe Price, “and interest rates are so low, it makes sense to focus on companies that can grow their dividends over time.”

Unlike corporate profits, which rebounded to record levels last year, overall dividends paid by domestic companies have yet to recover fully to the highs reached before the global financial crisis. Yet that could change early this year. S. P. 500 dividends are expected to grow by nearly 11 percent in 2012, said Howard Silverblatt, senior index analyst at Standard Poor’s. “The dividend story is good and should continue to be good,” he said.

Yes, there is always the possibility that companies could reverse course and cut their payouts to shareholders. “But if companies cut, forget dividends — that’s a sign that the economy is really shot,” he said.

MR. SILVERBLATT says one reason for continued strength in dividends is that companies are sitting on record amounts of cash. And “companies have been pounding their chests about the importance of dividends, yet the dividend payout ratio is a little under 30 percent,” he said, referring to the percentage of earnings that corporations are passing along to shareholders as dividends.

Historically, he said, the payout ratio has hovered around 50 percent for S. P. 500 companies.

Low interest rates are another reason that investors are likely to focus on dividend growth. Since 1962, the dividend yield of the S. P. 500 has averaged about 40 percent of the yield on 10-year Treasury notes. Today, however, the S. P. is paying more, dividend-wise, than 10-year Treasuries.

In such an environment, market strategists say, investors tend to lean toward dividend-paying stocks. And if corporate profit growth slows as expected, that interest will only grow.

Paul J. Lim is a senior editor at Money magazine. E-mail: fund@nytimes.com.

Article source: http://feeds.nytimes.com/click.phdo?i=ad755ac0df0a2304f5bc89154f8828ef

Business Briefing | Company News: Berkshire Completes Purchase of Omaha Newspaper

Berkshire Hathaway has completed its purchase of The Omaha World-Herald, the hometown newspaper of the company chairman, Warren E. Buffett. The deal, announced Nov. 30, for $150 million and the assumption of $50 million in debt, ended one of the newspaper industry’s last sizable employee ownership plans. A spokesman for the newspaper, Joel Long, said on Monday that the deal closed on Friday. When the deal was announced, Mr. Buffett said The World-Herald “delivers solid profits and is one of the best-run newspapers in America.”

Article source: http://feeds.nytimes.com/click.phdo?i=e02c11379be25c7b6b1cb21990f0f7e9

Deutsche Bank Said to Be Ready to Select New Leader

The nominating committee of the supervisory board is expected to consider many options, including adopting a co-chief executive structure that could pair Anshu Jain, an Indian-born executive who oversees the bank’s trading and transaction businesses, which can produce as much as 80 percent of the bank’s profits, with Jürgen Fitschen, another member of the bank’s management board.

Such a pairing would address a concern held in some quarters of Germany and inside the bank itself that Deutsche Bank should not appoint Mr. Jain as sole chief executive. The concerns have centered on his close links to the bank’s high-risk trading business and lack of fluency in German, suggesting he may not have the skills to represent Germany’s largest bank in its home market.

According to a senior executive at the bank who was not authorized to speak publicly, Mr. Ackermann has been eager to diversify the bank’s business toward less volatile areas such as retail banking and asset management. Such a move would take time, but it is one reason Mr. Ackermann may be reluctant to favor Mr. Jain as sole chief executive, even though many of the bank’s shareholders favor him.

The unscheduled meeting of the board was prompted by the news that Axel Weber, the former head of the Bundesbank, was taking a job at UBS. Mr. Ackermann, whose contract as chief executive goes until 2013, was an advocate of pairing Mr. Weber with Mr. Jain to address his concern that Mr. Jain was not ready to assume the more ceremonial aspects of the job.

Mr. Ackermann and Mr. Jain declined to comment.

Article source: http://www.nytimes.com/2011/07/09/business/global/deutsche-bank-said-to-be-ready-to-select-ackermanns-successor.html?partner=rss&emc=rss

Truck Dealers Win $2 Billion in Ford Suit

Ford said it would appeal the decision that it had violated agreements with about 3,100 dealerships from 1987 to 1998. The judge said Ford used “hidden discounts” and unpublished prices to increase its profits at the dealerships’ expense.

The ruling, by Judge Peter J. Corrigan, of the Cuyahoga County Common Pleas Court in Cleveland, said that Ford made the dealers pay a total of $800 million more than they should have for nearly 475,000 medium- and heavy-duty trucks, including tractor-trailers and bulldozers.

The damages include $1.2 billion in interest and were calculated based on the formula that was used by a jury in February to award $4.5 million to the lead plaintiff in the lawsuit, Westgate Ford in Youngstown, Ohio.

Judge Corrigan upheld the February ruling and added $6.7 million in interest to the jury’s award. “Ford’s breach of its obligation to sell Westgate trucks only at prices published to any dealer,” Judge Corrigan wrote in his ruling, shifted “any surplus in profit from Westgate to Ford.”

Ford, in a statement, said it was confident that the decision would be reversed on appeal and that the judge “committed significant legal errors.”

The company argued that the pricing program at issue in the lawsuit “caused no harm to our dealers. Rather, it brought significant benefit to the dealers.”

But experts hired by the plaintiffs to examine each transaction calculated that dealers paid an average of $1,650 more than the price that Ford should have charged them. In some cases, the dealers were overcharged by up to $15,000, while in others they paid less than the experts said they should have, said James A. Lowe, the plaintiffs’ lawyer.

The lawsuit, filed in 2002, said Ford set wholesale prices on the trucks that were higher than the prices buyers were willing to pay for them. Through a program known as Competitive Price Assistance, the dealers could request discounts from Ford so that they would be able to earn a profit, but each dealer was unaware of how much Ford was discounting the trucks to other dealers. As a result, the prices that dealers paid for identical trucks varied widely.

“The dealers who called to get these special discounts thought they were getting a deal, but they weren’t,” Mr. Lowe said. “No dealer knew what any other dealer was paying.”

Mr. Lowe said Ford’s dealer agreements required it to charge uniform wholesale prices and that the discretionary discounts prevented dealers from knowing what the actual prices were.

“It’s a very straightforward, simple case,” Mr. Lowe said. “Ford had written agreements to sell the trucks at certain prices. It clearly violated that promise.”

Ford sold its medium- and heavy-truck business in 1998.

According to the Web site of his firm, Mr. Lowe and two other lawyers previously won a $10.4 million verdict against Ford on behalf of a woman who became a quadriplegic after her Ford Explorer was struck from behind.

Ford, which earned a $6.6 billion profit in 2010, warned investors in its annual report earlier this year that it could face “substantial” damages if it lost the lawsuit and if the judge applied the formula from the February ruling.

Article source: http://feeds.nytimes.com/click.phdo?i=b316022028420039ab8fa1868a1ee441