Tuesday, April 3, 2007

Circuit City's "Wage Management Initiative"

Circuit City executives announced last week that they would cut costs by laying off 3,400 of their most experienced sales clerks- 8% of their total workforce. They will be replaced by lower paid, less experienced people and will not even be given the opportunity to immediately re-apply for their jobs at the lower wages. For that they will have to wait 10 weeks.

IT infrastucture operations will also be outsourced.

Corporate City executives in yet another example of corporate speak labeled axing their most experienced employees a “wage management initiative.” Domestic outsourcing might be more accurate.

Perhaps because these retail jobs are not family supporting, unionized employment, Circuit City’s announcement didn’t attract a lot of attention. But 3,400 “associates” as they have come to be called were just fired by a company that declares devotion to employees and customer service on its Web site: “Our associates are our greatest assets. We expect every associate to demonstrate that they respect and value others for their efforts, their knowledge and the diversity that they bring.”

Evidently Circuit City's CEO isn't held to the standard of valuing others!

Circuit City’s commitment to its "greatest assets" was dashed by the promise of saving $250 million over two years. Of course not all Circuit City employees will feel the pain. If you add up salary, bonus, stock options, and other perks, Philip J. Schoonover, chief executive, and W. Alan McCollough, chairman, received almost $10 million in various kinds of compensation last year for steering the company to its imperiled state. Nor is rewarding incompetence unusual in corporate America. Over the last five years, the CEOs of 11 of the largest U.S. corporations received $865 million while presiding over the loss of $640 million in shareholder value according to the Corporate Library. And they talk about pay for performance!

Circuit City’s new competitive model devalues employees and customer service. How else can one explain the company’s decision to get rid of its most experienced people? Analyst Timothy Allen told the Washington Post: It's definitely going to have some cost-savings, but I think the bigger impact could be seen in weaker, poor service. I have a feeling the people they're letting go have probably been there longer, have more experience, more product knowledge." Circuit City is betting that the only thing that matters to the American consumer is low, low prices. Their stores will become the big box retail equivalent of self service gas stations.

Circuit City’s announcement puts a human face on recent articles documenting that the richest 300,000 Americans had almost as much income as the bottom 150 million Americans

Surprisingly, this arbitrary decision didn’t play so well on Wall Street. Circuit City’s stock price has actually fallen since the announcement. Maybe even Wall Street executives want a knowledgeable “associate” to assist them when they cash in their bonuses for that new flat screen or MP3 Player.


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