You’re Kidding Me

I’m curious to know what their HR people think of this.

It can’t all be good.

More later.

Later: I was really busy when I saw this and just wanted to get the post out quickly!

Anyway, I really do understand the need to cut costs and look at the business from a strategic point of view, however Circuit City is taking a very big risk here. Why not cut salaries all around (including those of the executives) in conjunction with the announced store closures instead of firing those sales associates who make more than benchmark?

This plan really does not make any sense to me, particularly since I am incredibly risk averse. When you terminate higher paid employees in order to hire those at a lower rate, you run the risk of running afoul of a number of statutes – the ADEA particularly comes to mind as a distinct possibility. Never mind the other concerns such as the time and cost of recruiting 3400 replacements or even things like administering COBRA for 3400 people.

I really hope that there is more to this story. That whatever is being reported is incomplete. That Circuit City is going to offer the lower paying positions first to existing employees. Just…something. Because I can’t believe that a company, particularly one in semi-dire straits, would want to invite any kind of lawsuit or bad press at this particular time.

3 Replies to “You’re Kidding Me”

  1. I’m with you on this one, Lori. Did you check out their news release on this?? It’s titled “Circuit City Stores, Inc. Announces Additional Changes to Improve Financial Performance.” Woo hoo. If you read the entire article, you see that they are also outsourcing their IT to IBM and another 130 associates “will be impacted.” Looks like IBM will hire about 50 of them to stay on site, though.

    Can they REALLY be making up $110 million by letting go hourly sales clerks? Let’s really oversimply and crunch some numbers: imagine that ALL 3400 were overpaid by as much as $7 per hour (not likely) and that all worked 40 hour work weeks (again not likely). If they all worked 52 weeks per year, you get ($7 X 40) x 52 which give you a whopping $14,560 per employee savings per year. Multiply that by 3400 of them = 49,504,000. Now, that’s BEFORE any severance (if they are kind enough to pay any!) and, as you pointed out, COBRA, potential ADEA lawsuits, etc. Plus, they will have costs of recruiting and training new hires.

    And read this in the MSNBC article:(gotta love the part where their spokesperson lets us make up our mind about whether they overpaid their employees. Geez–store managers don’t set compensation policy in a vacuum. How did their HR leadership allow the compensation structure to get so far out of alignment with the market? Somebody’s head should roll, but probably shouldn’t be the store clerks.)

    “The essential need we have was to bring expenses of our business into line with current marketplace realities. We acknowledge this is a painful step,” says Babb, referring to the firings.

    Indeed, it’s probably a major ouch for workers who are being pink-slipped not because of their performance but solely because they were making more money than the company deemed appropriate. “These were folks who through no fault of their own were being paid more than what the hourly wage range was in their markets,” Babb explains.

    How they ended up earning the above-market wages is a puzzler, because Circuit City’s managers presumably approved the pay levels.

    I asked Babb if store managers were just too generous in compensating their workers, and after a long pause he said: “I’ll let you draw your own conclusions.”

    Babb would not comment on how much Circuit City workers make or what these new lower-wage employees would be offered.

    Circuit City employees who included their salary information on reported making anywhere from $8 to $15 an hour for sales work. The federal minimum wage is $5.15 an hour, although many states require a higher minimum. Congress is moving ahead on a bill that would raise the federal minimum wage to $7.25 an hour over two years.

    WOW. How can this possibly be a good strategic decision? I’m trying to see another side here, but it’s just not very obvious. There are so many dimensions of this situation that can come back and bite them in the arse, it’s hard to be objective.

  2. Workforce at Circuit City Gets Short Circuited Again

    A major piece missing from the recent coverage of the layoffs at Circuit City is that this is not the first time that they have completed a “wage management initiative” – new doublespeak directly taken from their March 28, 2007 press release.

    In fact, the electronics retailer unveiled and implemented a similar cost cutting move at least once before, as reported in the February 6, 2003 edition of The Wall Street Journal. The firm announced then that 3,900 commissioned sales staff were being retro-recruited and replaced with less expensive newbies. Lackluster financial performance – and a need for a revamped sales strategy – were provided as official explanations.

    Circuit City’s most recent staffing lobotomy signals the presence of more systemic and chronic performance issues that layoffs alone will not cure. The firm’s press release underscores their need to reduce SG&A expenses, and to eliminate non-value added work, laudatory goals, but it has seemingly “made the same mistake twice,” and may be caught in a downward, inescapable vortex.

    Other bloggers, and the popular press, including the New York Times, have thoroughly detailed the employee relations fall-out that can be expected, which are certainly obvious and need no further chronicling. What has not received enough attention however, is the long trail of research, such as that undertaken by Kim Cameron of the University of Michigan, and Wayne Cascio of the University of Colorado, that convincingly calls into question the long term effectiveness of workforce management strategies that rely heavily or exclusively on labor cost reduction as a transformational strategy. The odds for improved business performance increase significantly only when cost reduction and improvement touch all elements of the business, not just the workforce. Maybe Circuit City will employ that thinking going forward.

    robert edward cenek, RODP

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