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Making the blog circuit on the Circuit City layoffs

Company layoffs have always been reported in the media, but these announcements often fly under the radar on a busy news day and tend to have a short shelf life beyond those directly or indirectly affected. But with the Internet, it’s a brand new day. Boardroom decisions get a thorough airing out in the court of public opinion as they reverberate through the blogs and discussion boards. The current employment topic du jour is Circuit City’s announcement of a layoff of 3500 of its highest paid workers. Apparently, the laid-off workers will later be allowed to reapply for these vacant positions at lower salaries. According to the company, the salary cuts and some other restructuring moves will save the company some $110 million. In a memo to employees, the company stated that it “made a business decision, with respect to certain positions, to separate from employment hourly associates whose pay rate is 51 cents or more above (an) established pay range.”
Eve Tahmincioglu of MSNBC discusses whether this move is a bold strategy or a black eye for the company. She notes that Circuit City employees who included their salary information on reported making anywhere from $8 to $15 an hour for sales work.
In an article headlined For Circuit City staff, good pay is a bad thing, Abigail Goldman and Molly Selvin in the LA Times note that:

The move put Richmond, Va.-based Circuit City, which has more than 40,000 employees in the United States, at the forefront of a new way of controlling labor costs in the service industry. Employers determine the prevailing market wages for particular jobs in various geographic regions and then find ways to make sure that their workers’ salaries stay within that range.”

Wal-Mart Stores Inc., for example, last summer capped the pay of its veterans at levels consistent with competitors’ top wages. Wal-Mart didn’t lay off those who earned above a certain amount but did stop giving them raises, saying that would encourage them to advance through the ranks to higher-paying positions.

Circuit City is being more aggressive about it, said Peter Doeringer, a professor of labor economics at Boston University. “What’s unusual is to say we’re doing this deliberate swapping of high for low.”

The blog buzz
As is so often the case with layoffs and restructurings, Wall Street gave its nod of approval with stocks closing up .35. But if the talk in the blogosphere is any indicator of a wider consumer sentiment, longer term effects of the move may be less positive. A Google search shows this story has a lot of legs in the blogosphere. It is difficult to find any company defenders. Heres a sampling of the reactions:
HR Lori wonders if a better strategy than the layoffs might have been to cut all salaries, including executive salaries. She notes:

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.

Workplace Prof Blog is skeptical about the company spin. He asks:

Whatever happened to loyalty to your employees and rewarding them for past service provided and a job well done? Shoot, corporate strategies like these could singlehandedly revive American unions with their promise of just cause protection. At-will employees like these have no protections against arbitrary dismissals.

I wonder whether enough people will be outraged by this labor strategy that they will not shop the store and any gains made from savings in labor costs will be lost in terms of good will from customers. I also wonder whether the loss in remaining employee morale will significantly affect productivity.

David Becker at one of Wired’s blogs wryly titles his post “Circuit City Shields Customers From Too-Smart Sales Clerks.” He notes: “Circuit City has revealed plans to lay off more than 3,000 of the retail chain’s most highly paid and experienced employees, thus solving that nagging problem of clerks being overly helpful and knowledgeable.”
A discussion thread on Metafilter entitled Stupid Management Tricks offers more interesting commentary on the matter. (warning: posts include some unedited, salty language)
One poster sources Circuit City’s Chief Executive Officer W. Alan McCollough’s pay through Executive Paywatch:

In 2005, W. Alan McCollough raked in $5,470,049 in total compensation including stock option grants* from Circuit City Stores Inc. From previous years’ stock option grants, the Circuit City Stores Inc. executive cashed out $3,052,902 in stock option exercises. And W. Alan McCollough has another $20,773,329 in unexercised stock options from previous years.

Another poster comments:

” … the thing that’s distasteful to me is that Circuit City is insuring that all their sales staff remain at the bottom rung. They’re sending the message that they don’t have room in the payroll for employees that stick with the company long enough to earn some raises/promotions. Since it’s safe to assume that longer-term employees perform better for the company, either through familiarity with the product or a improved salesmanship, it’s strange that CC would place their bet on the beliefs that: consumer electronics can sell themselves, a warm body is only needed to work the register, and that the customer’s questions are a impediment to doing business. I think the same management strategy is what caused Hechinger’s to be wiped out by Home Depot.”

Another poster notes that this is standard industry practice, though it usually occurs in less noticeable numbers:

“The only difference between what Circuit City has done and standard retail practice is that they were stupid enough to announce it to the world. Big Box retailers have been doing this for as long as Big Box retailing has existed. Maintaining a steady turnover among “senior” sellers is a standard practice and percentage of employee churn is often one of the performance metrics for retail units.”

Another posters suggests that this announcement does not bode well for the company:

“Squeezed by direct sales via Internet on one side and Wal-Mart on the other, big-box electronics retailers don’t have a bright future selling to consumers. As for this specific story, when “cutting costs” means firing your (presumably) most experienced customer service staff, you’re not trimming fat any longer, you’re chopping bone. Start the Circuit City deathwatch.”

2 Responses to Making the blog circuit on the Circuit City layoffs

  1. Scott Enk April 6, 2007 at 2:12 am #

    At Circuit City, as is the case with so many employers in George W. Bush’s America and its perversely, deliberately job-scarce, low-wage economy, the prevailing watchword for employees is now “Work hard, and you will be rewarded–with a pink slip.”
    What sort of “thinking” do employers like Circuit City engage in when they lay off their best and most experienced workers in a shortsighted effort to save a few bucks–while ignoring the real reasons for their financial troubles?
    By penalizing rather than protecting or rewarding high-performing employees, by laying off, not mediocrities or stumblebums (including, in many cases, highly overpaid executives and managers whose decisions and actions, far more than any rank-and-file workers in most firms, are the ones that drive such companies into the ground), but their *best performers first*, Circuit City and its ilk are sending a frightening message to American workers about loyalty and high-quality work.
    *To get loyalty, one must first give loyalty.* By unilaterally shredding the “social contract” that guided employment relations throughout most of America from the New Deal era until the time of Ronald Reagan, greedy, out-of-control employers like Circuit City are continuing not only the destruction of America’s middle class, but America itself.
    Employers that treat good workers this outrageously deserve as much loyalty and commitment from employees, customers, and communities as they have shown them–which is to say little or none.
    Shame on you, Circuit City. Don’t laugh. People in America who believe as I do are everywhere. We
    are outraged at what we’ve been seeing happen to our once-beautiful country, our economy, and our living standards, especially since the early 1980s and Ronald Reagan, and even more so under George W. Bush.
    Bet on it–we *do* write our lawmakers and the news media, post things like this online, talk with our families, friends, and others, and, above all, *take into account employers’ actions when we decide whose products and services we will or won’t
    buy–or recommend*.
    We, the working people of America, need and will build a new labor movement, relentless, ruthless, and implacable in taking back our country and its economy from the rich and from out-of-control corporations, and their sycophants in government.
    History can and again will repeat itself. Working people will rise again, never again to be defeated. We will make it clear to the Circuit Cities of the world and their executives, to corporations and the rich everywhere, that *we* own this country and its economy, and that *we* are in charge here.
    We, the working people of America, need–and will get–a New New Deal, if not a Second American Revolution. If that means that the coming years will be an era that will make the 1960s look tranquil–groovy!
    Philip J. Schoonover, let me know, let us all know by posting on this board know, what you and your fellow Circuit City executives think of *that*.
    Yours for liberty and justice–for *all*,
    Scott Enk

  2. robert edward cenek, RODP April 6, 2007 at 1:57 pm #

    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