Well-Paid Professionals Draw Unwelcome Attention

Computerworld ^ | June 30, 2003 | Carlos Tejada and Gary McWilliams

[Mini-14]

On the morning of Feb. 5, Robert Wood waited outside his Circuit City store with a handful of other employees. They had been told to report for a quick meeting before the store opened. Aware that the company was beset with financial difficulties, Mr. Wood was relieved to see that the others waiting were, like him, among the store's top salesmen.

A seven-year veteran of Circuit City Stores Inc., Mr. Wood was the second highest-paid performer at the Jensen Beach, Fla., store, moving more than $1 million in computers and consumer electronics last year, he says. He earned $54,000 in salary and bonuses, and a place in the President's Club for top salesmen.

At 10 a.m., the store manager ushered the waiting employees inside the store with a smile, saying he wanted to explain the company's new "staffing model." The first salesman went into the manager's office, then exited quickly. Mr. Wood's heart sank as the salesman cleared out his belongings from a locker and was escorted out the door by another manager. When Mr. Wood's turn came, the manager opened a packet with his name preprinted on the cover and slid the dismissal documents to him one by one. The firing took less than five minutes.

"We didn't see that coming," Mr. Wood says.

Neither did the other 3,900 highly paid commissioned salespeople the company laid off that day, which some still call "Bloody Wednesday." In Circuit City stores across the nation, sales personnel waited to hear their fate from managers. Some expected to be told that their commissions would be cut. Others thought they would be told that underperforming staffers would be fired, so they would have to work harder.

Instead, they each sat before a manager who handed them an envelope containing the terms of their dismissal. Mr. Wood and the others were faulted for nothing. They simply made too much money at a time when the company was desperate to economize. Circuit City then hired about 2,100 lower-paid hourly workers to replace Mr. Wood and the others, who had represented 20% of its sales force.

In doing so, the retailer made an increasingly common cost-saving move: swapping expensive labor with lower-paid workers. The approach, which is generally legal, doesn't eliminate the position but rather the high-paid person in it. The technique is especially attractive to service businesses such as retail. Like so many companies today, they face massive pressure to cut their labor costs. But unlike manufacturers, they have jobs that can't easily be automated or shipped overseas.

The workers getting the ax are casualties of a job market changing profoundly as the economy slowly recovers from the excesses of the '90s. As one industry after another struggles with overcapacity and grinds costs down, many jobs are vanishing permanently. A wide swath of workers, from well-educated professionals to young unskilled laborers, find themselves scrambling for employment. In May, unemployment rose to 6.1%, the highest level since 1994.

Administaff Inc., a Houston company that manages payrolls for 5,000 small- to medium-size businesses nationally, noticed last year that its client companies replaced terminated employees with workers paid an average of 3% less. Richard Rawson, the company's chief financial officer, believes many of his clients rushed to cut expensive staff when the economy weakened. When they needed to staff back up quickly, the labor markets had weakened and replacement workers were willing to accept smaller paychecks than their predecessors.

Circuit City's executives realized they could no longer afford to pay big commissions to its sales staff, while its rivals paid less. Ten years ago, Circuit City's $3.27 billion in annual revenue was twice the size of archrival Best Buy Co. But its sales approach -- small stores with limited inventory and a commissioned sales force -- proved unworkable as customers flocked to self-service stores with big inventories. Last year, Best Buy's sales hit $19.6 billion, more than twice Circuit City's $9.5 billion.

To deal with falling prices and an eroding customer base, the company examined its costs. Among its conclusions: high-paid sales help no longer fit the times. "Was it hard? Absolutely," says Jeffrey S. Wells, Circuit City's senior vice president of human resources and training. "Is it difficult for someone not close [to the situation] to understand? Absolutely." The company decided that dismissing higher-paid staff and replacing them with lower-paid workers "was the best thing long-term," says Mr. Wells.

In deciding which employees to keep and which to discard, Circuit City set strict salary caps. Based on average wages for retail workers in different cities, employees surviving the cuts would be those making $14 to $18 an hour, including commissions, or $29,100 to $37,400 a year for full-time work. "It is not the person who earned the most that was always the best," says Mr. Wells. The company says that in its fiscal 2004 it will save $130 million in pretax labor costs as a result of cutting the salesmen and about 200 repair workers.

Before the restructuring, Circuit City treated the top sellers among its more than 10,000 sales personnel well. Top-ranked salesmen, often older, more-established workers with considerable sales abilities, were invited to join the President's Club, making them eligible for prizes such as weekend vacations. Mr. Wood, of Jensen Beach, Fla., was taken aside by a manager shortly after his 1996 hiring and urged to act not as an employee, but as an independent business whose earnings power was unlimited. "I walked out the door at night and clicked my heels," he says.

Mark Combs wasn't expecting the good times to end. A 42-year-old member of the President's Club, Mr. Combs had left behind a 15-year career in printing to sell computers for a Circuit City store in Jacksonville, Fla. Over 2 1/2 years, he built rapport with steady customers and regularly pulled in the equivalent of $20 an hour. In January, his manager approached him about management training. He left the Feb. 5 meeting, severance papers in hand, thinking about the $200,000 house on which he just had put a down payment. "I felt like I really let my family down," he says.

Circuit City announced its move in part to show investors it was serious about cutting costs. But when companies replace employees with lower-paid workers they usually do it far more quietly. During the past two years, US Airways Group Inc., which emerged from bankruptcy-court protection in March, has been pulling its big jets out of midsize cities and replacing them with less-expensive regional service. That meant the airline could change job classifications for baggage handlers, ticket-counter agents and other workers, and cut wages even under a union contract. Since those employees were handling only regional jet traffic, they were paid less, even though they were doing similar work.

Ticket-counter agent Carleton Smith, of St. Louis, learned earlier this year that his pay would drop to $13 an hour from $21 an hour. In February, unwilling to take such a big cut, he left the airline, though he remains on furlough and could be called back to work. "I look at $13 an hour doing this exact same job and I say, 'It's a slap in the face,' " says Mr. Smith, 50, a 17-year employee with US Airways and a predecessor airline. "The airline industry is restructuring its pay structure. It's happening, whether I like it or not."

US Airways spokesman David Castelveter says that the carrier tried to work out transfers for "as many employees as possible" so that they could keep their $21 an hour pay, but that most "were entrenched in their communities, they had children in schools or their spouse was the breadwinner, so they chose to stay in their particular location."

With work scarce, the lower-paid jobs drew plenty of applicants. Until last year, Shannon Spegal, of Lexington, Ky., had managed restaurants. The 38-year-old mother of two girls regularly put in 12-hour days, and if a server or cleaner didn't show up for work she did the job herself. Hoping for an easier schedule, Ms. Spegal responded to US Airways' newspaper advertisement seeking customer-service agents.

She was discouraged by the $8.70-an-hour pay for replacement ticket agents, about half what she made at her restaurant job. "I almost turned around and left," she says. But the better hours and the benefits were attractive, and when US Airways offered her a job, she accepted. She and the other new hires found themselves in the midst of resentful veteran employees. Only about four remained, now making $13 an hour instead of their previous $21. A co-worker confronted Ms. Spegal directly. "She said, 'You're stealing my job.' I was like, 'No, I'm not. The person I replaced, they could have stayed,' " recalls Ms. Spegal.

There's nothing illegal about getting rid of expensive workers and hiring less-costly employees in their place, so workers usually don't raise the practice in employment lawsuits. "Very often, the parties don't end up debating that issue," says Daniel M. Klein, an Atlanta attorney who represents employees in discrimination cases. Though a wave of replacements could disproportionately affect older workers, who tend to be better paid, employees would have to prove the jobs cuts were made for discriminatory reasons to prevail in court.

At Wal-Mart Stores Inc., managers are judged in part on their ability to keep payroll costs at a strict percentage of sales, according to former managers. Some say that puts extra pressure on higher-paid workers to be more productive. "You keep people making $10 an hour to a high standard," putting more pressure on them for small mistakes, says Lyndol Jackson, a Wal-Mart manager until he left for another job in 1998. Often, those workers quit and can be replaced less expensively, adds Mr. Jackson, who lives in Memphis, Tenn.

Former Wal-Mart cashier Dana Mailloux, 33, worked for eight years at a store in Fort Myers, Fla., moving up to $9.15 an hour. Last fall, her manager called her and more than a dozen other longtime employees into his office and told them he had to lay them off because of lack of work. That same day, Ms. Mailloux says, she passed a room with six new hires, red vests in hand, filling out paperwork. Returning to the store that weekend, she says, she saw newly advertised positions listed on a bulletin board. "Basically, I was thrown out like a piece of trash," says Ms. Mailloux.

Wal-Mart spokeswoman Sarah Clark says the company continually lays off and hires workers as sales rise and fall. She says that if "labor adjustments are necessary," the company before making cuts asks for volunteers to take time off and carefully controls hours. "It is ludicrous and contrary to our business model to think the company would benefit from replacing experienced associates with new, lower-paid ones," Ms Clark said in a statement. "It's clear that experienced associates are golden with us." Ms. Clark declined to discuss Ms. Mailloux's dismissal, citing employee privacy.

Once a worker gets pushed out of a job, chances are his or her next position won't pay as much. A 1992 study for the W.E. Upjohn Institute for Employment Research found displaced workers earned an average of about $1,200 a year less than they would have earned if they had stayed in their previous job, even after five years.

Mr. Combs, the former Circuit City salesman from Jacksonville, figured he was on the path to a lower-paying job. But within weeks he found a job at CompUSA Inc., a Circuit City competitor, for a little less than the same pay. He closed on his house in April.

For Gregory S. Fields, a 30-year-old Circuit City salesman from Trumbull, Conn., the job market has been rough. Company-paid health-care benefits for him, his wife and small daughter ran out just a few weeks after his termination. He inquired about a similar job at competitor Best Buy, but nothing was available. A few weeks after his dismissal, he trudged to a local shopping mall to inquire about an opening for a security guard. Told he would make just two-thirds of what he made at Circuit City last year, he turned around and went home. "I can get $9 to $10 an hour, but I'm worth more than that," says Mr. Fields, who had earned as much as $60,000 a year at Circuit City.

Mr. Fields recently sold his cherished 21-foot fishing boat to raise cash, and is "riding out" his unemployment benefits of $300 a week. He is contesting his dismissal, arguing that he shouldn't have been fired while he was on a short-term disability leave because of a car accident. He will resume his job search this month, he says, if tests show his back has improved. "Why get rid of good people who had been there for years and hire new people who had to be trained?" he asks.

Mr. Wood, of Jensen Beach, was prepared. He has learned to be flexible through two decades of corporate upheavals. In the 1980s, he lost his job as national account manager at HealthTex, a children's clothing maker, when it underwent a troubled leveraged buyout. He then went to work as an independent sales representative for a clothing maker, but as the retail business consolidated in the early 1990s, he was once again out on the street. "It's always the same," he says philosophically of his job losses. "It was never because of performance."

For its dismissed sales staffers, Circuit City offered a letter saying they were cut for financial reasons, but no letter of recommendation. Mr. Wood, who had learned to be prepared for the next economic downturn, had kept copies of his sales results. This helped him quickly land a job selling kitchen redesigns for a home-improvement chain.

He expects to earn 21% less than he did at Circuit City. He has put off buying furniture for his house and a used car for his teenage son. He's still angry that his job was eliminated before the company's fiscal year end, depriving him of about $500 in company 401k contributions.

"I'm not happy but I'm not going to crucify them," says Mr. Wood. "I knew my time in Circuit City couldn't go on."

[riri]

Neither did the other 3,900 highly paid commissioned salespeople

Now, we are supposed to believe that $54,000 a year is a highly paid post? That's nights, weekends, holidays and I would venture to guess not much in the way of benefits.

I guess he just got too greedy, too comfortable in that lucrative, cushy Circuit City sales job.

[billbears]

Well from experience at CC between '94-'00 I watched the 'high paid' salaries go from around 95-100K to about 65K. And to make the lower salaries by 2000 the person doing it was selling about 30% more than he did in '94. Myself I maintained my salary in the audio dept of mid 40s but before I quit I was working longer days, and selling about 40% more myself than I did in '94

[riri]

bump

[Hodar]

I'm not intending to flame Circuit City ..... but....

1) I was unaware that Circuit City employees work on commission.
2) My experiences at Circuit City have been negative at every shopping experience
3) The 'knowledge' at my local Circuit City's certainly does not compete with the 'knowledge' I have found at Best Buy. The guys at my local Best Buy know HDTV, and can tell the difference between 720p, 720i and 1040i.
4) The return policy at Ciruit City is 180 degrees opposed to Best Buy (in *MY* experience).

Bottom line, I don't like high pressure sales, from people who don't know the product they are selling, nor the features of comparable models. I don't like having to 'sell' the idea of a refund on a non-functional product. I shop at Best Buy, and have never had a non-positive experience.

[Southack]

repost: I walked into a Circuit City store last week to buy a new digital camcorder.

They had an entire display of digital camcorders in one section. I walked around this display only to realize that NONE of the camcorders were "plugged in" or set up to actually use them in the store in order to try them out.

After I had circled the display a few times, a store "salesperson" came by and asked me if he could help me with anything.

I told him sure, turn on the camcorders so that I could pick out the best one and buy it today.

Oh, digital camcorders, he said... We're getting in the "new models" of them next month, so until then we aren't hooking up our old models.

Then he turned around and left. No other questions. No other "Can I help you with something else". No anything.

I couldn't spend my money in there no matter how hard I tried.

Now tell me, if that anecdotal experience is in any way indicative of Circuit city stores/management/salespeople in general, just how long are they going to be around?

Sure, it would have been nice to try out a few camcorders firsthand before buying, but barring that option I was compelled to return home (a considerable drive) and order a camcorder sight-unseen via the Internet.

So there is at least one Circuit City salesperson who deserves to be laid off, as he was less able to make a sale than was a non-living, virtual internet page, but the web page made the sale instead of him, after all.

That's hardly the kind of recommendation that you want to put on your resume, that you are less talented and less motivated than an inanimate web page.

Sayonara Circuit City, your laziness is why Americans enjoy our free market system, as this system will clean out the low-performing dregs of our society from our marketplace.

In other words, you're gonna take it on the chin.

[Dianna]

I guess he just got too greedy, too comfortable in that lucrative, cushy Circuit City sales job.

But the real problem, it seems to me, is with the type of job it is. Is this guy REALLY bringing in that much more money than a new hire off the street? I don't let salespeople talk me into buying much of anything, so an experienced person could sell me the "whatever" I've chosen just as well as some new guy who has been there 10 minutes.

The lesson is not to have a job that can, or *looks like it can, be taken over by some guy off the street. Sad for the guy, he worked hard, I'm sure.

[KC_Conspirator]

Well, unless I mised it, the one thing this article does not mention is Cicuit City sales after the mass layoffs. That is poor journalism. All we have is a ten year comparison to Best Buy, which has cheaper employees.

[chance33_98]

I have seen the opposite many times in my field. Someone who has been working with the company for a few years and then they hire someone in new when a similar position opens and pays them more.

At my last job we had an excellent manager, a position opened up for a manager doing something similar, they offered him a lateral move - he was thinking about taking it when he found out they were also interviewing people and offering them about 20k more for the same position (and he was more than qualified for the job). These things happened on a very regular basis there, and has been the norm in other places I have worked. AT my current job they hired in a new guy, with no experience but had his ccna, and he makes 3k more a year than I do (with 10 years exp, ccna, scna, scsa). The reasoning? They were getting rid of the pay bands and just decided to be nice and give him the top of it before the change over.

Life goes on, my self training pays off, and I am moving to a new position as a unix engineer making 12k more. Sometimes you just have to shrug off the goofiness :)

[discostu]

Nothing unusual here at all. Layoffs are about salary, since management is generally immune that means high paid grunts get the axe. If you need to get rid of 2 million in salary it's faster to get rid of guys making 50 grand than guys making 30.

[1066AD]

If they were "highly" paid, based upon commissions i.e. sales, presumably they sold lots of stuff so why get rid of your best sales people ? This sounds more like a short term "fix" not long term. More fuzzy thinking from the ivory tower.

[Welsh Rabbit]

A few months ago I was at my local CC shopping for a new DVD player and some computer hardware. The salesman quietly advised me to go to Best Buy (which I did).

[CherylBower]

This also shows lack of loyalty in corporate America. My parents were very loyal to their employers. The employers seemed very loyal to them (my parents were actually very lucky). Corporations are loyal to the bottom line, interfere with that and bye bye. I am a free market capitalist, but I am as loyal to my employer and it is to me. I will look for the better deal all the time.

[Theodore R.]

This is the epitome of "No good deed goes unpunished."

One who warned about injustice of this kind was Patrick J. Buchanan, a critic of the "free-trade," multinational economy.

[Jeff Gordon]

It makes a lot of sense. During hard times every company wanting to go out of business should lay off their most productive employees.

[Cicero]

I don't know much first-hand about Circuit City, but this is a recipe for disaster. This guy sold $1,000,000 of equipment for a salary of $54,000. That's a pretty good deal for the company. So they fire all their best people and keep all the drones and idiots. They may get paid less, but they probably don't do any business, either.

If things are tough, the normal solution is to close the losing stores, shave inventory, get rid of items that aren't doing well, and maybe cut everyone's salaries across the board, including especially the bosses. If anyone gets fired it should be the footsoldiers who are least productive.

It must be depressing to work for a badly-run company where the bosses don't know which end is up.

[discostu]

A lot of that is just negotiating capability. In looser corporate structures it's all about what the person asks for, I was notorious for selling myself cheap a bad habit since I also tend to be the first member of my department, slowly I've learned to push for more.

[Centurion2000]

CRazy

[discostu]

This is retail none of Buchanan's concerns impact this. Circuit City is a notoriously badly run company that only lasted as long as it did because it had a head start on the competition, BestBuy and others have finally expanded to the point that they'll soon be putting CC out of business.

[Hodar]

"Loyalty" is a funny thing. I have heard managers tell me that come payday, we are square and that a new week means that the whole arrangement starts over again.

Then, I have seen Loyalty demonstraged at another company that I have never heard of before.

CRAY - US maker of Supercomputers is the ONLY company that has demonstrated loyalty to it's employees, the way I would if I were in a position of power. We had a woman (young, married with 2 kids) who worked in the shipping/receiving department. She had a brain anurism that had her completely and permanently disabled. AS she had only been with the company for a few months, she had neither vacation nor sick-leave to cover her the 90 days until her permanent disability insurance (paid for by Cray) kicked in. The good people in HR at Cray let it be known that people who desired to, could contibute a day of either sick-leave, or vacation to this person. Within 3 hours, people had donated enough hours so that this person could recieve 100% full pay, until her permanent insurance kicked in.

Unfortunately, that caliber of compaany is the exception to the rule. Loyalty to the company is a one way street. Companies expect it, but practically never extend it.