Great Moments in Dynamic Capitalism: Fired for Excessive Competence

Circuit City is a crap operation. It does nothing particularly well. I go there solely because of convenience i.e. location. Which is to say it's not an attraction. (In that regard, it's in a class with the semi-dying CompUSA.)

Circuit City said yesterday that it had fired 3,400 of its highest-paid sales staff and will replace them with lower-paid workers, a risky strategy to cut costs that goes beyond the layoffs, buyouts and hiring freezes commonly used by struggling companies.

The fired workers will receive severance packages and a chance to apply for lower-paying positions after a 10-week delay, said the 655-store electronics chain based in Richmond, Va.

Layoffs and buyouts have been common as companies respond to pressures from Wall Street and global competitors. Last year, for example, 72,000 U.S. auto workers agreed to leave their jobs or take early retirement. And a growing number of companies, including the Albertsons, Ralphs and Vons grocery chains in Southern California, have adopted two-tier systems that provide lower wages and less valuable benefits to newer employees.

But the Circuit City approach is different.

“What you're looking at (with Circuit City) is that strategy on steroids,” said Jared Bernstein, a senior economist with the Economic Policy Institute, a Washington, D.C., research group that focuses on labor issues.

Circuit City Chief Executive Philip Schoonover described the firing of 8 percent of his company's work force as one of several “aggressive actions” being taken to “improve our cost and expense structure.”

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“This is no reflection on job performance,” he said. “We deeply regret the negative impact. Retail is extremely competitive, and if we're going to thrive and operate a successful company for our shoppers, employees and shareholders, we just have to control costs.”

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This is the second time Circuit City has jettisoned some of its most seasoned personnel. In 2003, the company eliminated commissions for sales staffers and switched them to a straight hourly wage.

“They had spent a lot of money training them, and they were some of the best people in the consumer electronics industry,” said George Whalin of Retail Management Consultants in San Marcos. “You could go in there and talk to somebody who really knew their stuff.”

At the time, the move hurt the company's sales, Whalin said.

Another factor that might hurt sales staff morale is the growing gap between their lowered wages and executive compensation, said Ken Jacobs, chairman of the University of California Berkeley Center for Labor Research and Education.

Circuit City CEO Schoonover received $1.4 million in salary and bonuses in fiscal 2006, plus 340,000 stock option shares and $96,929 in other compensation mostly related to use of a company jet, according to a filing with the Securities and Exchange Commission.

Link.