Jim, RE: job losses> New Recipe for Cost Savings: Replace Highly Paid Workers
In a Tight Market, Employers Are Finding
Job Seekers Willing to Take Lower Salaries
By CARLOS TEJADA and GARY MCWILLIAMS
Staff Reporters of THE WALL STREET JOURNAL
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.
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 2½ 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.
(nice company!)
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."
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