Are Circuit City Layoffs Really Market Pay Adjustments?

May 6, 2007

Circuit City recently laid off about 3,400 workers, causing quite a stir in the blogosphere. Layoffs are not usually done with such candor: as mentioned on pinkslipblog.blogspot.com, Circuit City fired employees because sales were slipping and workers’ annual salaries were too high.

Circuit City plans to replace the workers with lower-paid workers. Laid-off employees can re-apply for their old jobs at a lower annual salary, a move that the New York Times termed “domestic outsourcing." Circuit City argues the employees were making “well above the market-based salary range for their role.” When pressed for the wage range, Circuit City refused to say how much the laid-off employees were paid. As reported by the Associated Press, Circuit City says a "wage management initiative" was one of the reasons why people were fired from their jobs.

That a company needs lay-offs to adjust its pay to "market" wages is amazing. How did the wages get out of whack in the first place? Or is this just a case of a company deciding to change its business model from having high quality and low turnover employees to having any warm body?

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Circuit City Top Pay

Since we don’t have a salary range released by Circuit City, I had to do a little detective work. After scouring the web, I found the annual salary of one former employee who spoke to ABCNews.com: “After 20 years at a Circuit City store in Virginia, (Bobby) Young is now out of a job. He was laid off, he says, because he was making $18 an hour.” Let’s compare Mr. Young’s $18 hourly wage to the average retail salary.

The average salary for a retail sales associate is $9.90 per hour on the east coast, but the typical sales associate also has less than 5 years of experience (can you say, revolving door job?). With 20 years of experience, pay goes up to $12.00 per hour typically, with the top 10% earning $17.00 per hour or more. At $18.00/hour, Bobby Young’s pay is at the top of the range for retail sales associate.

Judging by other reported wages of those laid off – why is it only socialist web sites actually collected data on workers’ wages at Circuit City? – Bobby Young was about $3 per hour over the maximum, if he sold computers.

Arguments for and against layoffs

As reported on richmondtimesdispatch.com, Circuit City has felt pressure from Wal-Mart, which offers low, low prices (and caps the wages of its veteran employees). Thanks to Wal-Mart’s pricing, Circuit City and Best Buy have dropped prices on items like flat-panel TVs, hurting profits.

To control costs, Circuit City has closed seven U.S. stores, and a whopping sixty-two in Canada. Will these layoffs, like the other cost cutting measures, make Circuit City profitable again? Philip J. Schoonover, Circuit City’s chief executive, thinks so. He said in a statement, “Unfortunately, a number of associates are directly impacted by the actions, but we are making Circuit City stronger for the long term.”

Whether Circuit City will become stronger remains to be seen. The management at Circuit City can easily measure the cost of Bobby Young’s wages. It is much harder to measure whether his competence led to higher store sales. If Bobby’s sales floor patter led to just one more computer being sold per shift, the increased sales would have easily covered the extra $24 Bobby earned.

The “market pay” for a job is not one dollar figure; it is broad range, because it depends strongly on the qualities of the person doing the job. From the barely functional to the highly skilled, the wage rises with the quality of the worker. In the end, where management picks on that range determines the kind of company they have.

Is your company paying you as if you are barely functional, or highly skilled? Find out with our salary survey.

Cheers,

Dr. Al Lee