Circuit City Replaces
3400 'Overpaid' Workers!


Circuit City's candor was shocking when they announced that they are eliminating 3,400 employees because they want to replace them with cheaper ones. So just how expensive are Circuit City employees? Many of them are making $11 an hour, which in the opinion of Circuit City executives is way too much. One employee that got the boot was earning $11.59 an hour after working there for 7 years.
This is about as blunt a statement as I have ever seen a corporation make:
Circuit City, the nation's second-biggest consumer electronics retailer, behind Best Buy Co. Inc., said the store workers being laid off were earning "well above the market-based salary range for their role." They will be replaced as soon as possible with employees who will be paid at the current market range, the company said.
The term "market based salary" is similar to the term "prevailing salary". Keep that in mind next time you hear Bill Gates claiming that his H-1Bs make prevailing salaries.
The CEO of Circuit City earned $4,514,975 in compensation and an additional $5,459,409 in stock options in 2006. Executive vice-president George Clark drew $1,949,733 in compensation and $4,083,013 in stock options last year. They must be very happy at the moment since shares of Circuit City stock went up 35 cents on the announcement of the job cuts.
Retailers aren't the only ones getting the boot. Their IT department is getting the ax to save money as well. Computer/IT people were targeted who are raking in a whopping $15.50 an hour! Circuit City is outsourcing the IT department to IBM Global -- whose claim to fame is cutting cost by exploiting cheap labor in India. Domestically IBM Global uses large numbers of H-1Bs to cut cost.
Not all of Circuit City's computer people will lose their jobs however -- about 50 of them will go to IBM. It sure would be interesting to know how many of those who get to keep their jobs are H-1Bs and how many are Americans, and what kind of pay cuts they can expect when they go to IBM.
None of these articles give clues about where Circuit City plans to find cheaper employees to staff their retail stores. Perhaps they are counting on the STRIVE Act to pass Congress so that they can get a bunch of guest worker visas.
THOUGHT TO PONDER: I have been thinking about why Circuit City was so candid about their worker replacement. It's hard to believe that the executives were so ethically inclined to honesty they considered lying a sin. Could it be arrogance or perhaps something more insidious? Perhaps their candor was used as a pre-emptive strike to prevent age discrimination lawsuits. Companies can legally hire employees because they are cheaper as long as they don't use age as a criterion. Since the employees that have been there longer are probably higher paid, and of course older, wouldn't it suit the purpose of the robber barons to announce that all of the job terminations are based purely on cost?
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29,0,7074168.story Circuit City plans to replace 3,400 workers in stores 185.html?hpid=sec-business Circuit City Cuts 3,400 'Overpaid' Workers 1/703290361/1066 Circuit City replacing 3,400 employees who earn too much US: Circuit City fires 3,400 better-paid store workers Lou Dobbs - Aired March 29, 2007 =198701277&cid=RSSfeed_GSM_News Circuit City Signs Outsourcing Pact with IBM
Circuit City plans to replace 3,400 workers in stores
From Tribune news services
March 29, 2007
RICHMOND, Va. -- Circuit City Stores Inc. said Wednesday that it plans to cut costs by laying off about 3,400 retail workers, or 8.5 percent of its in-store staff, and hiring lower-paid employees to replace them. It is also trimming about 80 corporate information-technology jobs.
Circuit City, the nation's second-biggest consumer electronics retailer, behind Best Buy Co. Inc., said the store workers being laid off were earning "well above the market-based salary range for their role." They will be replaced as soon as possible with employees who will be paid at the current market range, the company said.
"We are taking a number of aggressive actions to improve our cost and expense structure, which will better position us for improved and sustainable returns in today's marketplace," said Chief Executive Philip J. Schoonover.
Circuit City employs about 40,000 part-time and full-time store employees, according to spokeswoman Jackie Foreman. Those being laid off will get severance packages and can apply for any open positions after 10 weeks, Foreman said.
The company plans to replace all 3,400 workers "as quickly as store directors are able," she said.
"Firing 3,400 of arguably the most successful sales people in the company could prove terrible for morale," Colin McGranahan, an analyst with Sanford Bernstein & Co., wrote in a research note. "The question remains as to whether Circuit City can rebuild in time for the all-important holiday season."
The sales people being fired weren't given an option of taking a pay cut, a spokesman said. He declined to give the pay rate for fired workers or the expected wages for new hires.
The job cuts will be "a challenge for Circuit City," said Rick Weinhart, an analyst with BMO Capital Markets Corp. in New York. "These are all fresh faces coming in and certainly they're less experienced, so I'm guessing it's not going to be a one- or two-quarter challenge. There's going to be a learning curve."
Circuit City pays about $10 to $11 an hour on average, Weinhart estimated. Entry-level pay probably is close to $8 an hour for inexperienced workers, he said.
In 2003, Circuit City switched employees from commission-based pay to hourly pay, matching an earlier move by Best Buy. That switch had a "dramatically negative impact on sales," and a "significant risk exists" that it might again, McGranahan said.
Circuit City also plans to outsource its information-technology infrastructure operations to International Business Machines Corp., a move that is expected to cut IT expenses by more than 16 percent over the seven-year contract. About 50 of Circuit City's IT workers will move to jobs with IBM and remain on the Circuit City contract. The other 80 corporate positions will be cut.
Shares of Circuit City added 35 cents, to close Wednesday at $19.23, on the New York Stock Exchange.
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Circuit City Cuts 3,400 'Overpaid' Workers
By Ylan Q. Mui Washington Post Staff Writer Thursday, March 29, 2007; D01
Circuit City fired 3,400 employees in stores across the country yesterday, saying they were making too much money and would be replaced by new hires willing to work for less.
The company said the dismissals had nothing to do with performance but were part of a larger effort to improve the bottom line. The firings represent about 9 percent of the company's in-store workforce of 40,000.
"Retail is very competitive and store operations just have to contain their costs," said Jim Babb, a Circuit City spokesman. "We deeply regret the negative impact that was had on these folks. It was no fault of theirs."
The company gave the dismissed workers severance pay and told them that after 10 weeks they were free to apply for any openings. Employees reached by a reporter said they were notified yesterday morning and told to leave immediately.
The firings, along with several other moves, are expected to reduce expenses for the electronics retailer by $110 million in fiscal year 2008 and $140 million a year starting in fiscal 2009. Circuit City said sales would be volatile for the next several months as the company adjusts to the changes.
"It's definitely going to have some cost-savings, but I think the bigger impact could be seen in weaker, poor service," said Timothy Allen, an analyst with Jefferies & Co. "I have a feeling the people they're letting go have probably been there longer, have more experience, more product knowledge."
Steven Rash, 24, said he was one of 11 workers fired at a Circuit City in Asheville, N.C. The store manager broke the news during a meeting at 8:15 a.m. and escorted them out of the store. Rash said he has worked for the retailer for seven years and was one of the most junior members of the affected group.
He said he earned $11.59 an hour and worked from 15 to 20 hours a week. He received four weeks of severance pay. Though he has a full-time job at Bank of America, he said he needs to find part-time work to help pay his student loans.
"It's not just a part-time job," he said. "It's about paying the bills."
According to the U.S. Bureau of Labor Statistics, the average hourly wage for retail salespeople was $11.14 in May 2005, the latest data available.
Circuit City chief executive Philip J. Schoonover received a salary of $716,346, along with a $704,700 bonus last year. He also has long-term compensation of $3 million in stock awards and $340,000 in underlying options, according to company filings.
Circuit City also said it would outsource its information technology infrastructure operations to IBM, affecting 130 workers at Circuit City headquarters in Richmond. About 50 people will be transferred to jobs at IBM, while the remainder will be let go after the transition is completed. Babb said he expected it would take several months.
And the company said it is exploring "strategic alternatives" for InterTan, an arm of its Canadian division that services electronics, including sale of the operation. Last month, the retailer shut down distribution centers in Columbus, Ohio, and Louisville, and closed 55 international stores; it plans to shut down seven more in the United States
The nation's second-largest electronics retailer has struggled to keep up with rival Best Buy, and Wal-Mart has made an aggressive push in electronics. The three companies fought it out during the holiday season, slashing prices on flat-panel televisions, which hurt Circuit City's profit.
The company saved $130 million in 2003 by eliminating commissions for salespeople, instituting hourly rates and terminating 1,800 jobs.
Jose Macias, 27, of San Diego said he barely survived that round of cuts. His salary translated to $17.70 per hour, and employees who made more than $18 per hour were fired. But this time, he was not as lucky. He and four others at his store were let go yesterday, including one who had worked at Circuit City for 12 years.
"We had a feeling," Macias said. "There were a lot of rumors going around."
Macias said he was told employees who were paid more than 51 cents above a set pay range for their departments were fired. The cap on his full-time job in the computer department was $15.50 an hour. Mascia said he earned $18.72 an hour.
"I'm ticked off that they can just come at you from one day to another, no warning, and oh, you're gone," he said. "I dedicated seven years to them. Loyalty gets you nothing."
Shares closed yesterday at $19.23, up 31 cents, or 2 percent.
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Circuit City replacing 3,400 employees who earn too much
By DAVID SCHEPP THE JOURNAL NEWS (Original Publication: March 29, 2007)
Share your experiences If you were a Circuit City employee and would like to share your experiences, contact David Schepp at < or 845-578-2437. Have your say Ever lost a job due to a mass firing? Share your thoughts at the "Working Here" forum at
Circuit City Stores Inc. cut 3,400 sales employees and plans to replace them with newly hired employees who will earn lower, "current market" wages.
The move, announced yesterday, is part of a number of actions the electronics retailer is taking to cut costs to stay viable in a marketplace where more cost-efficient retailers have begun selling items, such as flat-screen televisions, that Circuit City specializes in.
Employees who lost their jobs yesterday "were paid well above the market-based salary range for their role," Circuit City said in announcing the cuts.
Circuit City employs about 50 full- and part-time associates at each location, "including sales support personnel, such as customer service associates, product specialists and stockpersons; three sales managers; an operations manager; and a store director," according to a regulatory filing.
The company operates more than 650 retail outlets in the United States, including four lower Hudson Valley locations in White Plains, Yonkers, West Nyack and Cortlandt, where 13 workers were fired, according to Circuit City spokesman Bill Cimino.
In the seven-county Hudson Valley region, retail salespeople earn a median salary of $21,450 a year. But Cimino said the criteria Circuit City used for determining the cuts also looked at wages for similar jobs within the market.
Cimino said that if any of those workers wanted to reapply for those jobs at the new lower wage they would be eligible to do so, "but after a period of time." Employees have been given severance and wouldn't be eligible to reapply for about two months, he said. The severance amounts were dependent upon several factors including length of time employed, Cimino said.
In addition to the 3,400 sales employees, Circuit City said it eliminated 130 corporate associates, 50 of whom will transition to jobs at IBM Corp. but will remain on-site. The job reassignments are part of a $775 million pact that Circuit City estimates will trim more than 16 percent from its costs during the length of the seven-year contract.
From a managerial perspective, the firings are understandable given they
appear part of a larger restructuring that also includes strategies to overhaul the company's distribution, marketing and finances, said Joseph M. Pastore Jr., professor emeritus of Pace University's Lubin School of Business in Pleasantville.
The scale of the firings, about 8 percent of Circuit City's total work force of 42,000, may have adverse consequences in the short run, Pastore said. "But if the turnaround succeeds, the broader impact on morale and investor confidence can be very positive."
Circuit City shares climbed 1.9 percent yesterday to $19.23 a share.
Without a collective-bargaining agreement to protect them, Circuit City, like any employer, is well within its rights to fire employees for virtually any reason, said Randolph McLaughlin, law professor at Pace Law School in White Plains.
In New York state, as with many other states, employees work "at-will," McLaughlin said. "So you can be discharged for a good reason, bad reason or no reason at all."
Exceptions include those employees who are part of a protected class, such as minorities, women or disabled employees, he said.
The phenomenon of firing workers who earn too much is going to become more commonplace as U.S. corporations balance budgets and reduce costs, McLaughlin said.
Without the ability to take its business overseas - as is the case, for example, with manufacturing jobs - Circuit City had to cut its costs in other ways, he said.
Still, he said, the move may be shortsighted if the company hasn't accounted for the toll of reduced morale. Sometimes, he said, "corporations have a meat-cleaver approach to these things."
US: Circuit City fires 3,400 better-paid store workers
By Naomi Spencer 30 March 2007
In a ruthless move to slash worker compensation costs, electronics retailer Circuit City announced March 28 that 3,400 in-store employees, 9 percent of the company's workforce, would be fired. The company is specifically targeting experienced workers because after years on the job they had accumulated relatively higher wages. According to the Washington Post those affected were notified Wednesday morning and immediately escorted out of the stores by management.
The retailer, which operates 640 outlets in the US, is cutting $775 million in costs over the next seven years by replacing its better-paid store clerks and outsourcing its information technology department. Stocks rose by 2 percent on news of the firings, to $19.23 a share.
Like most of the US retail sector workforce, Circuit City employees are not unionized, and are subject to high job insecurity. According to a Bloomberg report, average pay for Circuit City store employees is a modest $10 to $11 an hour. The company has said that those fired this week were "well above the market-based salary range for their role."
"This was a cost containment measure that occurred in our stores today," Circuit City spokesman Jim Babb declared in an interview with the Vermont-based newspaper Burlington Free Press. Absurdly, Babb insisted that employees were fired without notice because "if something like that is hanging over their head for two weeks, it doesn't benefit the employee or the company."
While claiming they cannot afford to pay more than $22,000 a year -- barely above the official poverty rate for a family of four -- Circuit City executives are continuing to rake in the cash. According to, president and chief executive Philip Schoonover received $4,514,975 in compensation and an additional $5,459,409 in stock options in 2006. Executive vice-president George Clark drew $1,949,733 in compensation and $4,083,013 in stock options last year.
These workers now have the option of reapplying after a severance period at what the company's executives call "current market range" wages. And while the new wage range has not been announced, Babb tellingly announced that hiring was to start immediately, and applicants need have no sales experience.
Aside from the cost cutting, the firings and pay caps are also a brazen attempt to intimidate the workers into accepting worsening conditions. The Los Angeles based Daily News interviewed workers at a local Circuit City who explained that the firing comes two weeks before performance reviews, which often come with pay raises.
One employee, who did not give his name because of a store policy against speaking to the media, told the Daily News he was afraid to take a raise on top of his $10.50 an hour. "You're going to walk in the [manager's] door, and for the first time you're going to say, 'I don't want a raise,'" he said. "If you take the raise, will you lose your job?"
"This store has probably lost all its good salespeople," Richard O'Neal, who was among those fired, told the paper. "This morning we were all really pissed, but now I laugh about it. What can you do?" O'Neal was told he could reapply for his job after 10 weeks if he was willing to work for minimum wage. Currently in California minimum wage is $7.50 an hour, an outrageously low wage for the high cost of living in Los Angeles.
Alan Hartley, a car stereo installer at a Charlotte, North Carolina Circuit City, told local television station WCNC that he and other top employees thought they had been called in to a special meeting because they were going to be recognized for outstanding job performance. Instead, they were handed termination letters and told to leave. "We just bought our first house about two or three months ago, and I'm afraid I'm going to lose it," he told the reporters. "I'm not sure what I'm going to do. I'm hurt mainly because I love this company. I planned on retiring from it. I feel I've taken very good care of them, and I can't believe they did this."
"Now they are going to hire people that aren't properly trained for the jobs to take care of their customers," Hartley said. "All the employees that were the best, they just fired . . I've consistently out performed the other people in my department. I've gotten raise upon raise, and the other people who got fired today [were] the same way." He added, "I haven't told my kids yet. They don't know I just got fired for doing a good job."
The firings are the most abrupt and brazen manifestation of a trend by corporate America to push out older and better compensated workers and replace them with a smaller, younger, uninsured and underpaid workforce. Other major retailers have put a multi-tiered wage system in place whereby new workers are paid significantly less than their predecessors. Wal-Mart has implemented such a system, with frozen wages for the longtime employees.
One Asheville, North Carolina Circuit City employee among the fired, 24 year-old Steven Rash, told the Washington Post that he earned $11.59 an hour after working for the company for seven years. Rash, who works another job full-time, explained that he worked 15 to 20 hours a week at the store in order to manage his student loan debt. "It's not just a part-time job," he told the Post "It's about paying the bills." He told the paper he was given four weeks of severance pay.
"I'm ticked off that they can just come at you from one day to another, no warning, and oh, you're gone," Jose Macias, 27, of San Diego, California, told the Post. "I dedicated seven years to them. Loyalty gets you nothing." Macias said he had been told that Circuit City was firing all employees who were paid more than 51 cents over pay caps that were set for departments. The cap for the computer department, where he worked, was $15.50 an hour.
In Roanoke, Virginia, Channel 10 news interviewed two fired Circuit City employees. Bobby Young, who had just been awarded a certificate in recognition of 20 years of excellence with the retailer in January, said he was handed a termination letter addressed "to whom it may concern" when he got to work Wednesday morning. "I don't know what I'll be doing tomorrow morning," he told the station. "What they did as a company to me, it's not the American way."
Another fired Roanoke employee, Douglas Burnette, worked at Circuit City for 19 years. He earned about $35,000 a year. "You say you pay me too much," he said, "but I'm coming to work everyday. I'm reliable. I'm honest . . . Circuit City kicked me out. We gave these people our lives. We went there, we gave them honesty, and that's a slap in your face."
Aired March 29, 2007 - 18:00 ET
DOBBS: A new report demonstrating that the rich continue to reap the financial benefits of our economy, while middle class workers in this country are being pressured to work for less. This report, this study, comes as Kitty Pilgrim now reports on the same day as one of the largest retailers is firing tens of thousands of workers, and then offering to hire them back for lower wages.
KITTY PILGRIM, CNN CORRESPONDENT (voice over): New data shows that the top one percent of Americans are now 400 times richer than average Americans.
BOB GREENSTEIN, CENTER ON BUDGET AND POLICY PRIORITIES: We have not seen these kinds of gaps since before the Great Depression. We have now have two years in a row in which we had huge income gains at the top, and people in the middle and below did not share.
PILGRIM: He says the rich disproportionately benefit from the Bush administration tax cuts.
The American worker has been downsized, outsourced, laid off, and now companies are replacing experienced workers with cheaper ones. The second largest electronics retailer in the country, Circuit City, is firing 3,400 of its best-paid workers. In an outrageous offer, the company says it will give these workers the opportunity to reapply for those same jobs at lower pay.
JONATHAN JACOBY, CENTER FOR AMERICAN PROGRESS: Well, having worked for a number of years for the company, and moved their way up and developed their skills to be better salespeople, is then rewarded by, in this case, oh, so you have to actually, you know, get laid off.
PILGRIM: Watchdog groups say big corporate chains like Wal-Mart make an effort to squeeze out older, long-term workers who cost the company more in wages and health care.
DAVID NASSAR, WAL-MART WATCH: For the better part of the past two years, we have seen Wal-Mart engage in policies to try to get rid of workers who have stayed too long with the company. The only difference between Circuit City's decision today and Wal-Mart is that Wal-Mart has been underhanded about it.
PILGRIM: All of this is especially outrageous at a time when the CEOs of Wal-Mart and Circuit City are compensated in millions of dollars.
PILGRIM: Labor experts say the squeeze on the middle class has a nasty edge now. For example, at Circuit City, workers can have the privilege of their old job back at a lower wage. They have to weight 10 weeks to apply. And the retailer can fill that job during that time. So on top of less money, there are no guarantees that the job will still be there -- Lou.
DOBBS: Kitty, thank you very much.
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Circuit City Signs Outsourcing Pact with IBM
IBM will be responsible for Circuit City's IT infrastructure services for seven years by Global Services Global Services
Circuit City Stores, the U.S.-headquartered consumer electronics retail company, and IBM have inked a seven-year, $775 million Information Technology (IT) infrastructure services contract renewal.
Under the terms of the agreement, IBM will be responsible Circuit City 's data center operations, store support services, e-commerce hosting operations, service desk operations, network management, network services, desktop support, enterprise systems management and IT security administration.
In addition, IBM Global Technology Services will manage the testing and introduction of new technologies aimed at improving customers' in-store shopping experience at Circuit City. The retailer also will leverage IBM's extensive experience in managing high-volume Web sites with the company hosting and supporting the technology powering the Circuit City e-commerce channel.
As a part of the agreement, approximately 50 of the 130 Circuit City corporate IT infrastructure Associates will transition to jobs with IBM and remain on-site serving the Circuit City contract. The other associates will comprise the short-term team supporting the transition.
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