After Laying Off 3,400 Experienced Employees, Circuit City Reports 3rd Quarter Loss, Showers Top Executives With Lavish "Retention Awards"

Circuit City President Philip Schoonover responded to 3rd quarter losses of $207.3 million by unveiling a retention program that will reward each top executive with $1 million. This is the same management team that axed 3,400 experienced salespeople leading to 2nd quarter losses of $62.8 million. Circuit City has already lost three (3) top executives this year, and Schoonover warns that the future earnings will be imperiled unless his management team remains intact.

Those eligible for the incentive awards at Circuit City include Bruce H. Besanko, executive vice president and chief financial officer; George D. Clark Jr., executive vice president of multichannel sales; Reginald D. Hedgebeth, general counsel; and Eric A. Jonas Jr., senior vice president of human resources, the filing said.

The awards are effective as of Jan. 1. Awards also were approved for employees at the vice president, director and store director levels.

If executives stay until Jan. 1, 2009, they would get 50 percent of the cash bonus, an additional 33 percent the following year and the remaining 17 percent in the final year.

Chairman and chief executive Philip J. Schoonover, who is not participating in the retention plan, would be eligible for a stock award valued at more than $2.9 million if he stays with the company until January 2011, the company said.

Maybe instead of chucking buckets of cash at executives whose top sales are their own inflated senses of self worth, Circuit City should offer salespeople who can move HDTVs something lavish, like $15 an hour.

Circuit City Giving Its Leaders Big Retention Awards [Washington Post]
Circuit City Posts Third-Quarter Loss [NYT]

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  1. homerjay says:

    “Schoonover warns that the future earnings will be imperiled unless his management team remains intact.”

    I wonder if he’s considered the possibility that his earnings are imperiled BECAUSE his management team remains intact.

  2. timmus says:

    In February 2007, Circuit City announced that Chief Financial Officer, Michael Foss, would leave the company. This unsettled investors and analysts concerned about management turnover.

    There’s STILL investors??? The stock trend looks like this [finance.yahoo.com] and there are still investors hanging around and having concerns about RETAINING these same executives?

  3. bustit22 says:

    That’s the cool thing about capitalism, you have to freedom to run your company anyway you want to, even if it runs it into the ground.

  4. JustAGuy2 says:

    How is this a consumer issue? Exec pay is a matter between shareholders and management.

    Also, ever think that the losses might have been BIGGER if they didn’t axe those higher-cost salespeople?

  5. andrewe says:

    @JustAGuy2:

    Are you sure you’re at the right site?

    Turfing experienced and knowledgeable front line sales staff while rewarding upper echelon management is not likely to increase profits. This is especially true because Circuit City’s main issues seem to be customer service related.

  6. Rusted says:

    @JustAGuy2: Wrong. Look at Nardelli and Home Depot. They treated their employees poorly and in return the employees did lousy customer service. Cost them market share.

    @bustit22: Tis true. I’m a business now. Just started. I’m trying to stay out of the ground.

    @timmus: I’m an investor. Mostly mutual funds. So chances are, I do have some Circuitous City. Yeah, so I’ll always have concerns about bad management.

  7. Boberto says:

    @JustAGuy2: This is a consumer issue because ultimately, stores will close, investors/consumers will lose money, warranties will be voided, best buy will control the market for consumer electronics (unless you want to buy it at Sears).

    Capitalism is great. The free markets always sort these issues out. Let’s just make sure we do indeed have a free market (think comcast, etc.)

  8. uclajason says:

    CC could probably smoke best buy if they started treating consumers a lot better. If word got out that CC customer services was much better than best buy’s consumers would flock.

  9. vanillabean says:

    It’s better to have conscientious, knowledgeable sales staff. I like how you can see the same faces all the time at Costco, and know that if you ask a question you’re likely to get the right answer. Not sure if that business model would work in chain electronics but it would surely be a more pleasant experience.

    Usually the people throwing money at executives are other executives. It’s incestuous at the top!

  10. betatron says:

    Seriously, all i see at Circuit City is a bunch of comic/icky sweaty weasels in cartoon-salesman suits. And their store is a) dirty b) badly lit c) looks like ass. Geneva Il, fwiw. The only place worse was the Sharper Image store up the road while it was open.

    DON’T WANT!!

    Astonishing that upper mgt. would reward themselves for creating such a money losing cess pool. I’m betting none of them have actually been in one of their own stores in the last year– anybody want some of that action?

    Anyone want to take a side-bet that the metrics used to define executive “performance” don’t actually relate to selling more stuff?

  11. SpecialEd says:

    @timmus: WOW! With a chart like that it’s no wonder the CFO is getting the hell out. Just like CompUSA, the handwriting is on the wall for CC.

  12. ncboxer says:

    Did a similar thing at my company 6 years ago. Company lost a several billion that year…. stock lost 90% of its value… they laid off 30,000… top 10 executives got “retention” bonuses worth an average of 5 million… everybody else got almost zero raise and threat of being laid off. Not sure why I still work there….

  13. ColoradoShark says:

    This is like giving a raise to Slim Pickens while he rides the atomic bomb down to the ground. You wouldn’t want him to jump off in the middle because it might affect the outcome. (Allusion to Doctor Strangelove if you’ve never seen it.)

  14. mantari says:

    Sounds more and more like they shouldn’t try to keep the management team together. They should be broken apart.

  15. goller321 says:

    @bustit22: I don’t think this is really capitalism anymore. Share owners have zero say in the actions of the board or the CEO. And since most peoples involvement in stocks is tied to their retirement funds, they have even less say in the companies goings on. It isn’t a free market if it’s a “good ol’ boys” club…

  16. jaredharley says:

    This is the same management team that axed 3,400 experienced salespeople leading to 2nd quarter losses of $62.8 million.

    Where’s the proof that the loss of 3,400 salespersons led to the 2nd quarter loss? More likely, the “axing” of these salespersons helped to lessen the 2nd quarter losses. Don’t assume cause and effect.

  17. goller321 says:

    @JustAGuy2: People have already pointed this out but I’ll add my 2 cents…
    Home Depot is a prime example… and they STILL haven’t learned their lesson. Take Costco as the polar opposite of almost ALL retail companies today. They offer decent prices, but EXCELLENT service and keep their employees happy…. results show a strong and consistent growth.

    Personally, I believe that exec pay should be tied to their employees’ pay rates. They can earn up to 100 times the pay for their average employee (including workers in other countries.) It would put a grinding halt to outsourcing and keep exec pay at a more reasonable level.
    I stopped in at the old work place (10 years ago old…) to wish a season’s greetings to a former boss the other day. He manages a WW Grainger branch and they too have the right attitude… customer service. They may cost more, but they are still growing because the cost difference is made up for by a reduction in redundant activities to fix the screw ups that occur with other suppliers and their reliability.
    Home Depot, b contrast, gets almost no contractor business in my and many other areas, because they cannot rely on orders to be filled with any consistency.

  18. goller321 says:

    @jaredharley: Yeah, youve got to be right… I mean we all know that having EXPERIENCED salespeople has absolutely NO impact on sales…

  19. goller321 says:

    @jaredharley: From the Washington Post-
    “”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.”

    If you get rid of $11/hr employees… what people are left? Just like Crap Depot, you get the $8/hr people that have ZERO incentive to sell anything or do any real work.
    And this after the massive lay off a couple years ago and the removal of their commission. Even those left at the store are going to look at this as a very good reason to just say fudge it and stop doing any real customer service.

  20. goller321 says:

    I would also suggest an Executive Email Carpet Bomb against Circuit City. I plan on emailing them that I will no longer frequent their stores. I used to turn to them instead of Worst Buy… now I guess I’ll have to turn to the internet for ALL my tech purchases.

  21. Buran says:

    @uclajason: It IS much better. And yet, yesterday I had to fight through traffic swarming the local Best Buy…

  22. cuiusquemodi says:

    @goller321: Doesn’t that dilute the power of the EECB (yes, I realized just how… odd and cultish that sounded as I typed it), using it just to inform a chain that you’ll take your business elsewhere? Just take your business elsewhere and let the management and shareholders figure it out. The mass migration of customers elsewhere would do more to effect the killing (or mortally wounding) of Circuit City than any number of EECBs ever would.

    I don’t cheer for corporate destruction as a matter of course, but sometimes the old companies which no longer serve their customers’ (and hence their shareholders’) interests ought to be left to die.

  23. JeffM says:

    @vanillabean:
    How do you suppose small independent A/V stores stay intact? I would think it is 100% service, because obviously the prices are going to be the same at best-

    I worked sales for a small independent home theater provider when I was college and it was one of the experiences I had because of the relationships you built with customers- I believe that is what sustained and continues to sustain the business which is still open five years later.

    To the issue at hand- having too many execs leave at once can cause a company to implode from destroying investor confidence (though how much lower could it go?) – while it is hard to argue for them to stay perhaps if they are retained and slowly replaced it will save the company from imminent doom.

  24. @JustAGuy2: “Exec pay is a matter between shareholders and management.”

    That’s the problem. Index funds, et. al., have disconnected the stock-holder from these decisions. Aside from HP, what other large-profile companies have made sweeping front office changes due to STOCKHOLDER pressure?

    The common stockholder, whose probably holding the stock in his 401k, has no idea what CC pays its president, CEO, etc.

  25. chili_dog says:

    Many times it’s the management team that holds the ship together and can return a company to profitability. However, in this case, it will mean the end of Circuit City.

  26. AlphaWolf says:

    I am getting tired of he executive C levels across America giving themselves million dollar bonuses while the companies go down in flames.

    The shareholders do not seem to mind or care anymore. I am not normally for more government intervention, but the GREED is out of control.

  27. savdavid says:

    if that is him in the picture, he looks like a dork.

  28. EthnicRedneck says:

    Ah…the retention of the useless rich. See, this is what happens when nepotism and politics overwhelm the rule of law. Give it a few months and we’ll see a government bail-out followed by more executive bonuses. Especially if the board of CC are heavy political contributors or if they have family in politics.

  29. so that’s where my “invalid” rebates went…

    I guess a check was issued somehow or another

  30. I was at a Circuit City last week – one week before Christmas, 5:00 in the afternoon (lots of people getting off work.) There was one register open. And I didn’t have to wait in line very long.

    I don’t think Circuit City is long for this world anyway.

  31. The Stork says:

    @Eric J2: Electric Jewgaloo: “I don’t think Circuit City is long for this world anyway.”

    They have almost no debt and too much cash/assets to disappear too soon. Give ‘em five or six years and then delight in the empty buildings.

  32. Rusted says:

    @AlphaWolf: Nuh-uh. Shareholders do care. Just ask any of us who watched their Time Warner shares turn into dreck after the AOL merger.

  33. omyard says:

    The other day I got the best service I’ve ever had at a Circuit City, which was pretty nice.

  34. funny, I was in there today and saw a sign at the CS line with big bold words “We’re Hiring!”

    thought it was pretty ironic

  35. goller321 says:

    @Rusted: Shore holders that have CONTROL of their shares maybe… but most people have no voting rights for the shares they own (as in various funds and such.)
    But even when shareholders DO care, there is little that can be done. Look at Home Crappo, the board didn’t even bother showing for their meeting, because they knew they were shoe ins because they had their ducks in a row with the major investors, and fund managers. Hell, Nardelli basically told them all to go “F” themselves when they asked for justification for his ridiculously overcompensated salary…
    Even with gone now, HD is still a crappy employer. As a former employee for a national supplier for HD, I still see people I used to know in the stores. Morale was up with the exodus of Bobby, but is steadily declining since no real change has occurred since his departure.

  36. Blueskylaw says:

    This is the same thing as mutual fund managers being awarded 10′s or 100′s of millions of dollars for losing “less” than the other guy.

  37. pyloff says:

    It’s amazing to me that companies like this can take a huge dump and leave such opulent stores to to decay in neighborhoods.

    CompUSA anyone?

    I guess I should have studied Gordon Gecko more faithfully.

  38. ageshin says:

    They got it wrong. They axed the wrong end.

  39. ToadKillerDog says:

    Don’t forget that Circuit City screwed over another 1000 employees the following month. Still glad I laughed at their come back and work for peanuts letter!

  40. trollkiller says:

    Best Buy and Circuit City are the Kwiki Marts of electronics.

  41. ARP says:

    I think this symptomatic of the frustration that many of us face in the workplace. The top level benefits regardless of their performance, poor decisions, etc. while the rest of us are more likely subject to being RIF’ed, reduced, etc.

    As others have mentioned shareholder activism is difficult given the filtered and diluted nature of the holdings.

    Other countries partially deal with this issue by taxing the wealthy incomes at much higher rates that we do here (up to 55%) and putting that money into social programs like health care, transportation, education, etc. so at least there is a safety net for those who do lose their jobs from the poor decisions. Oh and they spend a 100th of what we do on their military, but I digress.

  42. grassed says:

    being a former employee and getting laid off the second round i know it hurt their business. being rewarded for doing your job well is a novel idea that apparently is above cc’s upper mgmt ideology. margin is the name of the game and people that were paid more sold better. why else did they get that raise? if you made 13 an hour but sold hundreds during that hour you worked you made the company money. if u were knowledgeable and resourceful you paid for yourself. now hire someone at 6 an hour who doesnt care what they sell obviously they wont make profit or margin.. why would they? its fine though because i got scooped up by verizon (who is trading 8x higher than cc) and getting paid better.

  43. upokyin says:

    Do you guys think that those 3,400 fired salespeople earned their higher wages by helping people? They likely distinguished themselves by a)being the best at lying to customers or b)sticking around while their coworkers eventually moved on to better jobs. Layoffs always suck, but I’m not convinced that Circuit City’s decision was bad for the consumer.

  44. ToadKillerDog says:

    Upokyin: YES I earned my higher wages by helping people and I am proud of it! I knew several other employees who operated to the benefit of the customers also. We did well by doing good.

    YES, Circuit City’s decision to fire the knowledgeable staff was bad for the consumer.

    These firing decisions were not made to save the company money. The firing decisions were made in order to concentrate wealth and power into fewer and fewer hands.

  45. DeeSarco says:

    You’ll only get good employees if you pay them right. So many companies focus on cutting cost. sad, It’s a loss for both sides. I guess we’ll have to buy more online. :)

  46. HOP says:

    i can’t say anything bad about our (salisbury md.) store….the help there have been fine and return policy is very liberal……i would hate to see them go umder ’cause i would be forced to us best buy….i avoid best buy like the plague…..at least there is a pretty decent,staples nearby…………

  47. HOP says:

    excuse the spelling…i’m a one finger key banger…

  48. Parting says:

    @ToadKillerDog: When you work on commission, you get higher salary by caring to provide accurate information to customers. A ”lying/cheating” sales rep will close couple of sales, and then will get fired, due to all complaints from customers. (It may work for industries involving 1 time transaction, like used car sales, but it does not concern electronic stores).

    Better the sales, involve deep knowledge of the product. A sales rep that can answer customer’s questions and direct customer to the item he’ll like, will earn repeated sales. A happy customer will refer his friend to the sales rep, and will come back himself for the latest gadget.

    A company can make 2 mistakes : cut on marketing and lay off the best sales reps.

  49. ToadKillerDog says:

    @CHOUCHOU: Thanks for stating it so well. I gave the company 3 to 5 years of independent survival 5 years ago. I was off on schedule, not on consequences.

    The hidden costs to our society of Circuit City type thinking are starting to show up more as the Oligarchs squander our human and ecological resources. Not only are we loosing our productive capacities, we are destroying the foundation to rebuild those capacities. Circuit City’s downward spiral is the “canary in the coal mine” for a tendency in our country to reward the truly mercenary spirits amongst us.

    Proposed Book Title:
    Circuit City and the Death of Capitalism
    How the Oligarchs are destroying our country and our freedom.

    Wish I was articulate enough to write it.

  50. mac-phisto says:

    here’s my feelings on the matter. the double c is having some issues b/c their strategic labor plan is garbage. the way i look at it, you have two options as a retailer: pay squat, employee drones & offer limited selection OR pay a premium, train your employees & offer a variety. cc is trying to mesh the two & what results is a train wreck.

    you can’t offer the consumer 20 different choices in gps units & expect them to decipher the differences. you also can’t expect a minimum wage clerk to care to learn the products enough to make a sale – esp. when they’re not trained properly.

    what ensues is an environment where one of three things happen: the customer makes the “right” choice w/o the employee’s help (in which case the employee has no real worth), the customer makes the “wrong choice”, or the customer makes no choice. by right & wrong i mean that the transaction either makes money for the company (right), or costs the company money (wrong…naked loss leader sale, return of item, etc.)

    in every one of those cases, there’s no real point in paying the employee…they exist outside of the transaction instead of being a catalyst. & so, my advice would be: either pay & train your employees more or eliminate your floorwalkers, reduce your selection & simply employee clerks & stockers.

  51. MrEvil says:

    @mac-phisto: Then the electronics store would be just like the grocery store. The ONLY People that sell you anything in a grocery store is usually the folks at the deli and at the meat counter. All they do is cut it up and wrap it for you.

  52. ChipMark says:

    The thought that any retailer will ever give the lowest prices and retain and pay the best sales people is poor thinking. Once they get knowledgeable enough they move on or move up.
    Consumers get what they asks for: lower prices at the gas pump? Self Service… and full service prices. At one time self service was less, but full service has died ( for the most part).
    Did you hear about the guy who ran his own premium price full service store but then Walmart came to town and everyone scurried for the low price no help service, he had to close his store because everyone loved it- but didnt want to pay the higher price. But the only place to work in retail in town was Walmart, so he works there- and since he’s paid like a Walmart employee – guess the only place he can afford to buy his groceries? Walmart.

    I feel sorry for people that are happy to see to any retailer close. People are going to lose their jobs- and with less competition you will eventually be going to the only place in town when you want to go to a store- and that store can dictate prices, and they will be higher and the service?… self service…and no one will know the difference…just like today’s gas stations.

  53. meneye says:

    as much as I hate best buy: DIE CIRCUIT CITY!

  54. RvLeshrac says:

    I cite, as I always do, the Japanese mantra of ‘fire the leaders first.’

    Ever wonder how so many Japanese businesses with bad PR disasters manage to survive with few problems? Yeah, it is because they fire the assholes at the top who make the poor decisions – they don’t terminate the people who properly carry out their orders, no matter how badly designed those orders were.

    Ssu-ma Ch’ien wrote that Sun Tzu said:
    “If words of command are not clear and distinct, if orders are not thoroughly understood, the general is to blame. But if his orders ARE clear, and the soldiers nevertheless disobey, then it is the fault of their officers.”

    The words are no less true now than they were when (and if) they were said two and a half millenia ago, as is the meaning and intent behind them.

  55. goller321 says:

    @RvLeshrac: Great, now how do we talk American Execs into committing Seppuku? :)

  56. RvLeshrac says:

    @goller321:

    If only… it would save us from the horror of having them simply move to another company.

    The real question is WHY DO BOARDS KEEP HIRING THEM?!

  57. mac-phisto says:

    @ChipMark: i would say the big difference between your examples is margin. gas stations often sell gas for pennies more than it costs to have it delivered. electronics are much different. new tvs are selling $300 or more above cost. those $100 monster cables stock at around $15. that $30 hands-free device costs about $1. the $5 pack of batteries to run them all cost the store about $0.10.

    the margin on off-brand is often much higher (even if the price is much lower).

    that gas station owner probably could have survived if he had a convenience store, raised his in-store prices on popular sellers & dropped his gas prices even with wal-mart (even with the service). people are willing to pay a lot more for convenience.

    @RvLeshrac: perhaps when they start teaching sun-tzu to the mbas at the university of chicago school of business instead of the corporate thimblerig, the world will be a better place.

  58. G-Dog says:

    Stage 1 – Reduce functionality of Retail operation.
    Stage 2 – ?
    Stage 3 – Profit

  59. chek_ya_self says:

    I work at Circuit City Part-Time to supplement my income.
    I can tell you the main problem is management on the store level and the corporate level.

    I work at another Company full-time where management makes decisions that actually improve customer service and employee moral as they are connected.

    First, the ancient computer software they uses at the registers is the number one problem. If anyone has ever seen it, it resembles DOS and is over 15 years old. You need to remember over 200 number codes to navigate the screen. Since training is horrible you never know where to go. If you don’t know how to access a certain part of the screen you have to find a supervisor, who usually has a line of questions from other employees with similar issues. Because of the long wait there are usually angry customers taking up the supervisor’s time, which only compounds the issue.
    If they upgraded the software, it would speed things up, which in turn add to more sales, since over a hundred customer’s walk out everyday due to excessive wait.

    Second is the poor training. They claim they want to train you, but than they say they are too busy and put you on the floor right away. I cannot think of anyone that has ever been fully training. The only way to learn is by trial and error. Any employees that were there long enough to learn anything were fired because they make too much money. Where I work full-time you can’t work until you finished 100% training.

    Third, if you make a constructive comment that may make the employee and customer’s experience better, you are looked at like a traitor and belittled for thinking outside the box. This culture has to come straight from the top.

    Fourth firing all the experienced workers whose only fault was accepting a wage that was fairly offered to them by the company resulted in lower moral and less experienced reps. I’ve never worked at a place where they would fire someone for making too much. Remember it was Circuit City that offered them that salary in the first place.

    All in all, it is management on the Store level and Corporate level that is ruining Circuit City.