When a layoff is the reward for experience
Circuit City's move to replace veteran employees with cheaper workers results in anguish and lawsuits.
from the April 16, 2007 edition
Page 2 of 3
Some business analysts see the Circuit City move as simply a necessary "wage adjustment."
"In any market economy, market corrections occur," says Bernadette Kenny, chief career officer at Adecco Group North America, a staffing organization. Noting current market corrections in the mortgage business and in residential real estate, she adds, "There are also market corrections in how people are paid and what people are paid for what work. Pay corrections are a normal part of our economic environment. This isn't about any one company or any one person's value. It's in the context of a broad market supply and demand phenomenon."
But critics question the electronic retailer's decision. "Circuit City's new approach of laying off experienced workers and then offering them the possibility of being rehired at lower wages may be the start of something big – big and bad for the American worker," David Cadden, a management professor at Quinnipiac University in Hamden, Conn., says by e-mail. "It is fascinating how this miser mentality is never directed towards top management. Cost-cutting must be carried on the back of those who have frontline contact with customers."
A better solution is to "fire the nonperformers," says Roberta Chinsky Matuson, president of a human resources firm in Brookline, Mass. "That's where you start. You don't start with the people actually bringing in the revenue."
Dennis Payette, associate professor of business at Adelphi University in Garden City, N.Y., also suggests other ways to reduce costs and staff, such as early retirements, hiring freezes, and attrition.
As for finding applicants to fill the new vacancies, Ms. Matuson asks, "Are people going to apply to a company that doesn't value experience?"
She explains that a few years ago, during the dotcom boom, companies were hiring inexperienced people and putting them in high-level positions. "They would hire someone who had been out of school for a year or two and call them vice president of sales and marketing. More and more we saw these companies implode. They didn't have the bench strength."
Today, she finds that savvy managers are saying, "I do need somebody with depth. I do need someone who has worked in different cycles of the economy. If we hit a recession in a few years, I want somebody who can weather the storm."
Even so, experience is not always a high priority. "Many senior executives today don't have a clue about the value of the knowledge that is walking – or being pushed – out the door of their organizations," says David DeLong, author of "Lost Knowledge: Confronting the Threat of an Aging Workforce." "Too many managers have become so addicted to the mantra of 'cost cutting' that they have lost sight of the trade-offs involved in letting veteran workers go."
Some also ignore the "exorbitantly high" price of training new workers, says Drew Stevens, president of a management consulting firm in St. Louis. He cites research suggesting that it costs more money to restaff and train than to maintain current employees – by as much as 45 percent.
Then there is the cost of losing experience. "There is no monetary replacement for the knowledge lost through attrition," Mr. Stevens says. "America currently is suffering from huge losses in workforce knowledge. Where does all that knowledge go? It's certainly not being given to all the new employees that are coming in. When organizations start laying off, what happens to knowledge, relationships, support of the consumer?"
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