When a layoff is the reward for experience

Circuit City's move to replace veteran employees with cheaper workers results in anguish and lawsuits.

During his 11 years as a salesman at Circuit City in Oxnard, Calif., Dan Weidler received regular raises and laudatory performance reviews describing him as "great" and a "superstar." He worked hard, liked what he did, and expected to stay until he retired. He is in his mid-50s.

But those plans ended late last month when Mr. Weidler's boss delivered bad news: Weidler was being laid off, one of 3,400 experienced employees – 8 percent of the staff – whose salary levels made them a liability. They will be replaced by lower-paid workers.

Although large-scale layoffs have become a fact of life in corporations – Citigroup announced last week that it is cutting 17,000 jobs – the move by Circuit City has attracted particular attention and, in some circles, criticism and anger. What sets this layoff apart from most others is the fact that some of the best employees are being replaced. That raises questions about the role and value of experience in an increasingly competitive workplace.

Weidler and two co-workers have filed suit against Circuit City, charging age discrimination and wrongful termination.

"In California, a law specifically states that if a company decides to make a decision based on wages, and that decision adversely impacts the older population – those over 40 – that is an illegal action on the part of the employer," says Nathan Goldberg, a Los Angeles attorney representing the plaintiffs.

"Essentially, the people affected by this were those earning the most money, and, by definition, those are the people who have been there the longest," Mr. Goldberg says. "Some had been there 30 years, 25 years, 20 years. They thought they were being valued for experience, service, dedication, loyalty. They were told they were expendable, simply because they earned too much money."

Weidler was making $15.01 an hour. Although he can reapply for a job after 10 weeks, he would earn only $10.22 an hour.

Circuit City expects to reduce expenses by an estimated $110 million this fiscal year and cut costs by at least $140 million annually in the future, says Jackie Foreman, a spokeswoman. Calling retail "an extremely competitive environment," she says, "For companies to grow, and for us to continue to offer consumers products at the prices they've come to expect, retailers must control their costs." Wal-Mart is also instituting wage caps.

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?"

At its most basic level, knowledge must translate into value for employers. "The key with experience is it has to result in increased productivity," says Craig Rowley, vice president of the retail services sector for the Hay Group in Dallas. When stores depend more on self-service, experience doesn't lead to more sales.

As veteran employees seek to stay in the workforce, issues of salaries and experience could loom larger. Professor Payette hears of job applicants who downgrade their résumés so potential employers will not reject them on the assumption that their salary requirements would be too high.

Sometimes salary levels do pose challenges.

"The problem is that pay increases are given partly for merit and partly in response to pressures to satisfy employees who want to feel they are moving forward in their careers over time," says Rob Bennett, publisher of a personal-finance website, Passion.Saving.com. "Employees who are just staying in place are given financial awards for doing so and then are found to be too costly to keep on when the company is faced with competitive pressures."

When times are good, Mr. Bennett adds, companies tolerate paying more for skills that are not increasing. But that changes as soon as competitive pressures come in.

He suggests that employees ask themselves, "Am I really worth more money this year than last year?" Start honing new skills. If you suspect a layoff might be coming, develop personal strategies. "You don't want to wait until it hits and everyone is let go at the same time. Ask, 'What skills do I have?' There's much more flexibility today to take those skills somewhere."

Ms. Kenny's advice. "The message to all of us who work is to ... be aware of the competitive nature of our particular industry or function," she says. "Make it your job to understand if you are well paid, overpaid, underpaid, because the goal here is not to be surprised."

As employers and employees adjust to a changing workplace, Stevens offers this reassurance. "Knowledge is so powerful," he says. "It's that knowledge that drives business. There will always be a place for experience."

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