Circuit City Rewards Execs As Stock Tanks 354
jamie tipped us to Dean Baker's Beat the Press blog, where Baker comments on a followup to Circuit City's firing of all its highest-paid salespeople last March (Slashdot discussion here). Circuit City's stock has cratered in the meanwhile, and their response has been to offer $1 million retention bonuses to executive VPs. Baker points out that each one of these bonuses represents 35 years' salary for one of the fired salespeople.
Let's see here ... (Score:5, Insightful)
Brilliant!
Re:Let's see here ... (Score:4, Insightful)
Not Quite as Bad as it Sounds (Score:5, Insightful)
The idea behind them is that without the institutional knowledge that these people have, the company would die even quicker. Few people, including upper management want to stick around on a sinking ship, so in order to keep potentially valuable people from moving to a healthier company, they offer retention bonuses.
Obviously the hard part is sorting the wheat from chaff and only giving the bonuses to the useful people, at least the marginally useful. Seems to be that they just hand them out to everyone in upper management "just to be safe" which in the end may not be all that safe...
Re:Let's see here ... (Score:5, Insightful)
The big problem I see in all this is that US executives have a huge upside (Goldman Sachs CEO got a $68 million dollar bonus this year), but with no downside (Merrill Lynch fired its failed CEO with a $160 million golden parachute). If you want to argue execs deserve huge pay because so much money is at stake, then they should also stand to leave the company hundreds of millions poorer than they came into it, if they underperform. If they don't want to be personally liable for their huge losses, neither should they stand to take so much of the potential winnings (as they do now).
And this surprises WHY? (Score:4, Insightful)
CC is on it's way out/down, so the execs are going to raid the coffers before everything tanks.
End of the corporate raider era, part II (Score:2, Insightful)
Re:Let's see here ... (Score:5, Insightful)
Re:Not Quite as Bad as it Sounds (Score:2, Insightful)
I do find your comment mightily amusing, though. Gotta retain the execs who fired all the low-level employees with institutional knowledge of how to help customers because you've got to keep the institutional knowledge of how to run the company into the ground with idiotic, self-destructive bean counter decisions.
Seems kind of like amputating an arm to cure the cancer but leaving the tumor in so as not to lose too much mass.
Better yet (Score:4, Insightful)
all industries (Score:5, Insightful)
many of these Executives never do anything to justify the increases.
it's all industries though, not any one.
IMHO the funds are to blame (Score:3, Insightful)
Re:Not Quite as Bad as it Sounds (Score:4, Insightful)
Re:Management Must Stop the Bleeding (Score:5, Insightful)
1) You reward success.
2) You punish failure.
3) Profit.
Now you owe me $1M Euros in management consulting fees.
Take the time to find another store. (Score:5, Insightful)
Re:Let's see here ... (Score:3, Insightful)
Re:Not Quite as Bad as it Sounds (Score:2, Insightful)
Re:Not Quite as Bad as it Sounds (Score:3, Insightful)
Good to Great (Score:5, Insightful)
Management is the source of the bleeding (Score:3, Insightful)
Sounds more like a case of the problem dictating the solution to me.
Re:Good to Great (Score:3, Insightful)
There is one simple way to create good customer service: Treat your employees well. Look at any company known for good customer service, and you'll find reasonably happy employees. This is understandable, because people who hate their jobs are likely to take that anger out on whoever they deal with day to day. (Your customers.) They are also likely to not particularly value their jobs and thus won't go the extra mile.
Re:Take the time to find another store. (Score:3, Insightful)
Re:Your numbers are screwed and so is your logic (Score:3, Insightful)
And for every one of you in America, there's about fifty otherwise perfectly functional people who haven't the foggiest idea how to set up a home theater system, and cannot be educated by anyone as to how. They simply need a sales person or a nerd to tell them what to buy, and a lot of them feel downright embarrassed about asking a teenager to do it for them.
Re:Excellent move! (Score:3, Insightful)
Sinking ship?-Dot com. (Score:1, Insightful)
And what makes you think employees were loyal? How many of you jumped ship for more money? How many up and left when the company needed you the most? It's nice to live the lie that everyone was loyal and suddenly one morning companies were stabbing left and right. But reality is more complicated. Both sides were rewriting the bargin, and now are reaping the pain.
What is wrong with the system? (Score:3, Insightful)
Re:Let's see here ... (Score:5, Insightful)
Summit Seekers (Score:5, Insightful)
Actually, they do quite a bit in the short term to "justify" the increases, but to the detriment of the rest of us.
A year ago, I read a speech by Sir Edmund Hillary explaining how horrified he was that climbers of Mount Everest violated the ethical code of climbers, ignoring a man in trouble on their climb upward and letting him die without help. These summit-seekers were intent on reaching their own self-gratifying goal. They spent their tens of thousands on the "trip of a lifetime" and weren't about to let someone else's misfortune spoil it. Instead of setting aside their summit-reaching goal to rescue someone in trouble, they choose to let him die while they kept on seeking great returns.
As a professional operational risk manager, I see the same behavior in countless execs. It's called leptokurtic risk (or kurtosis) - the condition of seeking artificial enhancement of returns at the center of a distribution while also taking on excessive outlier risk in the tails (called "fat tails"). These executives take on excessive risk for all of us as they seek their own personally-rewarding summits. The company I work for has struggled through significant catastrophic risk due to the neglect of systems maintenance by previous executives. Instead of spending money refreshing hardware, maintaining trained staffing and continuing license agreements with vendors, they threw it all overboard so they could puff up quarterly numbers and reward themselves for their "achievements." They left before the disasters began to occur, millions richer. They cashed out with hundreds of millions while shareholders and employees were left holding the bag. Their summit-seeking behavior let them seek greatness and riches while screwing the rest of us.
A simple example of this would be a airline pilot who is rewarded for getting to his destination faster. Once he realizes all the safety equipment (mid-air collision avoidance, oxygen systems for depressurization, fire retardants and other items taking up weight) can be discarded letting him fly faster, he tosses it all overboard and takes on excessive risk for all the passengers. He flies this way until he's realized the plane's certain to crash, and jumps out with a golden parachute, letting the gutted aircraft collide directly into the side of a mountain, taking the lives of everyone on board. Increasingly, this is a common practice for public company and private equity executives.
As Circuit City witnessed, there is a direct correlation between this behavior in executives and the failure of the company they harvested. The only thing I can recommend for those who find their behavior disgusting is to flee any and all companies that you observe rewarding executives for summit seeking. If they're taking on excessive risk (usually by ignoring it and dismantling all the safeguards so they have even greater funds to line their pockets with), abandon these companies. Let them collapse while the parasites are within, taking them down with them. Until capital markets become savvy to this parasite racket, we're all at risk. Watch for this summit-seeking behavior in the companies you work for and invest in.
Re:Let's see here ... (Score:5, Insightful)
Re:Summit Seekers (Score:2, Insightful)
Re:Let's see here ... (Score:5, Insightful)
Merill Lynch employs 56,300 people. 161 MILLION dollars for one man is a travesty... I will stake my life that the work of any CEO is no more demanding than jobs most of us do. That chunk of change would have amounted to almost $3000 per employee, now wouldn't THAT be a nice Christmas bonus for those individuals.
I believe the average CEO pay in the US is FIVE HUNDRED times the average employee wage. Now, I work... oh maybe 55-60 hours a week, including unpaid time spent outside of work ON work. Now... I sure hope that O'Neal, who earned 48 MILLION dollars in 2006, works 27,000 hours a week. I will wager anything that most of us work just as hard and will probably just break ONE million in our lives.
Maybe some people see egregious severance packages as a "good business decision" but I cannot in good conscience and reasoning even see that. Pay CEO's less and treat them like any employee... bad at your job, 'You're Fired'(tm).
Libertarianism sure does work now, doesn't it? (Score:3, Insightful)
Chance (Score:3, Insightful)
How, exactly, have CEOs convinced moronic jackasses that they're soooo hard done by when they get their multimillion dollar golden parachutes?
Contracts (Score:3, Insightful)
It's ridiculous that's it's so hard to fire people.
Sales Droids (Score:5, Insightful)
In the service industry, a competent employee is a gem, a thing of wonder and beauty to be treasured. Although they certainly are as cheap as the shitty ones, they are extraordinarily difficult to hire because they're so rare. Companies that are well-run identify those competent employees and hang on to them, work aggressively to retain them, because they make a HUGE difference in the bottom line. Failing companies routinely purge the competent employees, because they're often somewhat better paid or get more benefits -- because someone had the good goddam sense to try and retain them.
When I say competent, I'm not referring to some kind of genius wunderemployees here. I'm just talking about people who can be trained to do the job properly, who don't leave the customer/client with a bad taste in their mouth. They truly are rare.
Re:Ordinarily, I'd say "so what"? (Score:4, Insightful)
Re:Let's see here ... (Score:3, Insightful)
He has a soul, maybe?
Re:What is wrong with the system? (Score:3, Insightful)
Change the tax code to eliminate the double taxation on dividends. I recall numerous people, much smarter than I, confidently announcing that the decline of dividends (due to the increase in taxation many years ago) would have a terribly destabilizing effect on the stock market. In hindsight, it's amazing just how understated their doom and gloom predictions seem to have been.
I believe you will see a strong correlation between the sudden steep decline of dividends, and the start of the stock market insanity we see in-force today. Because of the decline of dividends, perpetual increases in stock price are the only thing that matters to investors. Also, because of the large number of amateurs, and simplistic advice by professionals, it seems such simple metrics like quickly increasing stock prices, P/E ratios, etc., have gained mythic proportions... So much so that stocks crash on a small drop in profits, and skyrocket to hundreds of times the value of a company (not to mention more than some entire nations) when there is a small increase in profits.
This has caused much of the stock market to become nothing but a massive pyramid scheme. Unfortunately, those who are the most idiotic, and bought into the scheme at the highest and most recent price, are now the ones who get to vote on what the company does, and of course they vote for more mergers, more insanity, and more short-term profits, and will pay executives ANYTHING to just keep sustaining the pyramid for a little while longer, until they can cash out and go destroy some other company that's still in the earlier stages of the pyramid. But unlike a standard pyramid scheme, the entire world is being affected by it, even if they didn't opt in.
Note: I'm not a Republican, CATO, or Heritage Institute shill. By all means, increase income taxes (on the higher tax brackets) to make up the difference. But unlike something like the estate tax, singling out dividends for extra taxation doesn't make much sense, as the rich and the poor both are subjected, and has had the unintended side effect of largely ending the practice of dividends, and (IMHO) more than any other factor, caused the change of the stock market into a much more unstable and irrational entity.
Re:Nice (Score:3, Insightful)
No sane person would claim that the Democratic Party is a panacea, or anything better than a least-of-two-evils. But the Republican party has become an extraordinarily destructive force in the world. To America, and to people and societies around the globe. There are seventy nine thousand innocent people dead because of the Republican Party's lies and deceptions, and a whole generation of Islamic extremists who need nothing more than an accurate history of this decade to motivate them to violence.
And for what? Some magical non-existent deregulation that the Bush government hasn't provided? A reduction in government power? The PATRIOT act?! Massive increases in warrantless domestic spying? And you can actually sit there and bitch that the Democrats wont fix things?
As long as they wont make things worse as quickly as Bush is, that should be enough for you to at least admit that they are vastly preferable to the Republicans. I mean, how perfectly do the Republicans have to re-enact the rise of Fascism before people sit up and notice?
Re:Better yet (Score:2, Insightful)
You assume that a corporation must act logically. That assumption is false. Corporations are composed of humans.