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.
Excellent move! (Score:4, Funny)
Better yet (Score:4, Insightful)
Re:Better yet (Score:5, Interesting)
Take a look at Apple, where shareholders are suing despite its stock outperforming the industry by a huge margin, because they're worried that company employees might have received awards for their efforts.
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Save a whale - harpoon a bind-torture-kill NeoCon
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Money is like blood - its only useful if its moving around.
Re:Excellent move! (Score:5, Interesting)
all the Executives, the ones who make the decisions that are
obviously quite poor! It runs to millions!
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A good analogy here (Score:3, Interesting)
Circuit City has turned that rule upside-down and seems to be suffering the consequences of it.
If I was a shareholder, perhaps I'd want to fire the entire management team at this point.
Re:Excellent move! (Score:4, Interesting)
Contrary to popular myth, a higher education does not assert one can make superior decisions. By in large our education system has become nothing more than a good 'ol boy network. In fact, the last several large companies I've worked for, could easily have been replaced with high school drop outs and been as successful as making good decisions.
Generally big business works like this. You used to work for Joe. You brown nosed Joe a lot. You finally get a new position at a new company because the person hiring you went to school with Joe. Joe calls you to find out how you two can now do business together. You take turns propping each other up with sales that only makes sense, short term, on paper. In the mean time, you know have created your own apprentice and the first part is now primed to repeat. Now, since your short term deals look good on paper, you are now given a large raise and your parachute is bolstered. In a couple of years down the road, the short term stupidity catches up with you and you are asked to quietly leave. You now move on to another company where stupidly is rewarded. Repeat.
The vast majority of big business has nothing to do with sound decision making. American Airlines is the poster boy which usurped the crown from Enron and its kin.
So yes, superior decision making can EASILY be found by the common man on the street...but business isn't about superior decision making...it's about who you know...who you went to school with...and how readily you can lie to maintain your position to build your parachute up while floating to your next parachute.
Business work differently in other 1st world countries, but in the US, idiots with huge egos a well connected friends, by in large, run US corporations. Obviously there are exceptions.
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they did last winter! -- all the experienced ones. (Score:2)
so Circus City also became expendable. Haven't gone there, don't intend to go there, the weasels are crowbarring the last loose dollars for their pockets before it goes under.
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Let's see here ... (Score:5, Insightful)
Brilliant!
Re:Let's see here ... (Score:4, Insightful)
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).
Re:Let's see here ... (Score:5, Insightful)
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Personally, I think a good first step toward fixing that would be to make it illegal for a CEO to serve on the board of another company.
Bingo. Classic conflict of interest. There's too much back-rubbing going on.
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Given that Lloyd Blankfein's firm has sidestepped the losses plaguing its rivals [cnn.com], that strikes me as a terribly odd example to fire upon. You may also note from the CNNMoney article that it's not all wine and roses for Wall Street execs this year. Yes, top execs are by and large paid a lot, but they do take their lumps (relatively speaking) when the situation demands it.
Re:Let's see here ... (Score:5, Insightful)
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This is the whole purpose behind corporations; they were originally given the rights and privileges of a human being in order to alleviate much of the risk to the execs. If the company goes bankrupt, the people associated with the corporation (particularly, the execs) get off scott-free. The movie The Corpor [thecorporation.com]
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Previously, if a company went belly up in a really bad way, the creditors could go after everybody who owned some of the company, even if they had nothing to do with the affairs of the company.
It'd be quite chilling to business investing if people had to worry that a Enron style failure would be able to reduce their entire portfolio to zero, even cost them their house, instead of just losing the previous value of those shares.
Some
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Well, boo-goddamn-hoo. Maybe if shareholders paid more attention to what the companies they invest in are doing, we wouldn't have so much corporate malfeasance.
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First off Goldman Sachs is a terrible example you used. Their performance is phenomenal and their shareholders and clients are happy to pay out these bonuses. The funny part is that $68M isn't even that much for them. They had one of their investment guys making almost $~80M a
Re:Let's see here ... (Score:5, Insightful)
Chance (Score:3, Insightful)
Yes, but you fail with enough money that you could immediately retire and STILL live out the rest of your life in wealth and luxury. Hell, even one million dollars is enough -- properly invested -- to live out the rest of your life wealthier than 60% or 70% of all Americans.
How, exactly, have CEOs convinced moronic jackasses that they're soooo hard done by when they get their multimillion dollar golden parachutes?
Re:Let's see here ... (Score:5, Interesting)
I used to think the same, but was explained recently how the "injustice" of the gold parachute thing is actually a misconception, and that it actually makes perfect business sense.
Let's use Merrill Lynch, which you brought up, as example. According to Wikipedia [wikipedia.org], they reported a net income of $7.49 Billion in 2006 (all further numbers are derived from simple arithmetic or taken from this same article). That's about $625M a month. Or $146M every week. Keep that number in mind.
Now, imagine you're in the board for a big high-stakes company (banking, insurance, that sort of stuff). If you have an incompetent CEO (hey, if Merrill Lynch had one, almost anyone is liable to get one at some point). You want to get rid of him, but, since being CEO for this sort of company is an intrinsically high-paying job, he obviously resists getting the boot. Assuming you don't have anything strong enough to outright fire the CEO, how much money can he make your company lose between now and you actually getting him sacked? That's the monetary value of getting him to leave of his own free will right now.
Stanley O'Neal got about $161M in stock options and retirement benefits as "severance pay". Based on my earlier math, that's just over 1 week of net income, which is, simply put, peanuts, seeing as he reportedly lost Merrill Lynch some $2.24 Billion (over 3 months' worth of net income) in how he was handling the sub prime crisis. How much would the company stand to lose by keeping him on-board any longer?
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).
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He has a soul, maybe?
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Contracts (Score:3, Insightful)
It's ridiculous that's it's so hard to fire people.
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Now, they get all get bonuses for saving millions, while they don't count the millions in downtime as the systems no longer can run at 99.999% availability. Next big lost shipment should earn them a new boat/car/house.....
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Talk about waste in the face of change... (Score:5, Interesting)
Essentially, it's like you put it: let's lay off everybody in the company who had anything to do with generating sales out of three huge markets, and who cares about the personal relationships they had built with customers (especially with respect to public sector folks)? Oh, I forgot to mention... lots of people were offered a "chance" to keep their job if they felt like relocating to Dallas, TX where CompUSA was building a multimillion dollar call center to centralize all their corp/gov/edu sales operations. What a bargain, right?
On the many occasions I visited that new call center on business, I got the distinct impression that things were, well, about as fucked up as a football bat. They had it all; an entire hotel rented out for six months housing only CompUSA employees, a new SAP rollout that kept mysteriously screwing up orders large and small (while sucking up untold amounts of contractor labor and prompting Microsoft execs to hold fun-filled meetings about revoking CompUSA's large account reseller status), midlevel managers running around trying to figure out whether their charges were coming or going.
Let's be fair in Circuit City's case, though... the old expressions goes: Never attribute to malice that which can be adequately explained by stupidity.
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but when I shopped at Circuit City a few years ago, it sucked. Inattentive salepeople who didn't know crap except that I need to buy crap I don't need. I went there a month ago, and same story.
I don't think the firings had a major effe
Sinking ship? (Score:5, Funny)
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I'm sure some corporate lawyers could draft it up & it'd be cheaper than retention bonuses.
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If this is a good thing or a bad thing is left as an exercise to the reader.
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...
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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 no
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Retention bonuses prove effective for companies in transition [findarticles.com]
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It's not class warfare. It's a belief that morons should not be enriched because of their connections. In a free market, executives would pay for their failures from their pocketbooks. Unfortunately, the good ol' boy's network too often subverts that free market, allowing idiots to fail upwards.
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Circuit City's problems were caused by its executives. Retaining the incompetents only shows they aren't likely to turn around, which is likely why their stock is tanking.
Re:Not Quite as Bad as it Sounds (Score:4, Insightful)
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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.
they see it coming (Score:2)
35 years salary? (Score:5, Informative)
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$30k/yr is about $15/hr, which sounds like high pay for someone that works at circuit city and isn't upper management.
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)
"Greed is good" - Mod Parent Up (Score:4, Interesting)
In case you may not know, there is an upcoming sequel coming out next year. I believe the title is "Money Never Sleeps", taking place in the present day and Gordon coming out of prison to take a piece of the hedge fund market. Michael Douglass is returning as Mr.Gecko.
Interestingly enough, it's amazing that a lot of people who are brokers look up to the fictional Gecko... Here's a quote from a NY Times article:
Speaking by telephone from Bermuda, Mr. Douglas said he wouldn't mind if he never had "one more drunken Wall Street broker come up to me and say, 'You're the man!' "
Pretty sick, eh?
Management Must Stop the Bleeding (Score:2)
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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.
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retention bonuses for laid off workers (Score:2)
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I feel you're leaving something out when you just make a blanket statement like, "Circuit City shouldn't be expected to pay its employees far in excess of industry standards."
If I reflect on that statement in isolation, it is clearly false, because there are businesses that do pay top dollar for their employees that make a killing, and if they lowered their pay, they wouldn't make as much money. For example, I heard a rather convincing argument recently that even though Costco pays more for its employees
Management is the source of the bleeding (Score:3, Insightful)
Sounds more like a case of the problem dictating the solution to me.
Broken Logic (Score:4, Interesting)
Right. There's a small little detail, though: The execs make the decisions that make the difference between making and losing millions of dollars. The sales people, even if they were paid 1 million dollars, would not generate anywhere near that much income to save the company. If Circuit City's business model is broken, then it makes sense they try to keep the decision makers from leaving the sinking ship. If anything, to devise and carry out a new strategy. What they're doing actually makes some sense, even though that little blippet was intended to make them sound idiotic.
But, that's just me responding to sensationalist bullshit. I personally think they should use those retention bonuses to hire new execs, preferably those with a proven track record in this sort of business. Hypocricial? Nah. Still non-sensical? Yeah, maybe.
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Which does not, when all is said and done, make them any less idiotic. We live in an age where corporations like Circuit City can purchase their stock at ridiculously low cost from Chinese manufacturers, and they still can't make their businesses work.
Broken, and the market shows it... (Score:2)
Heh, you could say the whole company is on clearance - getting ready to make way for the new model...
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I'm only slightly vengful... In an Ebeneezer scrooge mixed with the memory of an elephant sort of way.
If they looked within thier own ranks I'm sure they could find some young people t
Your numbers are screwed and so is your logic (Score:2)
Circuit City's stocks have taken a dive since this boneheaded maneuver, which you are saying is not idiotic, was carried out. Darwin says they failed the natural selection test by doing this.
I say let all those execs go and hire someone who will oversee a return to a base+commission based
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We're talking about a store that sells DVDs and video games, not a used car lot.
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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.
Last Time (Score:3, Interesting)
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well don't go to Best Buy either. They're not well liked around here:
Best Buy Hands Out Cease & Desist Letters for Christmas [slashdot.org]
Best Buy 'Geek Squad' Accused of Pirating Software [slashdot.org]
Best Buy hopes to exorcize devil patrons [arstechnica.com]
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all industries (Score:5, Insightful)
many of these Executives never do anything to justify the increases.
it's all industries though, not any one.
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.
IMHO the funds are to blame (Score:3, Insightful)
Professionals vs. Forums (Score:2)
Fidelity, on the other hand, pays people huge amounts of money to be very, very good at that kind of thing.
One possibility is that rewarding execs to keep them from deserting a sinking ship, slowing the speed at which it sinks is a completely crazy idea and that only the geniuses on internet forums can spot this obvious issue whilst fund managers, whose lives and careers hang by the balance of their
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There's a lot of superstition and voodoo in the financial market.
Take the time to find another store. (Score:5, Insightful)
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So torn. Mod "Insightful" or respond? Alas, my apologies to your karma (though given your ID, I'm guessing that was not an issue long ago). But I digress.
I wholeheartedly concur. Mom & Pops have a shorter feedback loop from the customer to the decision maker, so they are more customer oriented. They generally pay their employees better. They are
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not worth it at all (Score:2)
Fired "Salesmen" (Score:2)
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The CEO of IBM made about 45 million this year (Score:2)
People love CEOs (Score:2)
Just goes to prove once again... (Score:2)
Responsibility? (Score:5, Interesting)
Instead of bonuses, they would pay for the damages they caused.
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Good to Great (Score:5, Insightful)
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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 cus
Here's the problem (Score:3, Funny)
Well, I'm not sure what a stock tank is (I presume it's where you keep your liquid stocks) but maybe if they'd tried rewarding their execs as people rather than as storage facilities, they might've had better luck.
What is wrong with the system? (Score:3, Insightful)
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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 y
Ordinarily, I'd say "so what"? (Score:3, Interesting)
But having just been in a Circuit City looking for a TV, I can tell you that company is doomed. The customer experience in there is so bad, mostly due to the lowest-common-denominator employee. Young, dumb, surly, and don't give a rat's ass about the company or the customer. From a business perspective, CC retail is a disaster. The CC execs shopuld walk into an Apple (up 120% this year, and the most profitable retail business per square foot on the earth) store (advice I have just written to them) and see how the customer experience differs from that in a CC (stock down 66% this year) store. Yes, Apple pays a lot more, but it is a pleasure to walk in there. Now that is an argument for better pay.
If they wanted to have crappy, harmful employees that alienate customers, they sure are going about it the right way.
Re:Ordinarily, I'd say "so what"? (Score:4, Insightful)
Libertarianism sure does work now, doesn't it? (Score:3, Insightful)
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I took a quick look, and I can't find even a single post in the entire thread that even mentions the Democrats. There is heaps of criticism for the Bush Government, for neoconservatives, and for the Republican party (which, at this point, is basically
Is Circuit City owned by Home Depot? (Score:4, Funny)