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Circuit City Rewards Execs As Stock Tanks
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.
"Baker points out that each one of these bonuses represents 35 years' salary for one of the fired salespeople."
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.
"I like to lick butts!" by MobileTatsu-NJG (#32700246) (Score:5, Informative)
That's the last time I buy something from Circuit City. If that's where my money is going, then (1) I KNEW there was more margin in that sale and (2) I'll buy from the same sales people when they move to a different place.
Most of the stuff on
Years ago, I used to work for CompUSA corporate in Atlanta, GA. When they got bought out by the holding company that recently liquidated the company (took years longer than I thought it would), CompUSA fired all their corporate, education, and government sales staff. Oddly enough, I kept my job along with a few others in the southeast, albeit with more responsibilities and better pay. The vast majority of folks working for them weren't so lucky. They got their pink slips on a Monday morning, if I recall correctly, with no advance warning.
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.
512 MB RAM, 20 GB disk, 200 GB transfer, five datacenters. $19.95/month.
Think of how much *more* money they could save if they fired
all the Executives, the ones who make the decisions that are
obviously quite poor! It runs to millions!
emt 377 emt 4
The alternative is to reward great employees with fat options, and then have shareholders complain that employees are benefiting at their expense!
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
I think a bankrupt company like CompUSA should be able to recover funds from the executives whose decisions tanked the company.
Instead of bonuses, they would pay for the damages they caused.
I am the unwilling control for my Origin.
It's too bad you are modded up for this. I just saw Wall Street for the first time a week ago and thought of corporate raiders.
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?
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).
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 and he quit b/c he wanted more (he was bringing in multi-billions of profit to the company each year).
CxOs have a huge downside. Most get one shot and that's it. If you fail you'll most likely not have another chance, unless you start your own company. That's why they work their contracts in that manner.
You're still missing the amusing part: the lack of "retention bonuses" given to the people that actually make the sales and actually bring in the money. Sure, this "pay the execs more to captain the Titanic" approach is a popular approach among the failed executive set...it gives them the excuses they need.
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.
The cake is a pie
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, 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?
I think it wasn't so much to protect the executives so much as the investors.
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 of this I blame on mutual funds and large investment firms - makes it hard to kick out bad executives.
Personally, I'd dial the 'rights' thing back a bit - corporations aren't allowed to own stock, and can't be convicted on criminal matters(though they'd still be liable in civil cases - feel free to sue the company into oblivion if it's bad enough).
The criminal matters would come down to employees and executives being put on trial for their company. For bad stuff I'd have it be like the military - sometimes an executive can be held responsible for the acts of his subordinate employees, even without any knowledge.
I don't read AC A human right
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.
Slashdot "libertarians": Small government for me, big government for those I disagree with. -1, I disagree with you
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.
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.
The correlation between ignorance of statistics and using "correlation is not causation" as an argument is close to 1.
Comment removed based on user account deletion
A good analogy here is that when a sports team is under performing, generally the owner fires the coach, not the entire team.
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.
You were mistaken. Which is odd, since memory shouldn't be a problem for you
- Become demoralized and work less effectively.
- Leave and take their expertise elsewhere.
- Have less cash to spend on your products - ensuring you have to make more cuts.
- Have less cash to spend on their kids education - ensuring that the next generation is even less effective.
Money is like blood - its only useful if its moving around.Art Makers Just an excuse to show photos of naked women !!
who agree to a salary of $1 (http://moneycentral.msn.com/content/P143257.asp/) to serve as CEO with the rest of their compensation being based on the performance of the company's stock?
Yeah, any company who'd hire a CEO like that is just going to go from bad (1996 http://www.businessweek.com/1996/07/b346257.htm/) to worse (2007 http://articles.moneycentral.msn.com/Investing/Dispatch/AppleProfitSoars.aspx/.
The question is who do you replace those executives with and how much better would their decisions be?
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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