The Rest Of The Circuit City Story

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So I'm enjoying reading The 101 Dumbest Moments in Business, 2007 (via Joe Sherlock) And then I come across the answer to an earlier post about Circuit City's novel approach to cost cutting -- firing the highest paid, i.e. the best, salespeople:

Since I'm not one of the people being fired, I can be detached and think that this will provide a nice economics case study in cost cutting. Arguably (i.e. I'm leaving wiggle room for later) it will be used as a case study in business school - but I will leave it up to an excercise for the reader to decide if it will be held up as an effective, an ineffective, or a disastrous way to cut costs.

And now, the rest of the story:

In a cost-cutting move, Circuit City lays off all sales associates paid 51 cents or more per hour above an "established pay range" - essentially firing 3,400 of its top performers in one fell swoop. Over the next eight months Circuit City's share price drops by almost 70%.

I think, unsurprisingly, disastrous is the final answer. I guess companies will go back to laying off the bottom performers instead of the top.

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This page contains a single entry by Kevin Murphy published on March 20, 2008 10:51 AM.

Men and Women, Scene 537 was the previous entry in this blog.

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