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April 23, 2007

Circuit City: The New American Way?

Just imagine if every struggling company in America adopted Circuit City's business practice of terminating all its higher paid - and older - workers for younger, less salaried help?
America would change overnight.
It is a U.S. tradition that older workers, by and large, have more responsibilities and are paid a higher salary than younger workers.
Older workers have home mortgages, college tuition for children, and other family expenses like their parents' elder care.
In fact, according to David Leonhardt's recent column in the New York Times, a typical worker in his 60s earns about 50 percent more than a worker in his early 30s.
As Leonhardt points out, the economic arrangement allows Americans to enjoy "ever-rising living standards over their lives."
But is it fair? Circuit City's termination of 3,400 older workers has produced a new economic dynamic, one that says while older workers might be more experienced than younger workers, they aren't necessarily 50 percent more productive. So why should older workers be paid 50 percent more?
By Circuit City's logic, companies are "underpaying their younger workers and overpaying their older ones, " according to Leonhardt's article.
Some may call Circuit City's course of action un-American. I, for one, find it hard to swallow that a $20 an hour worker, with 20 years of experience, could be dismissed overnight for a $10 an hour worker. Loyalty means nothing. At the same time, what is a struggling company to do to stay in business, if it has no measurable way to determine if one employee is better than another at selling its products?
If this is the wave of the future, however, private companies like Circuit City, Best Buy and Wal-Mart might find it hard retaining any employee for a long period of time. I would think a turnover business would produce low employee morale and results.
Still, I can see where Circuit City's point might catch on in corporate America. With cut-throat global competitiveness driving many decisions, companies are doing all they can to reduce inefficiencies. At the end of the day, when they've cut expenses to the bone (more and more are ending company-paid pension plans and health insurance), the only other way to make a profit for shareholders is to cut pay roll.
One place where this cold-hearted cost-cutting hasn't caught on is in the public sector. Government employment at every level is becoming more attractive for workers because of the taxpayer-funded benefits. Where else could older, experienced workers get paid for unused sick days and longevity, even though their productivity might remain the same as the first day they were hired? Where else do workers get annual pay raises, even when municipalities are facing deficits?
Come to think of it, is a state-certified teacher with five years in the system really worth only half the pay of a state-certified teacher with 20 years experience? Is that teacher only half as productive? Of course not.
In fact, some people like me would argue that the younger teacher has more energy and upside than the older teacher.
Why should a veteran custodian of 20 years be making $45,000 a year, when a custodian with two years in the system only earns $28,000? Is the veteran pushing the broom any more productively than his younger counterpart? Of course not..
Sadly or wisely, private companies are starting to make hard and harsh financial decisions that could change the economic order of things in America's workplaces. Circuit City is the first and it won't be the last.
Eventually, Circuit City's message must filter down to the public sector, because the bloated benefits packages and skewed salary structure can't be sustained by taxpayers.

Posted by JimC at April 23, 2007 3:37 PM