1. In evaluating whether or not the replacement of highly paid workers with lower –paid worker at Circuit City caused them to perform poorly I found several factors that lead me to believe this to be true. Circuit City started off being the number one retailer of electronics. It was faced with competition from Best Buy and other large retailers such as Wal-Mart. Circuit City was forced with making changes within the company to keep their position within the market that they didn’t take. In 2003 Circuit city announced the layoff of 3900 workers, following this announcement opening stock price from 2001 to 2003 declined significantly.
Also, in 2007 Circuit City fired 3,400 of the highest paid store employees at that same time their customer satisfaction index declined. Circuit City’s compensation strategy was in direct correlation to the business tactic, it rewarded its knowledgeable top performers. Circuit City never considered that by eliminating top earning sales people for less experienced sales people that it would have an indirect effect on the company as a whole. No longer to do they employ skilled and knowledgeable professionals whom customers relied on. Ultimately, managing total compensation strategically means fitting the compensation system to the business and environmental conditions.
2. Pay is a powerful signal of change; it plays two roles in any restructuring. It can be a leading catalyst for change or a follower of change
Best Buy has made an internal decision to cut labor cost by demoting 8,000 senior sales associates to position of lower pay. They will also close 50 stores and cut 400 corporate jobs to aim to cut $800 million in cost. While Best Buy is now experiencing current difficulties I would not point my fingers at the compensation changes they have made as being the culprit of their difficulties. In looking at the data of stock prices and customer satisfaction Best Buy customer satisfaction index dropped from 2009 to 2010. I believe this is due to the increasing amount of discount retailers such as Amazon and Wal-Mart who sell the same consumer electronics at discounted prices. Best buy already had a compensation strategy that was derived of younger less experienced people who made lower wages and smaller bonuses. They prided themselves on sales and quality while companies such as Wal-Mart and Amazon specialize in delivering low cost product to the consumer.
Best Buy began losing sales of expensive items like TV’s. Customer could now go to stores like Wal-Mart and Target and get cheaper TV’s off the shelf. The company made a valuable decision to take on a new compensation strategy.
3. Wal-Mart’s mission statement is people saving money living a better life. Sam’s Club mission is to make savings simple for members by providing them with exciting, quality merchandise and a superior shopping experience, all at a great value. Costco mission is to continually provide our members with quality goods and services at the lowest possible prices. Wal-Mart, Sam’s club and Costco are doing better than stores like Best Buy because these stores specialize in delivering low cost product to the consumer with no frills customer service. They are able to undercut the prices of Best Buy and Circuit City thorough superior supply chain.
4. Best buy faces competition not only from Wal-Mart and Target but also online stores such as Amazon. Consumers can purchase more than electronic items from these stores because they have a vast inventory of products ranging from clothing, food to household goods. These products are often offered at much lower prices