Press Releases


Issued March 3, 2009

Cut Backs – The New Fashion Statement
By Janis Martinez, President, Ashford Management Group, Inc.

753 people eliminated from this retailer, 2000 from another; this is the continual message these days. The big question is how are these decisions being made? Highly compensated people with the elevated base salaries, plus all the paid perks, are cut lose; who is measuring the loss? Many companies have done just this. They remove all the executive vice presidents and put all the vice presidents in the jobs without the title or the benefits. The company thinks of saving money, but what is the ultimate cost to the organization? This is happening across the retail arena. And this begins the brain drain.

The quagmire is the companies didn’t figure out how to transfer the knowledge and experience to those vice presidents. We have not nailed down the science fiction concept of brain transference. Most of these firms are currently reaping the ravages of this type of short-sighted decisions. These short-sighted decisions have actually caused many companies to fold. It is important to remember “The Wealth of a Company is measured in its People.”

Example, if these retailers, cut the senior sourcing person, go with an individual lower down the ladder, when it comes to communicating with the factories and cutting deals, the relationships are gone and must be rebuilt along with the trust, understanding the company direction, and ability to negotiate for the best price. Many layoffs target top performers, thus hurting the company’s future viability.

The Welch theory of loping off the bottom 10% may finally be a good method of making these decisions. Poor performance equates to being downsized. What a creative concept! Those in the ranks who continually outperform the masses should be the ones who stay. It is plain common sense, so why aren’t companies using this?

This is not saying that all retailers are eliminating people willy-nilly, but based on the people in the job market, some of these decisions were not based on performance they were based on compensation. When an employee has continually performed in the excellent categories, why should this person be cut? It makes no sense. Many times they are highly compensated because they have given high value back to the company.

When making these decisions, all performance reviews should be in front of the executives making these cuts, not just salary and benefit remunerations. A good review beats a poor one and an excellent review should win the game.

A company must have a clear understanding of how to replace the brain trust the firm is eliminating. When the company is eliminating a highly valued person, and it must make these decisions based on the long term strategic plan they have for the company. When a person tests well, it does not mean that they can execute plans or manage people with the finesse of more senior people. Excellent managers, people who can develop others, mentor the greenies and implement the strategies are some of the most valuable people in the organization. They are the foundation of the company.

Take a close look at your long term plan before implementing layoffs. "The Wealth of a Company is Measured in its People." Weigh the value these people have brought to the bottom line, weigh carefully.