The Costco story: good employers get good results
Early in my working life, I was employed for a local plastics manufacturer. Among my responsibilities, I was charged with the happy task of planning an annual recognition dinner for longterm employees. It was a big event because we had many 15-, 20-, and 25-year veterans in the work force. Sadly, the concept of longterm employment seems almost quaint today, but at that time, it was held in high regard by both employers and employees alike.
The employment landscape has changed considerably over the last two decades. By and large, neither employers nor employees seem to have much loyalty to each other today. The influence of Wall Street has been corrosive. With companies facing intense pressure to maximize each quarter's results, many have found that mass layoffs and outsourcings have met with approbation in the form of a few penny gain in stock price. This tendency to immediate gratification has had other negative consequences on the business climate, as well. It appears that at least a few business executives may have sufficient time to meditate on these matters from the privacy of their jail cells.
Breaking away from the herd
It's a breath of fresh air to read a business success story about Costco, a retail company that is bucking this trend, and its forward-thinking CEO, Jim Sinegal. In a New York Times article entitled How Costco Became the Anti-Wal-Mart, Steven Greenhouse reports on how the company’s strong commitment to its employees has enhanced its mission to provide excellence in quality, service, and pricing for its customers:
Costco's average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam's Club. And Costco's health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco "it's better to be an employee or a customer than a shareholder."
Mr. Sinegal begs to differ. He rejects Wall Street's assumption that to succeed in discount retailing, companies must pay poorly and skimp on benefits, or must ratchet up prices to meet Wall Street's profit demands.
Good wages and benefits are why Costco has extremely low rates of turnover and theft by employees, he said. And Costco's customers, who are more affluent than other warehouse store shoppers, stay loyal because they like that low prices do not come at the workers' expense. "This is not altruistic," he said. "This is good business."
While the article doesn’t mention anything about workers comp, if we had to guess, we would think that Costco probably outperforms others in its industry in this regard, too. We generally find that employers get the workers compensation results they deserve.
Does good management pay off?
Does Costco's employee loyalty and social responsibility pay off? Don't investors favor the Chainsaw Al approach to employee management? Apparently not:
Costco's stock price has risen more than 10 percent in the last 12 months, while Wal-Mart's has slipped 5 percent. Costco shares sell for almost 23 times expected earnings; at Wal-Mart the multiple is about 19. Mr. Dreher said Costco's share price was so high because so many people love the company. "It's a cult stock," he said.
And despite the company enjoying such success, in Sinegal we have a CEO that earns somewhere in the neighborhood of a half million dollars a year, salary and bonuses combined - a pittance for the CEO of a company that ranks in the top 30 of the nation's largest revenue producing companies.
Yet some Wall Street gurus are dissatisfied with results. Some think Costco is being too generous to its employees. Some think that raising prices would produce better margins. Go figure – these are the same people that cheered on the high tech bubble.
Meanwhile, some Costco workers are hunkering down for a long stint of employment.
Beth Wagner, 36, used to manage a Rite Aid drugstore, where she made $24,000 a year and paid nearly $4,000 a year for health coverage. She quit five years ago to work at Costco, taking a cut in pay. She started at $10.50 an hour - $22,000 a year - but now makes $18 an hour as a receiving clerk. With annual bonuses, her income is about $40,000.
"I want to retire here," she said. "I love it here."
You can read more on the Costco story at Seattle Weekly's story, Company of the People.
