The must-read capitalist profile of the week is BloombergBusinessweek's look at Costco and its CEO, Craig Jelinek. Costco is the second-largest retailer in America, after Wal-Mart. Their business practices could hardly be more different.
Jelinek's philosophy is “As long as you continue to take care of the customer, take care of employees, and keep your expenses in line, good things are going to happen to you.” Whereas Wal-Mart keeps its expenses in line at the cost of employees, by voraciously opposing organized labor and keeping wages low, Costco has a good relationship with unions, and pays its workers far better. From the profile:
Despite the sagging economy and challenges to the industry, Costco pays its hourly workers an average of $20.89 an hour, not including overtime (vs. the minimum wage of $7.25 an hour). By comparison, Walmart said its average wage for full-time employees in the U.S. is $12.67 an hour, according to a letter it sent in April to activist Ralph Nader. Eighty-eight percent of Costco employees have company-sponsored health insurance; Walmart says that “more than half” of its do. Costco workers with coverage pay premiums that amount to less than 10 percent of the overall cost of their plans. It treats its employees well in the belief that a happier work environment will result in a more profitable company. “I just think people need to make a living wage with health benefits,” says Jelinek. “It also puts more money back into the economy and creates a healthier country. It’s really that simple.”
Costco's CEO is paid less than Wal-Mart's CEO. Costco's CEO lobbied the administration to increase the minimum wage. About 15% of Costco's employees are unionized, versus 0% of Wal-Mart employees. Costco prefers to promote its low-level employees from within— "Seventy percent of its warehouse managers started at the company by pushing carts and ringing cash registers."
And lest you think all of Costco's niceties must necessarily decimate their investors, Costco's stock price is up by 62% over the past five years; Wal-Mart's has risen by less than half that.
Paying employees a living wage, keeping executive pay somewhat reasonable, and still being a successful retail business. Imagine that.
[BloombergBusinessweek. Photo: AP]