I just read local officials’ and candidates’ responses to questions about WalMart in the latest Somerville Scout and thought I would share an insight.
Costco pays its workers an average wage of $17.00 per hour.
Wal-Mart pays its workers an average wage of $11.75 per hour.
Costco’s CEO takes a salary of $350,000 (thousand) per year.
Wal-Mart’s CEO takes a salary of $35,000,000 (million) per year.
While both companies have tens of billions of dollars in annual sales and are profitable and thriving, it is apparent that Costco operates with what one could call “ethics”. Certainly, our local government has an interest in using this novel approach to set some basic ground rules for our free-market business environment.
My suggestion to Somerville elected officials is that we tell Wal-Mart: “Treat your workers like Costco treats their workers, or else don’t bother setting up shop in Somerville. Surely, you can afford to meet our terms for the benefit of your business, and above all for the benefit of our community.”
Here are two entertaining and insightful articles which help to illustrate my insights above:
Slate: Wage Against the Machine: If Costco’s worker generosity is so great, why doesn’t Wal-Mart imitate it?
It’s not hard to make a case that Costco pays employees more. The most relevant comparison is between Costco and Sam’s Club, Wal-Mart’s membership warehouse, since both business models rely on membership fees for a large percentage of revenues. A Sam’s Club employee starts at $10 and makes $12.50 after four and a half years. A new Costco employee, at $11 an hour, doesn’t start out much better, but after four and a half years she makes $19.50 an hour. In addition to this, she receives something called an “extra check”—a bonus of more than $2,000 every six months. A cashier at Costco, after five years, makes about $40,000 a year. Health benefits are among the best in the industry, with workers paying only about 12 percent of their premiums out-of-pocket while Wal-Mart workers pay more than 40 percent.
NYTimes: How Costco Became the Anti-Wal-Mart
But not everyone is happy with Costco’s business strategy. Some Wall Street analysts assert that Mr. Sinegal is overly generous not only to Costco’s customers but to its workers as well.
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.”
This knack for seeing things in a new way also explains Costco’s approach to retaining employees as well as shoppers. Besides paying considerably more than competitors, for example, Costco contributes generously to its workers’ 401(k) plans, starting with 3 percent of salary the second year and rising to 9 percent after 25 years.
ITS insurance plans absorb most dental expenses, and part-time workers are eligible for health insurance after just six months on the job, compared with two years at Wal-Mart. Eighty-five percent of Costco’s workers have health insurance, compared with less than half at Wal-Mart and Target.
Costco also has not shut out unions, as some of its rivals have. The Teamsters union, for example, represents 14,000 of Costco’s 113,000 employees. ”They gave us the best agreement of any retailer in the country,” said Rome Aloise, the union’s chief negotiator with Costco. The contract guarantees employees at least 25 hours of work a week, he said, and requires that at least half of a store’s workers be full time.
Workers seem enthusiastic. 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.”