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July 17, 2005
Costco Reaps Benefits of Engaged Employees
The discount retailer Costco (operating primarily in the US but also in Canada, Britian, South Korea, Taiwan and Japan) comes under frequent criticism by analysts for being TOO generous with its employees. Costco's average pay, for example, is US$17/hour, which is 42 percent higher than its biggest rival. Part-time workers are eligible for health insurance after just six months on the job, compared to a two-year minimum at Wal-Mart.
While analysts say the company should return some of that money to shareholders instead of doling it out to employees, their actions speak differently: Costco's share price has risen 10 percent in the last 12 months, while Wal-Mart's has fallen 5 percent. Costco's chief executive, Jim Sinegal, has instructed his HR department to maintain wage and benefits packages that are not just "better than everybody else," but "demonstrably better than everyone else" according to a recent interview.
I have to believe, however, that there is more to the Costco story. Simply focusing on pay and benefits might result in higher levels of engagement over a very short period, but there needs to be more for this to be sustainable. Studies over the years have actually proven that if companies focus on maximizing engagement of their employees, they can actually pay them BELOW market rates.
I'm guessing that Costco has realized its success not only because of the high pay, but also its training of managers and involvement of employees in relentlessly keeping prices down. If anyone has a perspective on this, I'd be interested to hear it.
Posted by Christopher at July 17, 2005 3:53 PM
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Comments
There was an article a few months ago - heck, it might be a year ago now - that compared Sam's Clubs to Costco. It was frightening, how well Costco did in that head-to-head competition.
You treat people well, and they will work hard for you.
Plus, Costco hot dogs rock.
Posted by: Jeremy Pepper at July 18, 2005 11:40 PM
Costco is proof positive that you can still make a profit AND pay your employees well. Paying a living wage is definitely where building loyalty begins. Where was the study done that said you can pay below market rates and have maximum engagement? India?
Posted by: B.L. Ochman at July 21, 2005 1:07 PM
I am a 13yr. employee of Costco. Yes, we are taken care of and in return we take care of our members. I cannot say enough of how well we are treated. I am on the virge of wanting to quit due to a progressing medical condition. BUT I was told that as a Company they will help me find something to do at work without having the pain and worries of whether I am failing Costco. Thank You Jim (OUR CEO) for your wonderful attitude you are truly amazing!!!
Posted by: S. Simmons at September 2, 2005 4:25 AM