For Costco, Giving is Winning Means Giving its Employees Financial Payoff for Their Success

For Costco, giving is winning means giving its employees financial payoff for their success.  They are passionate about offering good wages and benefits.  Costco makes many Wall Street analysts frustrated because the bankers see employees as a cost instead of an asset.  And Costco pays their employees well.  Very well.  Of course this pays off in higher productivity, lower turnover, lower health claims and a host of other measures that aren’t as easy for outsiders to pay attention to.  So while Wall Street sees cutting payroll as a way to increase short-term profits, Costco sees their business more like their consumers do.  Recent surveys show that consumers view a corporation’s first social responsibility is to their own employees.  Pay, benefits and job security all matter in bigger and bigger ways in an increasingly insecure work world.  In its category Costco sets the benchmark for treating their employees as partners.

Costco’s Socially Responsible Employment Policies compares Costco’s practices to that of its major competitor, Walmart.  Costco offers employees health insurance including dental even for part-time employees who have been with the company only six months, as opposed to two years or more for Walmart employees. The average pay for a Costco worker is $17 an hour, around 42 percent more than at Sam’s Club.  Costco can do that because its sales per customer transaction are 30 percent more than Sam’s Club.

CEO and cofounder, Jim Sinegal, feels that cutting costs by underpaying average floor workers while the CEO is making from 100 to 300 times more is deplorable. Even with Costco’s successful earnings record, Sinegal’s salary is kept at $350,000 – less than 10 percent of what other CEO’s make. He earns significantly less than his peers. Sinegal does receive a bonus – last year’s was $200,000 – and considers himself well rewarded from his stock holdings. Meanwhile, Walmart’s CEO, Mike Duke’s compensation package for the last fiscal year was around 19.2 million, almost 967 times the average Walmart worker.

Sinegal indeed has a unique leadership approach.  It’s rumored, for instance, that he visits up to 12 Costco stores a day.  While he admits that’s not true for every day, it certainly isn’t uncommon for him.  He was asked in an interview with Fast Company: “You answer your own phone, you send your own faxes, you talk to customers and employees.  What motivates you to stay involved in the details of the business?” Sinegal answered, “Because I love it. I’ve been doing it all my life, and it’s my style. That doesn’t mean it’s the right style or the style that works for everybody, but it’s my style.”

It’s a style that makes Costco a better merchant than its main competitors.  Costco is winning. For FY2010, Costco revenue rose 9% to $76.3 billion.

Costco is also a company that gives big.  They give away 1% of the prior year’s pre-tax earning and donate it to United Ways in communities where they operate, children’s hospitals, and youth-related activities and education.  Every warehouse, for instance, adopts an elementary school in need.  They do a third or fourth grade backpack grogram filled with supplies and encourage employees to tutor one hour a week.

Richard Galanti, CFO recently talked about Costco’s approach to CSR:  “We don’t seek publicity for what we do.  Whether it’s a local newspaper, a regional magazine, or even a national magazine that comes out with the most responsible companies in that area, we are often not on the list.  It may be because we don’t fill out the forms.  We don’t apply to the “beauty contest.”  In addition, once you start touting your “accomplishments”, you are not going to make everybody happy.  There is always going to be some other more extreme view that you are not doing enough…. What Jim [Sinegal] doesn’t want to have is a big 20-person staff in community and development trying to spend half their time figuring out how to allocate money.”  Costco gives the way it sells.  Focus on the value, reduce the overhead cost, and then execute.  For charity, there is more money for the recipients.  For the business there is more money for payroll.

No company is perfect.  It’s true.  And the negative impact of thoughtless acts, unintended consequences and willful greed of business enterprise can be immense.  But over the past five years I have seen genuine change in many corporations.  Today there is a growing commitment by leaders to step up to creating a future that is better for everyone.  No, these effects don’t repair past mistakes or make up for current compromises.  But as Chip and Dan Heath report in Switch, we get people’s attention by protesting, but we get people to change through the good example of successful new strategies put into action.  We all need something to “switch to,” not just be reminded about what we must “switch from.”  Giving is Winning is a “switch to” message.  Good things are growing.  It’s time to recognize them, reward them and insist on more.  Our future depends on it.

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