Cheap Lobster, Rich Employees

In this piece by John McDuling of Quartz, the author discusses and examines President Obama’s recent public affinity for Costco outlet stores in America.  Shortly after delivering his State of the Union address on January 28th, Obama toured the shiny linoleum floors of an outlet in the suburbs of Washington D.C.  On numerous occasions, the president has lauded the wholesale retailer’s high-paying jobs for all of its employees.  The average wage for a Costco employee is $20.80 per hour, which is nearly triple the $7.25 per hour minimum wage and higher than Wal-Mart’s $12.67 per hour.   During his tenure, Obama has been a staunch advocate for raising the minimum wage for the average, blue-collar working American.

Personally, I have never set foot in a Costco but I invest in the company with my own meager college money.  Costco has a potent double-edge competitive advantage over its wholesale retailer peers: higher worker productivity and a lower salary gap.  Akin to Henry Ford’s generous “$5-a-Day” innovative pay structure in 1913, Costco is paying its average workers double the wage of similar jobs in order to boost productivity.  Quite simply, when workers look forward to a meaningful and enjoyable workday, they tend to perform more efficiently and effectively.  Just think about your favorite college course or professor lectures – you tend to have higher participation rates, write higher-quality papers and receive higher marks.  You not only improve yourself as a student, but widely benefit classroom engagement and intellectual richness.  Moreover, the new CEO of Costco earns $650,000 per year while Wal-Mart’s CEO earns $1.3 million.  The mere fact that the former company exhibits stronger growth and profitability at lower executive pay rates is very admirable.

For both stakeholders and shareholders, the generous Costco salary model is an enlightening business tool for America.  The company’s various stakeholders, including shareholders, board members, shoppers and local communities, value the unique pay model as it has proven to be an effective business model and encouraged an enticing shopping experience.   Shareholders are also rewarded in the superior market returns of its share price.  While raising the country’s minimum wage affects a multitude of other economic factors, such as inflation and pocketed unemployment, Costco represents perhaps the best salary model of today.


8 thoughts on “Cheap Lobster, Rich Employees

  1. Scott,
    I really enjoyed reading your piece on Costco. Living in the northeast, I have done my fair share of shopping at Costco. It never seems to amaze me how courteous the staff members are and that I have never seen one who is remotely unhappy at work. I have also read various articles about Costco’s employee wages and benefits. The company truly takes care of its employees, and in turn, the employees take care of the company. I am hoping that the somewhere in the near future, other corporations will adopt business models similar to Costco’s. Keep up the good writing and I look forward to reading your next blog.

    • It is interesting to see a mini movement of firms seeking higher-wage strategies as a win-win-win.

      I recall Wal MArt in the 1980s was known for its service and it was sort of true. But in last 20 years, if I go in, I can never find help. Sure, there is the greeter, but that usually makes me feel sad that they are older people who have to work because maybe they don’t have much retirement….

      They should be smiling at their grandkids, not me.

  2. I was interested in reading your thoughts on Costco. I’ve shopped at Costco quite a bit over the years and have always been impressed at not only how efficient their processes seemed, but how friendly and eager the employees were to help customers. After reading your post, I understand this a bit more. It is great that Costco is able to demonstrate how focus on employee satisfaction can greatly benefit a company. It can be a large risk to pay employees so much more than competitors. In the long run, it is clear that this decision can pay off.

  3. Wal-Mart is a much larger corporation overall than Costco. THe best apples to applies comparison is with Sam’s Club, but I don’t know if WM disaggregates data for those outlets. This is mostly relevant for the salary comparison.

  4. Here is a link I made on Stakeholder blog to the article. One aspect i find fascinating is that Cascio quotes some investment analyst type who, despite the plain evidence staring him in the face that Costco outperforms Sam’s club, insists Costco is “giving” too much to workers.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s