Analysts to Costco: Stop treating your employees so well

CostcoYou’d think that if a company treats its employees well (a lot better than their competitors) and gets great business results because of it, that this company and it executives would be celebrated and praised for it.

You’d be wrong.

The New York Times has a great article about Costco, the huge American chain of supermarkets who spend much more on their employees than their main competitors:

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.

According to Costco’s CEO Jim Sinegal, this makes good business sense:

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.”

The results are pretty impressive:

Costco’s stock price has risen more than 10 percent in the last 12 months, while Wal-Mart’s has slipped 5 percent. Costco shares sell for almost 23 times expected earnings; at Wal-Mart the multiple is about 19.

So how do stock analysts react to this? They tell Costco to start treating their employees worse:

Emme Kozloff, an analyst at Sanford C. Bernstein & Company, faulted Mr. Sinegal as being too generous to employees, noting that when analysts complained that Costco’s workers were paying just 4 percent toward their health costs, he raised that percentage only to 8 percent, when the retail average is 25 percent.

“He has been too benevolent,” she said. “He’s right that a happy employee is a productive long-term employee, but he could force employees to pick up a little more of the burden.”

This makes zero sense to me – but it illustrates two things perfectly:

  1. Traditional business thinking in some areas still regards employees as resources, that like any other corporate item must be bought as cheaply as possible.
  2. Executives who believe in treating employees well are faced with pressure from analysts and the stock market to stop doing so and start being more like anyone else – regardless of the results their strategy has been getting them so far.

This is partly why Jim Goodnight, the CEO and owner of software company SAS Institute refuses to take his company public; he knows that it would become much more difficult to keep SAS employees as happy as they currently are (read about how SAS keep their employees happy).

One company did manage to go public and keep their identity: Google. When they announced their IPO, founders Brinn and Page made it very clear that they would continue to run the company their way. They promised to go on treating their employees extremely well and making long-term decisions rather than living from quarter to quarter. If investors didn’t care for that, they were kindly requested to take their money elsewhere. Google being Google, investors flocked to buy the stock anyway – less famous companies might not get away with this approach.

To me, it makes perfect sense that treating employees well makes them happy and that happy companies make more money – and this is backed up by many studies. To give one example, the 100 best companies to work for in the US, have outperformed the general stock market by a factor of 3.

It’s time that investors and stock analysts realized this and started demanding of companies, that they make their employees happy. This not only increases profits, it’s one of the best and most efficient ways to do so.

UPDATE: Turns out the highly up-to-date article from the NY times I reference is 2 years old. So much for my amazing powers of observation :o) Fortunately the tendency still holds and Costco still treat their people better AND outperform Walmart on the stock market.

34 thoughts on “Analysts to Costco: Stop treating your employees so well”

  1. I think the analysts are siding with someone that they advised Costco to start treating their employees worse. It’s clear in the results that Costco has an increase in stock price because they treat their employees well.

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  3. Great entry, Alex. Especially the way you wrap it up: “…demanding of companies, that they make their employees happy. This not only increases profits, it’s one of the best and most efficient ways to do so.”

    Sounds like the start of another manifesto to me.

    Terry

  4. great post, buddy. wall st. tends to look at everybody but themselves as resources.

    i first heard about costco in the late 90s when a friend went to work there, and they were one of the first models that i was aware of that took the long-term perspective and treated their employees well. very inspiring!

    kareem

  5. I suspect the analysts don’t even think of employees as servants or resources. They think of them as costs: to be eradicated, if possible, and minimized, if not.

    That’s the accountant frame of mind that we have allowed to happen by treating business as purely about money and ignoring its social and community impact.

    Nothing will change until we demand that work becomes more civilized.

  6. It makes perfect sense if you’re focused on money, don’t believe in employee-driven productivity, and regard employees as infinitely interchangeable and replaceable.

  7. Bravo to CostCo! This kind of company thinking is what Capitalism should be. The idea that a happy employee is a good employee is a self evident fact. I’m glad that somebody actually realized it.

    On another note, it’s obvious that the something has got to change on wall st. The idea of cruelty turning profits screwed up on multiple levels. If an employee hates his or her boss, she may be tempted to sabotage aspects of the company, at worst, or they may simply become less concered with the quality of their work, a best.

  8. Happiness will always prevail. Those analysts don’t know how happiness affects the performance of employees. Perhaps they didn’t experienced having wonderful bosses who treat they well.

  9. Another good example of paying employees well and getting great results is IN-N-OUT Burgers in California. They start their hourly employees at $11 per hour and store managers can only be promoted from within. If you want to be a store manager at the company, you must first be an hourly worker. How’s that for democratic capitalism?

    They’re not public but a good example of how even a burger joint can do the right thing.

  10. There’s a lot of reason why businesses fail to achieve greatness over their competitors and I think treating employees well isn’t one of them. I believe that happiness is a positive factor in the success of business and not a hindrance.

  11. Charlie: I agree! Costco certainly think so themselves. I’m sure they’re terribly nice people, but I’m sure thyy wouldn’t do it if they didn’t think it was good business.

    Alec: It is. But it doesn’t have to be!

    Tobey: Er… Thanks :o)

    Kareem: Thanks for another great example. Craigslist is yet another company that Wall St. just doesn’t get.

    Carmine Coyote: “the accountant frame of mind” – that’s it exactly! And not only is it bad for us, it’s costing businesses a lot of money!

    Jean-Luc: Thanks for that – I’d complete missed the fact that the article is ancient. However… little seems to have changed in either the way Costco treat their people or how Wall St. treats Costco :o)

    Bill: Heh :o)

    Abomination: I agree – something has to change in Wall St. The question is, what till it take to change their obsolete mental model?

    Howie: Yeah, maybe that’s it :o) Or maybe their world is just too focused on money – tho the point where they forget that this means that they MAKE LESS MONEY!

    Will: Not bad for a burger joint. I hear the burgers are pretty good too :o)

    Helen: You’re right and studies confirm this!

  12. I am a costco employee and believe me wages aren’t everything. There are people taking tremendous advantage of the system and costco probably don’t change things because they don’t want to lose face.

  13. Costco does treat it’s employees well, when compared to other retail giants. If they did not, there is no way that I would be a Costco employee. I am a retail slave based on the fact that I got laid off during the biggest unemployment issue of the last 20 years. Costco hired me, and after 6 months gave me a $15 copay and $3 generic prescriptions at 25 hours a week. While at times I feel like going to work, makes me lose a bit of my intelligence(i’m a cashier so its beep beep beep, that kills brain cells I think). I at least give them the credit for taking care of us outside of work….I NEVER EVER EVER thought I would work in retail…but hey at least i don’t work for wal-mart!!!!!!

  14. It’s great that they pay us Costco employees well and our benefits are better than Wal-mart.. Money isn’t everything though and the work environment some of us are subjected to is horrible . If you dare to complain about vulgarity or selective enforcement you are told to stop whining and “they’re not babysitters” . If I could go work someplace else for the same amount of money in my field I would, but I am trapped by the “good pay and benefits” . Their managers have little or no training in management and I only wish I could record what goes on in my workplace and sell it to 60 minutes.

  15. Low morale. No work incentive. They don’t post jobs. Suddenly discover an employee has a different job. Never hear about the good you do, only the negative. Procedures change depending on the day. Mgt is always too busy to sit down and listen to what you have to say. Somehow no matter what you say, it’s always you that needs to improve. The “open door policy” really is a joke. Once you have an issue that needs attention, your labeled as a “problem child”. No communication from Supv. Easier to write up when something was incorrect instead of explaining how to do it correctly. No leadership from Supv. Treats an individual employee based on “other” employees. If one employee stands around or can’t prioritize, the rest get classified as such. Never have weekly or monthly meetings to ensure we’re all on the same page. It’s easier to be critical of an employee. Just once I’d like a pat on the back for a job well done but instead I get spoken to for not doing a procedure I wasn’t told about. Supv is never held accountable for bad supervisory skills. No positive reinforcement. No privacy on a performance review-instead its done in the office with about 15 people coming and going so everyone can hear what’s being said. My review that I did on myself was not even read by my Supv. never compared w/what he or she had written yet an asst mgr signed it prior to this review obviously agreeing to Supv comments without knowing what I had to say. I questioned my Supv about reading it, wasn’t concerned with it. I spent 3 hours on it the night before to have it stapled to the back of the Supv’s copy. I then had to ask for a copy as I wasn’t getting one unless I asked. I work very hard and have gone above & beyond many times to which I’ve been told by members how thankful they were and yet I’m told I need to improve in member service. I come into the dept and do what needs to be done before the doors open, within minutes I’m able to assist a member and yet I’m told I need to improve to be “showtime ready”. Costco’s management will beat you down every time, they lose excellent employee’s because of the way they treat employee’s. I would not recommend anyone asking for a job to apply at Costco. Since I’ve started there over a year ago, I’ve missed out on family outings and dates with my husband as I work mostly nights and all weekend rather than mix up the schedule to give me some family time. Family isn’t important when you work for Costco. I have to laugh when I read the “Costco Connection” and articles about CEO Jim Sinegal’s vision of Costco. If he only knew. He needs to visit his warehouses and meet with employees on a one on one with no manager to understand how his employees are being treated. I work here because it’s the only job I could find once the prev company I worked for closed their doors. While I’m thankful to have a job its difficult waking up each morning to a new day with Costco being fed the same negative bull. I want to love where I work, I want to love my job. I work on having a positive attitude every day but management has a way of bringing you down. By the way I agree with the previous reviews, it’s funny that we all seem to share the same experiences when I’m assuming we work in different states. So please please………Costco might be growing but so is their reputation for the way they treat their employees.

  16. I work at Costco and everyone I work with is willing to work hard and loves their job because of the benefits. Also they make the probationary period a lot harder to pass because the benefits are so good.

  17. To: costco emloye Said,

    Certainly you probably didn’t have basic education. First of all is not “emloye”, it is employee. Also, you should have written “said” or “says” instead of “Said”. Well, me as a Costco employee I can say that this is a great company to work for. The open door policy is well practiced – of course like in any company there is always flaws floating around – but there is always a quick response at corporate levels. Now, Costco is being more cautious when hiring new employees. There is most of the time a group of 3 to 5 managers involved in the hiring process. They are focus on hiring employees with strong positive attitude, college students, strong communication skills, etc. Before, they did not spend the time to analyze to find the right candidate. That’s why we now find employees like “costco emloye Said”. There are certainly employees like this guy/girl in many warehouses. Employees asking for more incentives. They do not realize that the salary they earn every two weeks exceeds current competitor employees salaries like Sam’s Club. Even way more than Walmart, Target, Bloomingdales, Banana’s Republic, Ralphs, Albertsons employees + at one point they will receive two bonuses a year. I am very grateful to Jim and the great group of people around him. Now with Craig Jelinek, Costco will continue its success by treating its employees very well and educating them to provide the best member service.

  18. COSTCO “USED TO” TREAT THEIR EMPLOYEES WELL. IN RECENT YEARS IT’S BECOME A SICK JOKE, THEY DON’T; GIVE A RATS ASS ANYMORE. IT’S ALL FAVORTISM- AFTER YEARS OF WORKING THERE YOU GET STUCK CUZ OF THE PAY, BENEFITS ETC.

    THE MANAGEMENT ARE SICK SOUL-LESS PRICKS- THEY LIE TO THEIR WORKERS AND MAKE THEIR LIVES MISERABLE!

  19. Costco is the word in legal suites these days. They have to pay well because they abuse the employees and disregard if the employee has medical issues. The chairman bullies, and so do the management for the most part. They need to pay high and give good benefits because they are very abusive behind the warehouse doors.

  20. I do not work for Costco, but have many friends that do since their a re quite a few of their stores in my area. Costco does pay well, but since their new CEO took over, they are now badly micro-managed. Benefits cut, inane rules bought in and enforced, frustrated management, typical of someone trying to improve the bottom line. Why? Costco is doing great, look at their stocks. The old CEO, who will remained unnamed, did a much better job with regard to the employees and Costco was a much happier company under him.

  21. Costco will continue to grow sales and profits, and is the premier retailer in the World today, because it takes care of their employees, and under the leadership of our new CEO Craig Jelinek, that policy will continue, he was mentored by Sol Price and James Sinegal, two of the best “merchants and people persons in the field of mass retailing.” Feel free to read this article:

    http://ezinearticles.com/?expert=Ray_Lanfear

  22. i work at costco and it is the best job in the retail industry. The work is physically but competitive pay. Its a rewarding job 11.50 a hr is the starting wage currently. Premium pay on sundays

  23. I agree that costco employees are treated well as far as wages go… On paper I was part time but continually skirted the line of full time despite not signing up for or desiring that many hours. Additionally I feel that the automatic wage growth also paves the way for lazy employees who relax into their positions as their wages increase. Not everyone is this way but seasonal and new workers pick up the slack and also get the least amount of pay. Such treatment has inspired hard workers like myself to work elsewhere in order to receive recognition on merit not hours logged.

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