2013-06-14

Is Costco Secretly A Social Enterprise?

In the labor-pinching world of retail, it just might be.

"I just think people need to make a living wage with health benefits," Craig Jelinek told Bloomberg Businessweek, a practice which "puts more money back into the economy and creates a healthier country. It’s really that simple."

Those idealistic thoughts on economics may sound like they were uttered from the lips of a labor activist, liberal arts student, or social entrepreneur. But Jelinek is none of the above: he’s the CEO of Costco, the nation’s second largest retailer after Wal-Mart and a company better known for selling massive amounts of cheap stuff you won’t need than serving as a model for great labor practices.

But journalist Brad Stone paints a rosy portrait of the company whose treatment of employees couldn’t be more different than its competitors. For example:

Despite the sagging economy and challenges to the industry, Costco pays its hourly workers an average of $20.89 an hour, not including overtime (vs. the minimum wage of $7.25 an hour). By comparison, Walmart said its average wage for full-time employees in the U.S. is $12.67 an hour, according to a letter it sent in April to activist Ralph Nader. Eighty-eight percent of Costco employees have company-sponsored health insurance; Walmart says that "more than half" of its do. Costco workers with coverage pay premiums that amount to less than 10 percent of the overall cost of their plans.

A 59-year-old retail worker interviewed for the story makes more than $50,000 per year, plus a 401(k) and five weeks of vacation annually. But not all of the employees are competitively paid: Jelinek himself made less than $5 million last year, when combining his salary, bonus and stock options. That sounds pretty cushy, but compared to Walmart CEO Mike Duke’s $19.3 million haul, it’s peanuts. When you’re paying employees a living wage, somebody has to take a pay cut.

Costco’s philosophy is an old-school one piloted by Ford: workers work better and quit less when they’re paid a respectful salary, and It’s possible that less turnover can save the company money. Its commitment to treating their employees well extended during the economic downturn, when they made the unconventional move of giving their employees a raise, at a cost of $20 million to the company. In the words of the company’s CFO: "Could Costco make more money if the average wage was two or three dollars lower? […] The answer is yes. But we’re not going to do it."

At the heart of Stone’s article is an important—and unanswered question:

"Can the rest of corporate America become more like Costco? Or will Costco, buffeted by the same disruptive changes affecting all of retail, be forced to become more like everyone else?"

At a time when jobs in retail are some of the only ones to come by, let’s hope it’s the former.

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6 Comments

  • Nick Temple

    "Not the same thing, as Andy H says" is what I meant.

    Cheers

    Nick T, Social Enterprise UK
    @nicktemple1:twitter 

  • Nick Temple

    Short answer to the question in the headline: no. It's a company that's trading a bit more ethically (at least according to the article above) than competitors in the same field. Not the same thing as Andy H says...

  • msttfn

    I am a long term employee---Many people tell me that shopping at Costco makes them feel good, because employees are well compensated.

  • Andy Horsnell

    The picture presented in this article would indicate that Costco is operating as a good employer -- what every company should aspire to.  To be a social enterprise, Costco's over-arching purpose would need to be addressing some defined social, environmental, or cultural issue. So, yes to good company, no to social enterprise.  

  • Sai Das

    "Can the rest of corporate America become more like Costco?" Yes it can, but not without a major change in corporate consciousness which doesn't come quickly or easily.