Costco vs. Wal-Mart

[michael <michael@xxxxxxxxxxxxxxxxx>]

Even though Cosco has been helping gather signatures for Arnold's
efforts to
cut back workers' compensation, the company seems to have been one of
the few
not to embrace hyper-capitalism.  Investors are mad.

Zimmerman, Ann. 2004. "Costco's Dilemma: Be Kind To Its Workers, or Wall

Street?." Wall Street Journal (26 March): p. B 1.
"Wal-Mart Stores Inc.'s parsimonious approach to employee compensation
has
made the world's largest retailer a frequent target of labor unions and
even
Democratic presidential candidate John Kerry, who has accused the
Bentonville,
Ark., chain of failing to offer its employees affordable health-care
coverage.  In contrast, rival Costco Wholesale Corp. often is held up as
a
retailer that does it right, paying well and offering generous
benefits."
"But Costco's kind-hearted philosophy toward its 100,000 cashiers,
shelf-stockers and other workers is drawing criticism from Wall Street.
Some
analysts and investors contend that the Issaquah, Wash., warehouse-club
operator actually is too good to employees, with Costco shareholders
suffering
as a result."
"From the perspective of investors, Costco's benefits are overly
generous,"
says Bill Dreher, retailing analyst with Deutsche Bank Securities Inc.
"Public
companies need to care for shareholders first.  Costco runs its business
like
it is a private company."
"Costco appears to pay a penalty for its largesse to workers.  The
company's
shares trade at about 20 times projected per-share earnings for 2004,
compared
with about 24 for Wal-Mart.  Mr. Dreher says the unusually high wages
and
benefits contribute to investor concerns that profit margins at Costco
aren't
as high as they should be."
"The last thing I want people to believe is that I don't care about the
shareholder," says Jim Sinegal, Costco's president and chief executive
since
1993, who owns about 3.2 million Costco shares valued at $118 million
based on
yesterday's price of $36.96, up 52 cents, in 4 p.m. Nasdaq Stock Market
trading. "But I happen to believe that in order to reward the
shareholder in
the long term, you have to please your customers and workers."


Morgenson, Gretchen. 2004. "Two Pay Packages, Two Different Galaxies."
New
York Times (4 April).
"there are some corporate executives who do not grab for every last
perquisite, who embrace the concept of enough rather than ever more.
James D.
Sinegal of Costco Wholesale is one.  His pay package seems a throwback
to
another era, especially when compared with the lavish compensation of
Henry R.
Silverman of Cendant.  When it comes to pay, Mr. Sinegal, president and
chief
executive of Costco, the warehouse retailer based in Issaquah, Wash.,
seems to
inhabit an alternate universe.  His salary last year, $350,000, was not
much
different from the $300,000 he earned 10 years ago.  He received 150,000
stock
options last year but has refused a bonus in each of the last three
years.
The terms of his employment contract could fit on a cocktail napkin."
"A 2000 survey by Towers Perrin, the consulting firm, found that the pay
of
chief executives, on average, was 531 times that of their lowest-paid
rank-and-file workers.  But Mr. Sinegal's salary is less than 10 times
that
earned by his company's top hourly employees and roughly double the
salary of
a Costco warehouse manager, he said."
"While Mr. Sinegal keeps a lid on his own pay, his company is known for
providing salaries and health care benefits to lower-level workers that
are
higher than average for the industry.  For example, Mr. Sinegal said, a
forklift driver at the company typically makes more than $40,000
annually,
after three years on the job.  And Costco pays 92.5 percent of
employees'
health care costs."
"We just believe firmly that if you're taking care of your customers and

taking care of your people, you're not too far off target," Mr. Sinegal
said.
"The profits will come and you'll be successful."
"One measure of how this approach succeeds is found in the rate of theft
by
customers and employees at Costco stores - what the retail industry
charmingly
calls shrinkage. Mr. Sinegal says such losses run under two-tenths of 1
percent at Costco each year.  Other companies have 10 to 15 times that
amount
of theft."
"But Mr. Sinegal countered that it is just good business. "If you're
going to
say to all the people that you're working with, 'We want you to treat
the
customers honestly; don't lie and don't cheat,' it is somewhat
hypocritical if
you're not following the same rules," he said. "Everybody is watching
you
every minute anyways.  If they think the message you're sending out is
phony,
they're going to say, 'Who does he think he is?' It's again good
business.
But it is also an obligation"."



--

Michael Perelman
Economics Department
California State University
michael at ecst.csuchico.edu
Chico, CA 95929
530-898-5321
fax 530-898-5901