Costco in the New York Times
I read an article about Costco and its president, Jim Sinegal, today in the Business section of the Sunday NYT.
It's a flattering piece, and it delivers its payload--I emerged with a far higher regard for the company than I had previously had. I'm not a regular reader of the Business section, though, and some of what I found most striking would probably be invisible to eyes more sophisticated in business journalism. In particular, the success of Sinegal's policies is described primarily in terms of stock price--not profits or growth.
Also striking is that Sinegal's willingness to play hardball with companies run by personal friends is considered noteworthy.
Tim Rose, Costco's senior vice president for food merchandising, recalled a time when Starbucks did not pass along savings from a drop in coffee bean prices. Though he is a friend of the Starbucks chairman, Howard Schultz, Mr. Sinegal warned he would remove Starbucks coffee from his stores unless it cut its prices.
Shit, what the hell are those nine-digit CEO salaries for, if putting company interests above the interests of one's buddies isn't an absolute given?
Much of the article is devoted to analysts making scornful remarks about how Costco pays its emplyees too much and gives them too many benefits. Sinegal defends the business value of the policy, but explains his own relatively low salary ("less than 10 percent of many other chief executives") in more subjective terms: "'I just think that if you're going to try to run an organization that's very cost-conscious, then you can't have those disparities. Having an individual who is making 100 or 200 or 300 times more than the average person working on the floor is wrong.'"
If the analysts have anything to say about this policy, the Times doesn't see fit to quote them. I'm fascinated by the glimpse of the amount of cultural pressure for public corporations to treat their employees like shit.
Toward the end, the article mentions that Costco is also union-friendly, but never mentions the company's exceptionally Blue donation practices. I wonder if discussing such things is a business-writing taboo, perhaps because corporate giving is so lop-sided.
Since I felt inspired to go out and buy some Costco stock (I really don't have the storage space to be an actual Costco shopper at the moment), I wondered if the article caused a stock uptick. The charts answer that with an emphatic no
comment by Thomas Colthurst:
According to the article, Costco pays its workers an average of $17/hr, 42% higher than Sam's club.
That's $5/hr more, which multiplied by Costco's 113,000 workers working an average of 40 40-hr weeks per year (some of the workers are part time), works out to be $904 million more per year.
By contrast, Jim Sinegal made $550,000 last year. Even if he was paid ten times more, which the article asserts is a more typical CEO salary, that's only $5 million per year.
To put these numbers in perspective, Costco had a net profit of only $882 million for the year ending 8/31/04. It's very reasonable for the Wall Street analysts to think that Costco could have doubled its profit with an industry average salary level. IMHO, it's even reasonable for them to get snarky about it.
comment by Harry:
CostCo's labor practices and managment wage scale are reminiscent of later stage Fordism. Relatively high wages and benefits reduce turnover and keep the unions, especially, the union leadership, from interrupting steady commerce. They've also identified a good market niche. People want cheap goods and they don't want to buy them where they know, and can see, people being mistreated. The donations to corporate friendly Democrats are also in keeping with Fordism. Neoliberalism ensures a more sustainable economy than "loot n' scoot" crony capitalism and ensures a steady supply of cheap consumer goods.
Compared to Wal-Mart, they're very enlightened.