Thursday, June 6, 2013

Costco Resisted Wall Street Pressure To Cut Wages, Benefits: Report

Costco is one of the few bargain retailers to see success in recent months, and according to one executive, it could be even more profitable. If only the company weren't so committed to paying workers a decent wage.

“Could Costco make more money if the average wage was $2 or $3 lower?” Richard Galanti, Costco’s chief financial officer, mused in an interview with Businessweek. “The answer is yes. But we’re not going to do that.”

(Click over to Businessweek for more about Costco's culture)

The big box store most famous for its stockpiles of toilet paper and $1.50 hot dogs also has a reputation for paying its workers a higher wage than most of its competitors. The average Costco worker made about $45,000 per year, Fortune reports. By comparison, Walmart-owned Sam’s Club, a Costco competitor, pays its workers $17,486 per year, according to salary information site Glassdoor.com.

What’s more, Costco has continued to pay its workers decently even in the face of pressure to stop. Ever since the company went public in 1985, Wall Street investors have urged Costco executives to lower wages and cut health benefits, which are also relatively generous, according to Businessweek. Instead, the company’s former CEO and co-founder gave workers a raise every three years.

Costco’s insistence on treating its workers well hasn’t come at the expense of the company’s bottom line. The retailer’s profit jumped 19 percent to $459 million last quarter, while Walmart’s sales suffered during the same period.

In addition, Target, another Costco competitor, slashed its earnings forecast for the year after its profits suffered because customers cut back. (Costco reported Thursday that last month's same-store sales grew 5 percent, but did miss analyst expectations.)

For their part, Costco executives have tried to turn their strategy into an industry-wide practice. The company’s CEO, Craig Jelinek, urged lawmakers to raise the minimum wage to more than $10 an hour earlier this year. President Barack Obama proposed boosting the minimum wage to $9 per hour in his February state of the union address, a plan that’s been met with opposition by some lawmakers.

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