Friday, March 8, 2013

Hail to the Chief (Executive Officer) Craig Jelinek of Costco!

Two years ago the Washington Post reported that the longtime CEO and co-founder of Costco, Jim Sinegal, announced his retirement while earning $350,000 a year. At the time Costco’s stock was up 40 percent from the previous year --- and all while paying his employees a fair wage with generous benefits.

The Seattle Times had reported that Costco's new CEO, Craig Jelinek, would be paid an annual salary of $650,000 plus a bonus of up to $200,000 starting on January 1, 2012 (with stock awards based on company performance).

That's not very much considering what other CEOs on the Fortune 500 list earn --- most CEOs took home an average of 379 times more that their employees. Back in 1980 when the middle-class had peaked, the average large company CEO only received 42 times the average worker’s pay.

Last year Forbes ranked Costco #24 on the Fortune 500 list (Wal-Mart ranked #2 behind Exxon Mobil). Maybe Costco would have gotten a higher ranking if they didn't treat their employees so darn well.

"At Costco, we know that paying employees good wages makes good sense for business," Jelinek said in a statement. "We pay a starting hourly wage of $11.50 in all states where we do business, and we are still able to keep our overhead costs low."

Do you hear that Wal-Mart? That's just the starting wage. The average wage at Costco is $17.00 an hour.

While although $11.50 a hour is barely enough for one person to live on ($23,920 a year), at least $17,00 a hour ($35,360 a year) is much more survivable. One Wall Street analyst had complained, "It's better to be an employee or a customer than a shareholder of Costco".

But even so, just looking back over the last ten years, it appears that Costco's shareholders had nothing to complain about either (with the exception of the 2008 financial disaster). Costco's stock price has only gone up, and while also paying their shareholders dividends along the way (see the Google Finance chart below).

Costco posted a fiscal 2012 profit of $1.7 billion, up 17 percent from the previous year, as revenue rose 11 percent to $99.1 billion. It ranks as the world’s seventh largest retailer.

So why in the hell can't other companies like Wal-Mart also pay fair wages to their employees AND make a good profit? Does the Walton family's collective net worth really need to be over $100 billion? Isn't that obscene? The answers to those questions and more are all answered very easily in this video I posted at YouTube.

Last year the long-time consumer advocate Ralph Nader penned a nice letter to Craig Jelinek urging him to support raising the minimum wage. The Huffington Post recently reported that Jelinek did in fact come out in support of the Fair Minimum Wage Act of 2013, which aims to raise the federal minimum wage to $10.10 per hour ($21,008 a year), and then is annually adjusted for inflation. It's still barely enough for someone to live on, but at least it's a starting point.

--- Below is from a post by Alana Semuels for the L.A. Times ---

For many businesses, opposing minimum wage increases is a no-brainer: Raising the minimum wage increases their expenses. The U.S. Chamber of Commerce [a business lobbyist] steadfastly opposes the proposal, as do many businesses big and small.

But on Tuesday a handful of businesses applauded a bill introduced in Congress to raise the minimum wage, and even sent out a news release vocalizing their support for doing so. They included retailer Costco and smaller businesses such as British American Auto Care in Columbia, Md. and Vintage Vinyl in St. Louis, Mo.

So what gives? Why are some businesses bucking the trend and calling for a change in policy that would so clearly increase their expenses, especially at a time when finances are stable at best? And why Costco, a public company that has investors watching every penny and questioning every management decision?

After all, wages in retail, when adjusted for inflation, have actually decreased by about 30 cents an hour since 2007. Wouldn’t retailers want to keep it that way?

For Costco, the answer is no. The company has earned a reputation over the years for treating employees relatively well. Costco pays a starting wage of $11.50 an hour, gives most employees healthcare and other benefits, and has not switched to the model adopted by many big-box retailers of using temporary firms in warehouses to keep costs low.

“Instead of minimizing wages, we know it’s a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty,” said Craig Jelinek, Costco’s chief executive.

Analysts have sometimes called on Costco to cut back on benefits or lower wages, but the company has not listened, James Ragan, a senior equity analyst at Crowell, Weedon & Co., said in an interview last year. Such calls on the company have quieted as the stock has continued to grow in value. The stock is now trading over $100 a share; a decade ago it was at $32 a share.

“I believe that their positive treatment of employees, especially compared to competitors, has definitely been positive,” he said. “It has a strong company culture at the employee level.”

The company doesn’t outsource its call center; a few years ago, when it engaged a third party company to clean its facilities, the company eventually decided to hire the workers full time and give them better wages and health benefits.

“I think we’ve always resisted several things that seem like they make economic sense,” said chief financial officer James Galanti. “For us, we feel it’s better long term that we do it this way.”

Costco employees typically stay with the company longer than employees at other big box retailers, many of whom are employed by outside agencies, rather than the retailers. Galanti said this is important -- since retail employees interact with customers frequently, it’s important for them to be happy, so they’ll treat customers well, he said.

“We run our business the way we think it should be run, and we’ve done pretty well doing it,” said Galanti, in an interview last year. “When tasked with looking at all the costs, we tend to not look at how do we reduce expenses. . . There are things – like taking health care out -- that we’re not willing to touch.”

These policies have helped Costco avoid some of the labor unrest that retailers such as Wal-Mart have faced this year, as workers call for higher wages and unions. But they’re unlikely to spread to other retailers. Wall Street has urged companies to cut fixed costs such as labor during the recession and recovery, making raises and health insurance for retail employees unlikely to come soon – unless, of course, they work for Costco."

Hail to the Chief of Costco!

* In 2012 the average Social Security benefit for a retired worker was about $1,230 a month ($14,760 a year) --- and the average Social Security disability benefit was only $1,111 a month ($13,332 a year). 

* * In 1973, as a high school drop out, I made $7.50 a hour ($15,600 a year) in a union sheet metal shop. Adjusted for inflation, today that would be $38.90 an hour ($80,912 a year). In 1973 CEOs earned a ratio of 20-to-1 to their average employee, and it went as high as 410-to-1 when George W. Bush was first elected.

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