Consider two companies — the first offers quality products at a low cost to its customers, while paying its employees above average wages and providing them with excellent health insurance if they choose to take it. The second company offers a wider array of low cost products with a higher variance in quality, but on average pays wages that are at or just above minimum wage. Which would you rather work for?
The real world parallels to these two companies are Costco and Wal-Mart. Some self-reported statistics from the two companies: Costco’s average wage is $17.00 compared to Wal-Mart’s $9.68. Costco covers 82 percent of its employees with company health insurance while Wal-Mart covers 48 percent.
A couple of inferences can be made as to the long term goals and priorities of each company based on these two data points. Clearly, Costco prioritizes the welfare of its employees over adding an extra tenth of a point to its profit margin. The same cannot be said of Wal-Mart, with its history of incredibly low wages and reluctance to provide decent health coverage for its employees.
Although both business models are successful, there is a clear winner when it comes to the distribution of that success. Wal-Mart’s “success” just translates to exorbitant wages for its executives and ever increasing dividends for its shareholders. Costco’s success, on the other hand, is proof that a business can be successful with everyone coming out a winner.
This idea challenges the prevailing notion that a business’s success is only possible if someone is getting screwed. Many people fail to acknowledge this hard truth, but look no further than the leading companies in each industry to see who is reaping the maximum benefit. CEOs make many multiples of what the average employee pulls in, but is there really any reason for this? Could their ingenuity and value to the company really outweigh the value of an average employee’s labor by so much? Jim Sinegal, co-founder of Costco, does not believe so. In 2005, he said “Having an individual who is making 100 or 200 or 300 times more than the average person working on the floor is wrong.”
Sinegal’s position is definitely a unique one in a corporate culture of institutionalized greed. For major corporations, the bottom line is what matters, and if employees are benefitted along the way, it’s a bonus. Sinegal’s approach is a more sustainable model, reducing turnover and promoting loyalty from employees.
The Fair Minimum Wage Act of 2013 has been introduced in Congress, seeking to gradually increase the federal minimum wage to $10.10 from the current $7.25. Unsurprisingly, Costco is championing the bill, with President and CEO Craig Jelinek vocally putting his support behind it. Raising the minimum wage seems to be a no brainer for Costco, whose starting wage is $11.50. If only other companies would take the hint; exploitation is a thing of the past, better business means better treatment.