Why Costco supports a minimum-wage hike

The big-box warehouse store says better wages lead to better employee retainment, a better business culture and -- in the long run -- stronger stock prices.

By Bruce Kennedy Mar 6, 2013 5:04PM

A Costco employee cooks chicken at Costco in Mountain View, Calif. on March 2, 2010 (Paul Sakuma/AP Photo)President Barack Obama's recent call for an increase in the federal minimum wage has divided business executives, economists and others on the issue. Some think boosting wages hurts a company's bottom line and forces it to hire fewer people.


But there's also the argument that higher wages mean people stay in their jobs longer, which in turn can reduce costly employee turnover.


On Tuesday, Democratic Senators Tom Harkin of Iowa and George Miller of California introduced a measure that would raise the hourly minimum wage from $7.25 to $10.10 -- and add an annual adjustment to keep pace with the cost-of-living index.


Several business owners have applauded the so-called Fair Minimum Wage Act of 2013, most notably Craig Jelinek, the president and CEO of big-box warehouse store Costco (COST).


In a statement issued by the Business For a Fair Minimum Wage organization, Jelinek notes that even though Costco's starting hourly wage is $11.50, the company still keeps its overhead costs low.


“An important reason for the success of Costco’s business model,” he adds, “is the attraction and retention of great employees. 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.”


Costco has been under close Wall Street scrutiny for some time, with some analysts calling on the company to scale back employee benefits and wages. But it has apparently ignored such requests while its share price continues to rise.


In a recent interview with The Los Angeles Times, Crowell, Weedon & Co. equity analyst James Ragan said Costco's approach to its employees, “especially compared to competitors, has definitely been positive. It has a strong company culture at the employee level.”


Wages, working conditions and morale were issues brought up by protestors during recent demonstrations against a Costco competitor, Wal-Mart (WMT). And while most retailers probably won't copy Costco's approach and declare themselves in favor of a minimum wage hike, the company seems to be happy with its current business model regarding its employees.


“We run our business the way we think it should be run, and we’ve done pretty well doing it,” Costco's chief financial officer, James Galanti, told the Times 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.”


More on moneyNOW

74Comments
Mar 6, 2013 5:46PM
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Wall street telling a company to cut employee items so that the stock prices will rise faster.  Everyone is a short-term thinker on wall street.  Glad this CEO has a pair of testicles to stand up and do things the right way and maintain service rather than tanking service for wall street bullies that couldn't care less about anything but their ROI.
Mar 6, 2013 5:56PM
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Costco proves that you can pay a decent wage and still turn a profit. I know that's an alien concept to many business owners, but apparently it works.
Mar 6, 2013 5:52PM
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I wish there was a Costco near here. I would shop it over Walmart any day. A company willing to pay it's employee's fairly, only creates loyalty and better workers. I know of some companies who are paying more for employee turnover than they would just giving the disgruntled employees a higher raise to keep them. It's hilarious. Costco just got an A for ethics.
Mar 6, 2013 6:10PM
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costco's record of growth, customer satisfaction and profitablity speaks for itself
Mar 6, 2013 8:40PM
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Way to go Costco - another reason why Costco will become the place where all American's shop!  
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Costco has never had people protest against the company.  That says a lot.  Can WalMart says that?

 

I live in the town that has the largest Costco.  Hillsboro, Oregon!  Yeah  Costco!

Mar 6, 2013 6:17PM
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You know what`s strange?I hear right wingers who don`t see anything wrong with CEO`S

getting 100 million buyouts and yet want to eliminate the minimum wage.Years ago

when I worked my way through college I had some crappy jobs and bosses that paid

bad wages and got little or no respect or benefits.I read one guy saying the minimum

wage should be $2 an hour.Why would anyone work?I`d like to know what minimum wage would be

if it kept up with congressional pay raises the last 50 years.

Mar 6, 2013 5:55PM
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You know when an article like this is posted and nobody comment's then the company must be doing something right. This won't hold well for MSN's advertising profits. MSN techies will probably pull this article soon and replace it with something controversial. LOL!
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Three Cheers for Costco!  If you do not think paying a livable wage works, just take a look at the smiles on the faces of the folks at Costco and then take a look at and try to engage the employees at Sams/Wallmart.  They are not a happy lot.  Wake up Waltons, it time to share the wealth with those who man your stores. 
Mar 7, 2013 1:17PM
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I have a Sams club half a mile away. I go to a Costco 5 miles away for the simple reason that  I like the way that they treat their employees.
Mar 6, 2013 6:33PM
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Please, look at the bigger picture. Costco can absorb the higher labor costs, but it will drive more of their competitors out of business, and let them gain a bigger market share!!
Mar 7, 2013 10:00AM
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The CEO of Costco is a large contributor to the Republican Party.  Good for him.   Knows how to think.  Knows how to run a Company.
Mar 19, 2013 10:39AM
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Costco also pays time and half on Sundays and gives a couple of percent of earning to a 401K. That's above the $11.50 and for all workers, full and part time.  Has a great program for college kids also. Keep your job while away in school, just need to work one break, winter or summer.
Mar 7, 2013 1:07PM
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Costco's problem with Wall Street analysts is that the analysts are purveyors of degenerate capitalist practices and Costco is not.
Mar 7, 2013 12:22PM
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Wow i guess some people cant read... Costco pays there employees $11.50 an hour... The minimum wage is only at $7.25... 

So why would Costco need to raise the cost of there goods, if minimum wages get raised to $10.10 per hour?

They are already paying $11.50... Thats still a $1.40 more per hour than any $10.10 raise to minimum wage...

You talk about living wages, so you mean getting a $2.85 raise per hour for most Americans would not help people have a better life?

Wake up people!
Mar 7, 2013 11:03AM
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Sounds like Costco should be against a minimum wage hike.. It seems to be an advantage for them that other companies are not paying the same wages they are.  I am sure they are retaining alot better help than most.
Mar 19, 2013 3:29PM
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Go Costco! At last, a company who won't bow to Wall St.
Mar 7, 2013 2:25PM
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"But there's also the argument that higher wages mean people stay in their jobs longer, which in turn can reduce costly employee turnover."

 

No kidding Einstein!!!  Haven't seen too many auto workers who didn't stay on the job now have you???

Mar 7, 2013 3:05PM
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Businesses can pay what ever they want.  Mcds employees in Williston ND are making $18-22 an hour because of the great economy.  Hello Obama, fix the economy, stop spending money.
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