Costco's warehouse stores offer neither shopping bags nor brand loyalty -- the Gladware for sale one week might be replaced by Tupperware the next, depending on which vendor offered the best deal. Yet Jim Sinegal, 69, who started Costco in 1983, is anything but frugal in dealing with employees. Wages start at $10 an hour, and more than half of his U.S. employees earn the top pay of $18.32 an hour. Costco also covers 94% of health care costs for both full- and part-timers, and donates an amount equal to 3% to 9% of employees' pay to their 401(k)s. As a result, the company has little turnover -- an astoundingly low 5.5% for workers who have been with Costco for a year or more.
"These guys have bucked Wall Street as far as taking care of their employees, yet their return last year was pretty darn good," says Patricia Edwards, managing director of Wentworth Hauser and Violich, a San Francisco investment firm that owns 785,000 shares. Darn good indeed. Costco's 450 stores had sales of $47.15 billion for fiscal 2004. In 2003, Costco's sales topped sales at Wal-Mart's Sam's Club by 21%, even though Sam's had 28% more stores. Costco stock was up 34% for calendar 2004; Wal-Mart's stayed about even.
Even in years when Costco wasn't posting stellar profits, Sinegal has refused to cut labor costs significantly. When you see how well Costco balances the interests of employees and investors, you wonder why more executives haven't followed his lead.