Lesson #1: Respect Can Reel In Greater Returns

In the world of corporate greed, where the up and coming often learn more about finding the loopholes than following the law, Jim Sinegal sticks out like a sore thumb. Named one of BusinessWeek’s “Best Managers” in 2003, Sinegal maintains one of the lowest salaries compared to other CEOs at his level, while Costco workers are among the most highly paid in the industry. Why did he decide to turn Wall Street on its head by following this model, and how did he manage to make such a venture, one that defies conventional business logic, not just possible but also profitable?

As a cashier at Costco, you would be one of the industry’s lucky few. With an average salary of $17 per hour, you could be earning up to $40,000 a year after working with Sinegal’s company for four years. Costco employees also pay just nine percent of the cost of health insurance, one of the most generous benefit packages in the industry. Critics from Wall Street were decrying Sinegal’s employment offerings, suggesting it was doing more harm to their shares than good. But, Sinegal has a different logic.

“Our attitude has always been that if you hire good people and provide good wages and good jobs and more than that – if you provide careers – that good things will happen to your company,” he says. “I don’t see what’s wrong with an employee earning enough to be able to buy a house or have a health plan for the family.”

Sinegal’s logic is not just an altruistic one. Costco has a mere six percent turnover rate for employees with the company for more than one year. That figure is just one fifth that of retail giant Wal-Mart. As a result, 95 percent of all promotions are from within. “We have guys who started pushing shopping carts out on the parking lot for us who are now vice presidents of our company,” says Sinegal. Costco also has the lowest shoplifting rate in the industry, at .02 percent, and productivity is estimated to be roughly $500,000 per employee.

“Wall Street is in the business of making money between now and next Tuesday,” says Sinegal. “We're in the business of building an organization, an institution that we hope will be here 50 years from now. And paying good wages and keeping your people working with you is very good business.”

For Sinegal, what is crucial to success is to take a long-term perspective. Happy workers mean happy investors in the long run, and Sinegal wants his Costco to be around in the long run. “I think the biggest single thing that causes difficulty in the business world is the short-term view,” he says. “We become obsessed with it. But it forces bad decisions.”

Sinegal is obviously proud of the company he has created, with the help of each and every Costco worker. By paying his workers well, he is increasing their productivity and reducing his own loss from turnover and theft. “That's not altruism,” he says. “It’s good business.”



Lesson #1: Respect Can Reel In Greater Returns

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