Sunday, March 28, 2004

Costco under pressure to cut wages

Title: Costco's Dilemma: Be Kind To Its Workers, or Wall Street?
Source: Wall Street Journal
Date: March 26, 2004

From the article:
    In contrast [to Wal-Mart], rival Costco Wholesale Corp. often is held up as a retailer that does it right, paying well and offering generous benefits.

    But Costco's kind-hearted philosophy toward its 100,000 cashiers, shelf-stockers and other workers is drawing criticism from Wall Street. Some analysts and investors contend that the Issaquah, Wash., warehouse-club operator actually is too good to employees, with Costco shareholders suffering as a result.

    "From the perspective of investors, Costco's benefits are overly generous," says Bill Dreher, retailing analyst with Deutsche Bank Securities Inc. "Public companies need to care for shareholders first. Costco runs its business like it is a private company."
    Costco has won a reputation for having the best benefits in retail, a sector where labor costs account for about 80% of a typical company's total expenses. Costco pays starting employees at least $10 an hour, and with regular raises a full-time hourly worker can make $40,000 annually within 3½ years. Cashiers are paid $10.50 to $17.50 an hour.

    Wal-Mart doesn't disclose its wage rates, since they vary by location. According to a recent study funded by Wal-Mart, cashiers at its Supercenters in Las Vegas were paid $7.65 to $11.45 an hour. Supercenters are Wal-Mart's discount grocery and general-merchandise stores.
The sentence, "Public companies need to care for shareholders first," is interesting. Since 50% of stock is owned by the wealthiest 1% of Americans and 90% is owned by the wealthiest 10%, this philosophy explains where the concentration of wealth is coming from [ref].

Why should the shareholders be first?

The reality is that shareholders make up just 10% of the population, while employees make up 90% of the population. Is it in the nation's best interest to put shareholders first? It is, in fact, not in the nation's best interest. If the "shareholders' best interest" means that wages are falling, jobs are vanishing and more and more wealth is concentrating -- which is what is happening today -- the "shareholders" are a real problem. The nation's economy would be much healthier with a strong, vibrant, fairly-compensated middle class than it ever will be with top 10% of the population owning the large majority -- and an ever increasing majority -- of the nation's wealth.

Costco's approach certainly is notable. It proves that Wal-Mart -- and all other large companies now paying minimum wage, such as McDonald's, etc. -- could Double their wages without any problem. The only things preventing that from happening are: a) the desire of the wealthy to inexoriably concentrate more and more wealth, and b) the government's desire to now help the wealthy because of campaign contributions from the wealthy and the percentage of top-tier government officials who are themselves wealthy.

It will be interesting to see how long Costco maintains its current pay scale in the face of shareholder pressure.


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