Employee Relations Best Practices: Costco’s Approach to HR

Costco

Good pay, benefits and opportunity for growth allow Costco to attract high quality candidates who are committed to the job.

“When employees are happy, they are your very best ambassadors.”- Jim Sinegal, CEO, Costco. In 2008, Ethisphere named Sinegal one of the 100 Most Influential People in Business Ethics- he was ranked #37. The emphasis on employees at Costco is the key to the company’s success and ability to consistently provide a better shopping experience for its members. Jim Sinegal is the perfect example of how the tone at the top sets the tone for the entire company. Costco has developed a reputation as an employer of choice and has maintained a positive public image, all thanks to its brand ambassadors- its employees.

The Costco Way

Many executives once believed that you can’t keep prices low if a company pays high wages and benefits. Costco is proof that this isn’t always the case. Costco executives understand the impact and importance that good employees can have in an organization. A Fast Company CEO Interview with Sinegal, reports:

“Wall Street grumbles that Costco cares more about its customers and employees than its shareholders; it pays workers an average of $17 an hour and covers 90% of health-insurance costs for both full-timers and part-timers. Yet revenues have grown by 70% in the past five years, and its stock has doubled.”

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Perks such as high wages, benefits and opportunity for growth allow Costco to attract a large pool of high quality candidates who are committed to their jobs. A Workforce article, “Welcome to the Club“, reported that:

“In addition to offering some of the best wages and benefits in the retail industry, Costco rewards employees with bonuses and other incentives. It promotes from within, encourages workers to make suggestions and to air grievances and gives managers autonomy to experiment with their departments or stores to boost sales or shave expenses as they see fit.”

All About the Employees

Much of the emphasis on culture and values at Costco is attributed to the personal interests of Sinegal, its CEO. The interviewer at Fast Company asked Sinegal for his opinion on the rising gas prices. His response:

“Even employees who work at Costco- who make the type of wages that we pay- are being hit at the gas pump. We’re working very hard to schedule people from the same part of town so they can drive together. We’re encouraging van pools. We’re even testing 10-hour days, something we’ve never done in the past. If we can schedule some employees for four 10-hour days, that’s one day they don’t have to drive to work. They’ve got a 20% savings in their gas right there.”

His response to the question shouldn’t be surprising, but it is surprising to find a CEO who actually takes these types of external factors into consideration when planning for their business. Costco’s executives focus on putting their employees first, which has lead to low employee turnover rates. In the long run, this increased rate of retention has allowed Costco to save on labour costs while continuing to provide employees with significant wages and benefit packages. When employees feel important and that there is value in the work that they do, it makes it harder to leave their current position and seek out new work.

Front-line employees are the ones who interact with your company’s customers each day and are ultimately the ones who communicate the values and culture of your brand to the public. When employees are not passionate about their work or their brand, their attitudes have the ability to influence the customer’s shopping experience. Sinegal started out his retail career as a bagger, working through the ranks to VP Merchandising and Operations at FedMart- eventually co-founding Costco in 1983. Since he has worked in a variety of retail positions throughout his career, Sinegal understands the motivators and impact that every position has on the overall success of Costco. Tech Crunch discusses the factors of success at Costco in the article “Integrating Ethics Into The Core Of Your Startups: Why And How“, stating that:

“The company’s per-employee sales are considerably higher than those of key rivals such as Target and Wal-Mart; customer service at the stores is phenomenal and fast; and Costco continues to expand, both in number of warehouses and in products and services for business and consumer customers.”

The Costco story teaches us all a few lessons that can be applied to our own workplaces: think of the long-term impact of your actions, reduce employee turnover and, at all times, let your employees know they matter.

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Article Published March 25, 2010

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