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Interesting piece on about Costco, essentially asking why that company has a reputation for being more generous with its employees than Wal-Mart, and if the reputation is indeed deserved, does it make good business sense?

At least according to Slate, the answer to both questions seems to be “yes.”

“It's not hard to make a case that Costco pays employees more,” Slate writes. “The most relevant comparison is between Costco and Sam's Club, Wal-Mart's membership warehouse, since both business models rely on membership fees for a large percentage of revenues. A Sam's Club employee starts at $10 and makes $12.50 after four and a half years. A new Costco employee, at $11 an hour, doesn't start out much better, but after four and a half years she makes $19.50 an hour. In addition to this, she receives something called an "extra check"—a bonus of more than $2,000 every six months. A cashier at Costco, after five years, makes about $40,000 a year. Health benefits are among the best in the industry, with workers paying only about 12 percent of their premiums out-of-pocket while Wal-Mart workers pay more than 40 percent.”

Beyond the math, Costco makes the argument that because it takes better care of its employees, these workers tend to be more productive and are less likely to leave the company – which saves money when it comes to training new workers. However, there is always the other argument – that Costco could trim its wages and benefits a little bit and increase its margins without much impact on productivity, but with a big boost to profitability. There is also the implication in the piece that Costco could be a bit high-end for current economic times:

“Take a look at the two retailers' summer offerings: While Wal-Mart sells a $199 swing set, at Costco we find a "summer fortress play system" for $1,499.99. A set of patio furniture at Wal-Mart was $199 in early summer; a patio heater at Costco is the same price. Costco's Web site promotes a $5,000 hot tub with a stereo. On Wal-Mart's site last week, the most prominent item was a $48 bike—after all, its impoverished customers can't afford gas these days.”

However, what’s interesting about the piece is the suggestion at the end that because Costco’s corporate values reflect the beliefs of its CEO, Jim Sinegal, this approach will not necessarily survive him…and certainly won’t be adopted elsewhere:

“Sinegal's kindliness is impressive, but he's also 72 years old and thus won't be around forever. Perhaps he's created a corporate culture strong enough to outlast him, but that's impossible to predict. And until Costco boosters can make a concrete case that the company's generosity—however welcome—has a duplicable effect on the company's bottom line, it seems unlikely that a crowd of Jim Sinegals is going to emerge in the nation's executive suites.”

KC's View:
I could be wrong about this, having only met Sinegal once and then very briefly. But it is my impression that while Costco may reflect his personal values, these values are rooted in hard-nosed business sense, not kindness. (I’m not suggesting that he isn’t a kind man, but that’s not the primary motivation here.)

I would also be surprised if he hasn’t done his best to create a succession plan that will honor the company’s long-held approach to business and employees. In a lot of ways, that may be the best measure of a CEO’s success – the creation of a sustainable corporate culture that outlives him or her. Which, if you are a retailer, means managing not for Wall Street, but for Main Street.