Wednesday, November 28, 2012

Looking behind the current praise for Costco

Someone called an article to my attention yesterday on Facebook (speaking of evil corporations) entitled "How Costco became the Anti-Wal-Mart." The article, by Steven Greenhouse, appeared in the New York Times (genuflection optional). And the article is effusive in its praise of Costco and its chairman, Jim Sinegal, for unusually enlightened corporate policies.

To wit: Per Greenhouse's article Costco pays its employees an average of "$17 an hour, 42 percent higher than its fiercest rival, Sam's Club. And Costco's health plan makes those at many other retailers look Scroogish." When stock market analysts "complained that Costco's workers were paying just 4 percent toward their health costs, [Sinegal] raised that percentage only to 8 percent, when the retail average is 25 percent." And Sinegal was paid less than his brother and sister CEO's -- only $350,000, according to Greenhouse's article, plus a $200,000 bonus. (Sinegal can still hold his head up around the country club, however, because, according to the article, he holds Costco stock worth $150,000,000.)

Inspirational, isn't it? Doing well by doing good. George Bailey brought to real life in retail, right?

And the story has legs. Ashley Lutz, on The Business Insider posted an article heavily reliant on Greenhouse's NYT article just yesterday. (Ms. Lutz's article also appeared yesterday on the Daily Finance site).

There's just one teensy little problem.

A technicality, perhaps; a hitch, a hiccup.

Greenhouse's article was published on July 17, 2005.

I'll pause while you do the math.

And business conditions have changed -- just a tad -- since 2005, haven't they? Somethings called the Housing Bubble and the Great Recession have come in between then and now, didn't they?

Mr. Sinegal is no longer Costco's CEO. W. Craig Jelinek is the current President and CEO. This is apparently a recent change. Mr. Sinegal is listed as the CEO in the 2011 corporate proxy statement; Mr. Jelinek was only the COO. Sinegal's salary was still $350,000, and his bonus was just a shade under $200,000 -- but his total compensation was over $2 million. And Mr. Jelinek's salary as COO was $649,000 in 2011, up from $635,000 in 2010. His overall compensation in 2011 was $3,335,865.

Costco is still profitable. USA Today (a/k/a News McNuggets) reports just this morning that Costco will pay stockholders a $7 per share dividend next month in addition to its regular dividend. (It's a tax planning move; lots of companies are trying to pass cash to investors now, in 2012, before taxes go up next year. And taxes are going up next year, whether we topple over the "fiscal cliff" or not.)

But Costco has encountered some employee-relations problems. According to Mikal E. Belicove, writing September 28, 2012 on, in September of this year (I checked) the National Labor Relations Board invalidated Costco's social media policy in response to a complaint made by Local 371 of the United Food and Commercial Workers.

According to Belicove's article, a statement in Costco's employee handbook, warning employees to "be aware that statements posted electronically (such as to online message boards or discussion groups) that damage the company, defame any individual or damage any person’s reputation or violate the policies outlined in the Costco Employee Agreement, may be subject to discipline, up to and including termination of employment," was overbroad. Other employee handbook policies were also invalidated. (The complete NLRB decision is published at 358 NLRB No. 106 and may be accessed from the NLRB website.)

Without getting into an analysis of the merits of the NLRB's decision in this case, it does at least indicate that Costco may not now be the untroubled workers' paradise portrayed in Mr. Greenhouse's 2005 NYT article. Is Costco still the industry leader in wages and benefits? Is it still a good corporate citizen?

Look, kids, it's almost Christmas -- and I want to believe.

But can I?

Why does a seven year old 'news' article suddenly catch fire on the Intertubes? Is this just a PR campaign?


Anonymous said...

Here's a link to a three-part interview from the Motely Fool with the new CEO - he's been with the company for 27 years and it covers some of the same data as the 2005 article.

I can't believe a cashier can make almost $50k a year when I've got a graduate degree and don't make that... but then I knew academia wasn't going to make me rich.

The Curmudgeon said...

Thank you, Anon.