February 15, 2004
Costco Sees Value in Higher Pay
By James Flanigan
Much of corporate America is driven today by the belief that to be
competitive, companies must cut their employees' wages and benefits.
Nowhere is this creed held more devoutly than among the supermarket chains
that are enduring a strike and have locked out their workers in Southern
and Central California. A new kind of labor agreement that cuts pay and
sharply slashes employer contributions to health benefits is imperative, declares Steven Burd, chief executive of Safeway Inc., "if we're going to stay in business."
Jim Sinegal sees things much differently. The chief executive of Costco
Wholesale Corp., a warehouse club retailer with 430 stores, likes to boast
of his company's relatively high pay and benefits for its 92,000
... Costco - where a full-time clerk or warehouse worker earns more than
$41,000 annually after four years, compared with $37,232 at the
Unlike the supermarket workers, Costco employees have always paid a
portion of their health insurance. The co-payment is now 4.5%, or $500 to $1,000 a year. That will rise to 8% in the next four years, to keep up with soaring insurance costs.
But the benefit package that Costco employees get in return is
particularly rich. The company chips in $12,000 to $19,000 per employee (depending on whether they are full- or part-time). In the end, Costco's contribution is at least a third higher than that made by supermarket employers to their workers' health benefit plan.
If Costco has a weak spot, it is on the bottom line. The company earns
about 1.7 cents for each dollar of sales, compared with 2.5 cents or more for
the supermarket chains and 3.5 cents for Wal-Mart.
Wall Street contends that one reason for this shoddy showing is Costco's
generosity to its employees. Above all, as Costco executives have watched the turmoil at the grocery chains, they have been reminded about all that they are doing right.
"I don't see what's wrong," Sinegal says, "with an employee earning enough
to be able to buy a house or having a health plan for the family."
Comment: The reality? In this instance, a conscientious employer, who
believes that employees should be adequately covered for comprehensive
health care benefits, is paying $19,000 for a $41,000 employee, and that
doesn't even include the employee's contribution. This amounts to about
one-third of compensation being received as health benefits (minus
retirement benefits). Obviously, at that rate, an employer cannot remain
competitive with other businesses that slash health care benefits.
Relinquishment of adequate profits cannot be considered a realistic option
for funding employee health care. Reduction of employee compensation to
below subsistence levels is not satisfactory either. Employer sponsored
coverage inevitably is reflected in higher consumer prices. Inequitable
provision of employee health benefits places the conscientious employer at
an unfair competitive disadvantage with business owners who reduce prices
by depriving employees of adequate compensation packages.
In 2004, we're already spending $1.79 trillion or $6167 per person on
health care. Placed in a single, universal risk pool that would amount to more
than enough to fund a comprehensive benefit package for everyone. Then, instead of relying on the diminishing supply of conscientious employers and the diminishing clout of union negotiators, we should rely on sound tax policy
to establish an equitable method of funding our universal risk pool.
If we fail to change to an equitable system of funding health care, we
will force concerned employers into an untenable position. In order to survive
in a competitive market, they will have to trim their contributions to the
health plans. Then what will we have? Unaffordable care for those who
really do need it.
But the rest of us will be fine... as long as we stay healthy.