Analysts to Costco Stop treating your employees so well - The Chief Happiness Officer Blog

Analysts to Costco Stop treating your employees so well - The Chief Happiness Officer Blog Youd think that if a company treats its employees well (a lot better than their competitors) and gets great business results because of it, that this company and it executives would be celebrated and praised for it. Youd be wrong. The New York Times has a great article about Costco, the huge American chain of supermarkets who spend much more on their employees than their main competitors: Costcos average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sams Club. And Costcos health plan makes those at many other retailers look Scroogish. According to Costcos CEO Jim Sinegal, this makes good business sense: Good wages and benefits are why Costco has extremely low rates of turnover and theft by employees, he said. And Costcos customers, who are more affluent than other warehouse store shoppers, stay loyal because they like that low prices do not come at the workers expense. This is not altruistic, he said. This is good business. The results are pretty impressive: Costcos stock price has risen more than 10 percent in the last 12 months, while Wal-Marts has slipped 5 percent. Costco shares sell for almost 23 times expected earnings; at Wal-Mart the multiple is about 19. So how do stock analysts react to this? They tell Costco to start treating their employees worse: Emme Kozloff, an analyst at Sanford C. Bernstein Company, faulted Mr. Sinegal as being too generous to employees, noting that when analysts complained that Costcos workers were paying just 4 percent toward their health costs, he raised that percentage only to 8 percent, when the retail average is 25 percent. He has been too benevolent, she said. Hes right that a happy employee is a productive long-term employee, but he could force employees to pick up a little more of the burden. This makes zero sense to me but it illustrates two things perfectly: Traditional business thinking in some areas still regards employees as resources, that like any other corporate item must be bought as cheaply as possible. Executives who believe in treating employees well are faced with pressure from analysts and the stock market to stop doing so and start being more like anyone else regardless of the results their strategy has been getting them so far. This is partly why Jim Goodnight, the CEO and owner of software company SAS Institute refuses to take his company public; he knows that it would become much more difficult to keep SAS employees as happy as they currently are (read about how SAS keep their employees happy). One company did manage to go public and keep their identity: Google. When they announced their IPO, founders Brinn and Page made it very clear that they would continue to run the company their way. They promised to go on treating their employees extremely well and making long-term decisions rather than living from quarter to quarter. If investors didn?t care for that, they were kindly requested to take their money elsewhere. Google being Google, investors flocked to buy the stock anyway less famous companies might not get away with this approach. To me, it makes perfect sense that treating employees well makes them happy and that happy companies make more money and this is backed up by many studies. To give one example, the 100 best companies to work for in the US, have outperformed the general stock market by a factor of 3. Its time that investors and stock analysts realized this and started demanding of companies, that they make their employees happy. This not only increases profits, its one of the best and most efficient ways to do so. UPDATE: Turns out the highly up-to-date article from the NY times I reference is 2 years old. So much for my amazing powers of observation :o) Fortunately the tendency still holds and Costco still treat their people better AND outperform Walmart on the stock market. Thanks for visiting my blog. If you're new here, you should check out this list of my 10 most popular articles. And if you want more great tips and ideas you should check out our newsletter about happiness at work. It's great and it's free :-)Share this:LinkedInFacebookTwitterRedditPinterest Related