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Why Costco pays its 180,000 workers way more than the minimum wage

Brian Sozzi
·Editor-at-Large
·4 min read
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Costco (COST) has always led the way in retail when it comes to paying its workers, so it's no shock to see it step on the gas further to widen its competitive edge versus rivals.

This week, Costco plans to raise the starting wage to $16 an hour for U.S. workers. The decision was first revealed by Costco CEO Craig Jelinek in testimony to the U.S. Senate Budget Committee last week. Costco raised its starting pay to $15 an hour in 2019. More than half of Costco's hourly workers in the U.S. are paid above $25, Jelinek said.

Costco employs roughly 180,000 workers in the country.

"In the U.S., our employees average over nine years of service with the company. Over 60% of U.S. employees have five or more years with Costco, and over one-third have more than 10 years. We’re very proud of the fact that more than 12,000 of our U.S. employees have worked for Costco for 25 years or more. Again, we feel the experience level and loyalty of our employees is a significant advantage for our company," explained Jelinek.

The decision to crank up starting wages even higher reflects Costco's DNA, which was coded into the fabric of the warehouse club giant by trailblazing co-founder Jim Sinegal.

Sinegal co-founded Costco in 1983 alongside Jeff Brotman. The face of Costco until his retirement as CEO in 2012, Sinegal was notoriously frugal when it came to spending at its Washington state headquarters and on C-suite pay. Sinegal plowed all of those savings into paying average workers in the retailer's stores and warehouses handsome hourly wages.

The thinking: A happy worker equals a dedicated worker, and that means better customer service, higher sales and club members for life. A well compensated worker also means a greater propensity for them to spend, likely at Costco.

People queue outside Costco in Thurrock, Essex, during a minutes silence paying tribute to the NHS staff and key workers who have died during the coronavirus outbreak. (Photo by Gareth Fuller/PA Images via Getty Images)
People queue outside Costco in Thurrock, Essex, during a minutes silence paying tribute to the NHS staff and key workers who have died during the coronavirus outbreak. (Photo by Gareth Fuller/PA Images via Getty Images)

"The more people make, the better lives they're going to have and the better consumers they're going to be," Sinegal told The Washington Post in 2007 in a rare interview. "It's going to provide better jobs and better wages."

At the time of the Post interview, Costco's lowest paid workers made $11 an hour Sinegal said. The average worker made $17 an hour. The federal minimum wage was $5.15 an hour at the time of Sinegal's Post interview, which came as lawmakers were bickering on raising it to $7.25 an hour.

"In my view, some of these industries that pay minimum wage are constantly turning their people. They spend more on turnover than they would in paying the additional wages," Sinegal said.

One could easily make the case Sinegal's generous stance on worker compensation — which has continued under his protege Jelinek — has worked very well for Costco.

Costco's sales have ballooned from $77.9 billion in the fiscal year ended Aug. 29, 2010 to $166.7 billion for the fiscal year ended Aug. 30, 2020. The company added nearly $3 billion in net income during that timeframe. The company's membership renewal rate in the U.S. is consistently above an impressive 90%.

From Aug. 29, 2010 to present day, Costco's stock has gained 502%. The S&P 500 has risen 265%. Shares of Walmart (which owns Costco rival Sam's Club) and Target have increased 159% and 258%, respectively.

The focus on Costco's wages arrives as lawmakers again bicker on whether to hike it, this time to $15 an hour over time. President Joe Biden backed off on his call to lift the federal minimum wage to $15 an hour as part of a new COVID-19 relief bill.

Some retailers are trying to get out in front of any increase to the $7.25 an hour federal minimum wage, but they still come up short to Costco.

Walmart said in February it's raising wages for 425,000 of its nearly 1.5 million employees. Yahoo Finance's Julia La Roche reported that wages for Walmart’s 425,000 store associates in the digital and stocking workgroups will increase to a range of $13 to $19 per hour, depending on location and market. The pay increase will take effect on March 13.

After the pay hike, La Roche reports that 730,000 Walmart U.S. store workers, approximately half of its workforce, will earn $15 or more per hour. Walmart says the average wage for its U.S. hourly workforce will now be at least $15.25 per hour.

Last July, Target raised its minimum wage for its U.S. workers to $15 an hour.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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