Living wages aren't important to people who don't have to live with them
Costco's Dilemma: Be Kind To Its Workers, or Wall Street?
By ANN ZIMMERMAN
Staff Reporter of THE WALL STREET JOURNAL
March 26, 2004; Page B1
When it comes to workers, companies can be accused of not paying enough -- or paying too much.
Wal-Mart Stores Inc.'s parsimonious approach to employee compensation has made the world's largest retailer a frequent target of labor unions and even Democratic presidential candidate John Kerry, who has accused the Bentonville, Ark., chain of failing to offer its employees affordable health-care coverage.
In contrast, rival Costco Wholesale Corp. often is held up as a retailer that does it right, paying well and offering generous benefits.
But Costco's kind-hearted philosophy toward its 100,000 cashiers, shelf-stockers and other workers is drawing criticism from Wall Street. Some analysts and investors contend that the Issaquah, Wash., warehouse-club operator actually is too good to employees, with Costco shareholders suffering as a result.
"From the perspective of investors, Costco's benefits are overly generous," says Bill Dreher, retailing analyst with Deutsche Bank Securities Inc. "Public companies need to care for shareholders first. Costco runs its business like it is a private company."
Costco appears to pay a penalty for its largesse to workers. The company's shares trade at about 20 times projected per-share earnings for 2004, compared with about 24 for Wal-Mart. Mr. Dreher says the unusually high wages and benefits contribute to investor concerns that profit margins at Costco aren't as high as they should be.
