Costco CEO Finds Pro-Worker Means Profitability

Rewarding Loyalty

Perhaps part of Sinegal's success is how much he enjoys his work. "This is almost like show business. I mean, every day you're opening up and it's show time," he said.

And Sinegal is the tireless show producer, managing from the road, hopping on the corporate jet, and visiting up to a dozen Costco stores a day.

"No manager and no staff in any business feels very good if the boss is not interested enough to come and see them," he said.

Sinegal's relentless attention to detail is legendary. Nothing misses his eye, and by the way they rave, you'd think the customers were paying for the privilege to shop there.

Actually, they are. Costco shoppers pay at least $45 a year for store membership and shopping privileges. Multiply that by almost 25 million members, and that's more than $1 billion.

"With that membership fee, you in essence lock them into shopping with you. You build that loyalty," Sinegal said.

And Sinegal says he's also built a loyal work force. In fact, Costco has the lowest employee turnover rate in retailing. Its turnover is five times lower than its chief rival, Wal-Mart. And Costco pays higher than average wages -- $17 an hour -- 40 percent more than Sam's Club, the warehouse chain owned by Wal-Mart. And it offers better-than-average benefits, including health care coverage to more than 90 percent of its work force.

Costco doesn't have a P.R. department and it doesn't spend a dime on advertising. There's a real business advantage to treating employees well, Sinegal said. "Imagine that you have 120,000 loyal ambassadors out there who are constantly saying good things about Costco. It has to be a significant advantage for you," he explained.

Many Costco workers have been with the company since it was founded in 1983. Once hired, they rarely leave.

Susan MaConnaha, a Costco vice president and head baker, said working for Costco is a family affair. "My whole family works for Costco, my husband does, my daughter does, my new son-in-law does," she said.

And Sinegal rewards that loyalty. "We promote almost 100 percent from within our company. We have guys who started pushing shopping carts out on the parking lot for us who are now vice presidents of our company," he said.

In an era when many CEOs are seen as greedy and sometimes corrupt, Sinegal is proving that good guys can finish first -- and without all the corporate frills. Sinegal even sends out his own faxes from his bare-bones office-without-walls at company headquarters near Seattle. But the most remarkable thing about Sinegal is his salary -- $350,000 a year, a fraction of the millions most large corporate CEOs make.

"I figured that if I was making something like 12 times more than the typical person working on the floor, that that was a fair salary," he said.

Of course, as a co-founder of the company, Sinegal owns a lot of Costco's stock -- more than $150 million worth. He's rich, but only on paper.

Nell Minow, editor and founder of the Corporate Library and an expert on corporate governance, said she was shocked to discover that Sinegal's employment contract is only a page long. "I would love to clone him," she said.

"Of the 2,000 companies in our database, he has the single shortest CEO employment contract. And the only one, which specifically says, he can be -- believe it or not -- 'terminated for cause.' If he doesn't do his job, he is out the door," Minow said.

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