Can a company pay its workers well and also make money?
Many aren’t quite hitting the right balance.
Hundreds of dis-satisfied workers at major American companies like Wal-Mart (WMT), McDonald’s (MCD) and Wendy’s (WEN) have joined protests nationwide in the past year demanding higher wages and better benefits.
One company that hasn’t had to deal with such strikes is Costco (COST).
The no-frills warehouse chain pays its hourly workers an average of just over $20 an hour, compared to just under $13 at competitor Wal-Mart. Even President Obama praised Costco in a recent speech about helping the middle class.
The recession has been good for companies that targeted budget-minded customers. Sales at Costco have grown an average of 13% annually since 2009, while profits have risen 15%. Its stock price has more than doubled since 2009.
During the same period, discount retailer Wal-Mart’s sales grew an average of 4.5% each year, profits rose 7%, and its stock price increased 70%.
Costco seems to be investing some of those profits back into its employees.
Cesar Martinez, a 37-year-old fork lift operator, has worked at a Costco in North Carolina for 19 years. He makes $22.82 an hour, gets health benefits and a pension plan. He manages to save, and doesn’t worry about hospital bills for his daughter, who suffers from asthma.
“That’s the reason why I’ve been here for so long,” he said. “The company gives you a decent wage and treats you with respect and takes care of you. That’s why we all give 100%.”
Some experts say companies aren’t able to adopt the Costco model, because they can’t charge its $55 annual membership fee.
However, research shows that it pays to pay employees well, because satisfied workers are more productive and motivated, according to MIT Sloan School of Management professor Zeynep Ton, who focuses on operations management.
“How many times have you gone to a store, and the shelves are empty or the checkout line is too long, or employees are rude?,” she said. “At Costco, you see a huge line that disappears in minutes.”
The productivity translates into sales, she said.
According to Ton’s research, sales per employee at Costco were almost double those at Sam’s Club, its direct warehouse competitor owned by Wal-Mart.
Workers who are dissatisfied with pay are joining picket lines. Last week, fast food workers in seven cities from chains like McDonald’s, Wendy’s and Yum (YUM) Brands-owned KFC, protested for higher wages of $15 an hour. It’s a demand they’ve been making since last November.
It’s been spreading — from hundreds of Amazon warehouse workers in Germany to Wal-Mart workers walking off work, all calling for better pay, fair schedules and affordable health care.
The median pay for fast food workers nationwide is $9.05 an hour, or about $18,800 a year.
“While the fast food and retail industry is making record profits, its workers are forced to rely on public assistance just to afford the basics,” according to Fast Food Forward, a union- and community group-backed organization behind some of the protests.
Courtesy: CNN Money