HRM and Organization Culture at Costco: A Case Study Stephen Andrews Stephen.andrews299@myci.csuci.edu 5/05/2014

Human Resource Management function in organizations designed to maximize employee performance in service of their employer’s strategic objectives HR is primarily concerned with how people are managed within organizations, focusing on policies and systems Responsible for a number of activities Recruitment Training and developing Rewarding (managing pay and benefit systems)

Costco Wholesale the second-largest retailer in the U.S. behind Walmart Costco’s sales have grown 39 percent and its stock price has doubled since 2009 Reputation of treating its employees very well High pay relative to competitors Company sponsored insurance Vacation time Happy work environment Promotes from within After 4.5 years with company, employees receive $2,000 bonus every 6 months

Costco’s Employees Costco pays its hourly workers an average of $20.89 Walmart’s average wage for full-time employees in the U.S. is $12.67 an hour Eighty-eight percent of Costco employees have company- sponsored health insurance Walmart says that only about half of their employees have company sponsored health insurance

Why? Costco treats its employees well in the belief that a happier work environment will result in a more profitable company CEO, Craig Jelinek says: “I just think people need to make a living wage with health benefits” “It also puts more money back into the economy and creates a healthier country. It’s really that simple.” “We know it’s a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty,” Many other retail companies, such as Walmart and Amazon, have had employee strikes. Costco has never had a real strike in its 30 year history.

Case of Joe Carcello Costco Employee for 26 years 59 years old $52,700 annual salary 5 weeks of vacation 401(k) Retirement fund Received a raise during the 2009 economic crisis “I’m just grateful to come here to work every day.”

What does this mean for the company? Only a 12% employee turnover rate of 30 years of doing business Employees don’t want to leave the company Rarely have to worry about training new employees

“Good Jobs” are good for retailers Common thought is that many companies have no choice but to offer bad jobs—especially retailers whose business models entail competing on low prices. Easiest way to cut expenses Labor is the largest controllable expense for retailers retailers see labor as a cost driver rather than a sales driver and therefore focus on minimizing its costs

“Good Jobs” are good for retailers (cont.) But… Highly successful retail chains— such as Trader Joe’s, and Costco—not only invest heavily in store employees but also have the lowest prices in their industries, solid financial performance, and better customer service than their competitors. “Good jobs” will attract higher caliber employees to give you the results you want Low paid, unskilled, and uninspired workers are not the right people you need to thrive They have demonstrated that, even in the lowest-price segment of retail, bad jobs are not a cost-driven necessity but a choice. And they have proven that the key to breaking the trade-off is a combination of investment in the workforce and operational practices that benefit employees, customers, and the company

Comparison

References Johnson, P. (2009). HRM in changing organizational contexts. In D. G. Collings & G. Wood (Eds.), Human resource management: A critical approach (pp. 19-37). London: Routledge. Paauwe, J., & Boon, C. (2009). Strategic HRM: A critical review. In D. G. Collings & G. Wood (Eds.), Human resource management: A critical approach (pp. 38-54). London: Routledge. Stone, Brad. "Costco CEO Craig Jelinek Leads the Cheapest, Happiest Company in the World." Bloomberg Business Week. Bloomberg, 06 June 2013. Web. 30 Apr. 2014. Ton, Zeynep. "Why "Good Jobs" Are Good for Retailers." Harvard Business Review. Harvard Business Review, Jan.-Feb. 2012. Web. 01 May 2014. Weinmann, Karlee. "What Costco CEO James Sinegal Can Teach You About Management.” OPEN Forum. American Express, 27 Dec. 2011. Web. 01 May 2014.

Multiple Choice Questions Which of the following is not a function normally performed by the HR department? Employee Relations Recruitment and selection Training and development Pay and Reward Accounting Which of the following is something Costco does not provide its employees? High Pay Health Insurance Free beer once a week 5 weeks of vacation High chance of promotion