Review: Profit At the Bottom Of The Ladder
Since coming back from Netroots Nation, I have been thinking a lot about workers' rights. When did we get to the point in our country that workers like teachers and union members are the greedy and grubby ones? No one seems to care that much about the investors who don't have to work, for example. Or asking the CEO to take a pay cut, or even worse, pay more in taxes. Gasp!
Finally, I spotted a story, in this case the Washington Post, scrutinizing CEO pay, which is at the highest levels in our history. Read on:
The evolution of executive grandeur — from very comfortable to jet-setting — reflects one of the primary reasons that the gap between those with the highest incomes and everyone else is widening.
For years, statistics have depicted growing income disparity in the United States, and it has reached levels not seen since the Great Depression. In 2008, the last year for which data are available, for example, the top 0.1 percent of earners took in more than 10 percent of the personal income in the United States, including capital gains, and the top 1 percent took in more than 20 percent. But economists had little idea who these people were. How many were Wall street financiers? Sports stars? Entrepreneurs? Economists could only speculate, and debates over what is fair stalled.
Now a mounting body of economic research indicates that the rise in pay for company executives is a critical feature in the widening income gap.
The newspaper brilliantly compared the life of a milk company CEO in the 1970s to today. It is eye-opening.
Along this theme, I just finished reading a book about the value of investing in our workforce: Profit at the Bottom of the Ladder: Creating Value by Investing In Your Workforce by Jody Heymann with Magda Barrera. I loved this example of Costco in the book:
"Hiring and training new employees is expensive, so Costco figures their low turnover rate makes up for the higher pay," George Whalin, president of Retail Management Consultants, noted. Past the one-year mark, Costco has one of the lowest turnover rates in the industry. According to a 2004 article, Costco's overall turnover rate was 24 percent a year, which was less than half of Wal-Mart's turnover rate of 50 percent. Beth Hall, a deli manager who has worked at Costco for ten years, discussed the importance of wages in her decision to stay at Costco, stating that she expected to work there long term: "(I'll stay here) forever. You can't earn this kind of money anywhere (else) without a college degree."
CFO Richard Galanti was clear on how Costco was able to afford better wages: "The fact is that we have the ability to afford a higher wage because even if we're paying a $4 to $5 an hour higher average wage than Sam's (Club), we're doing almost twice the sales -- 70 percent more per square foot." Costco's finances also benefit from its extremely low shrink rate, which refers to the amount of merchandise lost to employee theft. According to Vito Romano, "The industry average is somewhere between 2 and 4 percent. We're at less than 0.02 percent." Jim Sinegal concurred that good wages and benefits are the reason that Costco has extremely low rates of theft by employees.
This, and the fact that Costco doesn't even have PR department -- it naturally gets a great reputation for the way it treats its workers -- makes me want to renew my Costco membership. It's two towns down from us, which is why I stopped going. But if I ever need anything from a Target-like store, I am going to go there instead.
Costco is onto something that CEOs should take note:
Building and maintaining a good corporate reputation is critical to success. In fact, surveys have shown that most CEOs consider their company's reputation to be their most important intangible asset. With increasing public attention being paid to companies' global footprints, most firms at least state their intentions to be socially responsible. After a series of public relations scandals over goods produced under sweatshop conditions, more firms have begun to recognize the necessity of paying attention to working conditions in their operations in all countries.
We should reward companies that treat their employees fairly. Which leads to my last point on this book: there were so many companies -- big and small -- attempting to do right by their employees all over the world. Companies like Costco, SA Metal Group, Novo Nordisk, and Dancing Deer. Not only should consumers take notice, but I wonder how much more effective non-profit organizations' work would be if they partnered with private companies as opposed to only other advocacy groups?
I would say that Profit At The Bottom Of The Ladder should not only be required reading for companies and legislators, but also advocacy and consumer groups.