Last week, the Los Angeles times quoted Wal-Mart CEO, Lee Scott’s contention that “Wal-Mart and other retailers don’t have the kind of profit margins that allow them to bring workers into the middle class the way that manufacturing jobs did for earlier generations. ‘Retail does not perform that role anywhere in the world,’ he said.”

Scott’s income, however, has not suffered. According to Bloomberg his total annual income was five times greater than his predecessor David Glass. Is this because Wal-Mart was five times more profitable? Nope. Between 1994 and 1999 (under Glass) Wal-Mart’s total return was 31.6 percent per year. Between January, 2000 and August 29, 2004, Wal-Mart’s total return was negative 2.1 percent per year on Scott’s watch.

H. Lee Scott

Compare this with the record of Costco CEO James Sinegal. Costco, America’s fifth largest retailer, competes – and wins – in the same category as Wal-Mart’s Sam’s Club.

A 2004 report in BusinessWeek noted that Costco beats Sam’s Club’s profit per employee by over $2,000 an hour, generating about the same level of sales with one third fewer employees. Only six percent of Costco employees leave after the first year, compared to 21 percent at Sam’s Club. Costco employees outsell Sam’s employees by nearly $300 per square foot.

Why? BusinessWeek let a Costco employee answer the question: “‘Employees are willing to do whatever it takes to get the job done,’ says Julie Molina, a 17-year Costco worker in South San Francisco, Calif., who makes $17.82 an hour, plus bonuses.”

It’s an interesting snapshot: 17 year-old Julie Molina, earns $17.82 an hour plus bonuses in a community of 60,000 where 39 percent of the citizens are foreign born, 25 percent are college graduates, six percent have graduate or professional degrees and less than a third are Anglo American.

This is the way Costco does business: Paying near $16.00 an hour on average and “managing with years or decades in mind vs. Wall Street’s quarter-to-quarter focus” (USA Today, September 23, 2004, Money); covering over 80 percent of employees with company health insurance (of which the company pays over 90%) and maintaining employee turnover at half the rate of Wal-Mart (Wall Street Journal, March 26, 2004).

James Sinegal

Costco CEO Jim Sinegal takes $350,000 in salary each year plus bonuses. That’s about double the salary of a Costco Warehouse Manager and less than ten times the salary of a Costco Cashier with three-and-a-half years on the job. According to a New York Times story (April 4, 2004, Section 3, Page 1), Mr. Sinegal turned down bonuses in 2001-2003: “I rejected my bonus because we had a couple of years where we hadn’t performed up to our standards,” he said. “We were more profitable than the year before, but we didn’t hit the standards we had set for ourselves, so we didn’t think we were entitled.”

Charles Munger, vice chairman at Warren Buffet’s Berkshire Hathaway and a Costco director, told the NY Times Sinegal is, “Not part of a Wall Street scene in any way. He just has a moral compass. He has that old-fashioned idea that being an exemplar is important.”

The NY Times article continues:

But Mr. Sinegal countered that it is just good business. “If you’re going to say to all the people that you’re working with, ‘We want you to treat the customers honestly; don’t lie and don’t cheat,’ it is somewhat hypocritical if you’re not following the same rules,” he said. “Everybody is watching you every minute anyways. If they think the message you’re sending out is phony, they’re going to say, ‘Who does he think he is?’ It’s again good business. But it is also an obligation.”

Last week, Wal-Mart’s Lee Scott told the L.A. Times that retail cannot bring workers into the middle class, saying “Retail does not perform that role anywhere in the world”.

Last February, Costco’s Jim Sinegal, told the L.A. Times "I don’t see what’s wrong with an employee earning enough to be able to buy a house or having a health plan for the family" (Feb 15, 2004. pg. C.1).

Is one of these approaches closer to a biblical notion of just compensation than the other?

How does Deuteronomy 24.14-15 speak into this question?

Do not take advantage of a hired man who is poor and needy, whether he is a brother Israelite or an alien living in one of your towns. Pay him his wages each day before sunset, because he is poor and is counting on it. Otherwise he may cry to the LORD against you, and you will be guilty of sin.

Or James 4.13-5.7?

Now listen, you who say, “Today or tomorrow we will go to this or that city, spend a year there, carry on business and make money.” Why, you do not even know what will happen tomorrow. What is your life? You are a mist that appears for a little while and then vanishes. Instead, you ought to say, “If it is the Lord’s will, we will live and do this or that.” As it is, you boast and brag. All such boasting is evil. Anyone, then, who knows the good he ought to do and doesn’t do it, sins.

Now listen, you rich people, weep and wail because of the misery that is coming upon you. Your wealth has rotted, and moths have eaten your clothes. Your gold and silver are corroded. Their corrosion will testify against you and eat your flesh like fire. You have hoarded wealth in the last days. Look! The wages you failed to pay the workmen who mowed your fields are crying out against you. The cries of the harvesters have reached the ears of the Lord Almighty. You have lived on earth in luxury and self-indulgence. You have fattened yourselves in the day of slaughter. You have condemned and murdered innocent men, who were not opposing you.

Let us know what you think about this. Costco’s Jim Sinegal told the NY Times his work ethic and management philosophy came from “his mother and father and a Catholic school education.”

• Where did you get your work ethic and management philosophy?
• What forces continue to shape that ethic and philosophy?