Only Costco as a physical retailer can go toe-to-toe with Walmart in the wholesale market and come out on top. Operating more than 715 membership warehouse stores, Costco is the nation’s largest wholesale club operator (ahead of Walmart’s Sam’s Club). Primarily under the Costco Wholesale banner, it serves more than 71 million members in 44 U.S. states, Washington, D.C., and Puerto Rico, as well as in Canada, Mexico, the United Kingdom, Japan, South Korea, Taiwan, and Spain. Stores offer discount prices on an average of about 3,700 products (many in bulk packaging), ranging from alcoholic beverages and appliances to fresh food, pharmaceuticals, and tires. Certain club memberships also offer products and services, such as car and home insurance, mortgage and real estate services, and travel packages.87 How can Costco beat other retailers, such as Walmart, BJ’s, and Target, who sell similar products and services? By looking for ambitious, energetic employees who enjoy a fast-paced team environment filled with challenges and opportunities. Their successful employees are service-oriented people with integrity and commitment toward a common goal of excellence. More important, Costco offers, in their own words, “great jobs, great pay, great benefits and a great place to work.”88 Their benefits package not only provides their employees with a full spectrum of benefits (medical, dental, pharmacy, vision, 401K matching, short- and long-term disability, life insurance, and others), but employees also may elect coverage for their spouses, children, and domestic partners. The company pays a larger percentage of the premiums than do most other retailers, and employee-paid premiums are withheld pre-tax, which means employees get to keep more of their hard-earned money.
U.S. BENEFIT-ELIGIBILITY REQUIREMENTS ARE AS FOLLOWS:
Hourly employees (full-time) are benefit-eligible on the first of the month after working 450 hours or 90 days, whichever comes first.
Hourly employees (part-time) are benefit-eligible on the first of the month after working 600 hours or 180 days, whichever comes first.
Salaried employees are benefit-eligible on the first of the month after date of hire.
HEALTH CARE Full-time and part-time benefit-eligible Costco employees are offered generous health care coverage with low biweekly payroll contributions.
DENTAL CARE Full-time benefit-eligible Costco employees may choose from two different dental plans: a core dental plan and a premium dental plan. Part-time benefit-eligible employees may elect a core dental plan.
PHARMACY PROGRAM Most Costco warehouses have pharmacies in-house, making it easy to pick up prescriptions at work. Benefit-eligible employees’ co-payments can be as little as $3 for generic medications, and a 15% co-pay applies to other types of medications.
VISION PROGRAM Most Costco warehouses have in-house optical centers, which make it easy to access this benefit. For benefit-eligible employees and covered dependents, the program pays up to $60 toward a refraction eye exam and $175 for the purchase of prescription glasses and contact lenses.
401K PLAN Costco matches employee contributions 50 cents on the dollar for the first $1,000 each year to a maximum company match of $500 a year ($250 a year for West Coast Union employees).
DEPENDENT CARE ASSISTANCE PLAN This allows you to pay for day care for children under age 13, as well as adult day care, with pre-tax dollars.
CARE NETWORK Care Network’s professional counselors are dedicated to Costco employees and trained to help resolve personal, work, or family challenges. They also can provide guidance, information, and/or referrals to local service providers, including lawyers, debt resolution services, and behavioral health professionals.
VOLUNTARY SHORT-TERM DISABILITY Where disability coverage isn’t mandated by their state, all hourly employees who pass their 90-day probationary period and are working at least 10 hours a week will be automatically enrolled in short-term disability insurance.

LONG-TERM DISABILITY Coverage is at no cost for benefit-eligible employees who are enrolled in a medical plan. This policy pays up to 60% of their earnings if they are out past 180 days.
LIFE INSURANCE Benefit-eligible employees enrolled in a medical plan also receive basic life insurance and accidental death and dismemberment policies provided at no cost.
EMPLOYEE STOCK PURCHASE PLAN New employees are immediately eligible to enroll in this plan, which allows them to purchase Costco stock by payroll deduction.
HEALTH CARE REIMBURSEMENT ACCOUNT Benefit-eligible employees can arrange to have pre-tax contributions automatically deducted from their paychecks and placed into a Health Care Reimbursement Account.
LONG-TERM CARE INSURANCE Designed to pay for nursing home care, Costco provides a basic policy for employees with 10 or more years of service.89 According to a 2014 report published by glassdoor.com, Costco is the number two company to work for based on compensation and benefits (Google is number one).90 The Glassdoor ranking is based on employees’
opinions of their employer’s benefit and compensation package. The company received a 4.4 out of a possible 5 for compensation and benefits, and 3.8 out of 5 for total employee satisfaction. In addition, 82% of Costco employees would recommend the company to a friend. CEO Craig Jelinek has a 92% approval rating among employees. Reviews posted on the site by employees praising the Costco work environment said, “The best incentive at Costco is the benefits, whether you are working full time or part time. I paid 20 bucks a month for a $500 deductible with no co-pay.
The hourly compensation is more than fair, and I got the sense very quickly that management was eyeing the most competent workers for advancement.” “Great wages, benefits … and working for a great company that really truly cares about their members and employees.”91

Questions

1. What organizational processes does compensation affect, and what is Costco’s rationale for having an exceptional compensation plan?
2. What are the parts of a compensation system, and what component(s) does Costco’s compensation system focus on?
3. What are the four basic types of compensation, and which are evident at Costco?
4. What is expectancy theory, and how does or does not Costco employ this theory within their compensations system?
5. What are the differing types of basic wage classifications, and how does Costco categorize their workforce by basic wage?
6. What is Costco’s philosophy about employee compensation?
7. Costco lists numerous benefits that the firm provides employees above their basic salary. What pay rate and benefits must Costco provide their employees as required by federal labor laws?