Costco has gone head to head with the likes BJ’s, Target, and Sam’s Club and has come out the winner. Offering over 3,700 discounted household products to over 71 million people across Asia, Spain, Puerto Rico, Mexico, Canada, and 44 states in the United States, like their competitors, they also offer additional services, including mortgage, car, and home insurance, as well as travel packages.(1)

Costco has proven though that there is more to warehouse stores than just low prices. So how can Costco beat other retailers like Walmart, BJ’s, and Target, who sell similar products and services? By having “great jobs, great pay, great benefits and a great place to work,”(2) Costco has attracted employees who are ardent and arduous workers, who thrive on working in a dynamic and hypercompetitive industry, and who are high achievers and excel in a team environment. So how does one then attract such superstars to one’s business?

Costco has learned that the secret to hiring the best and the brightest is not through salary alone but by offering a superior work environment, including a comprehensive benefits package. They pay a higher insurance premium percentage than their competitors toward employees’ and include in the plan the employees’ entire family (spouse, domestic partner, and dependents). Employees pay their portion of the premiums with pretax dollars, therefore reducing their taxable income. Employees also qualify very quickly for benefits relative to industry standards. Salaried employees receive benefits after the first month of service while full-time and part-time hourly employees are eligible after 90 and 180 days of service or 450 and 600 hours, respectively.....

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 Costco employ this theory within their compensations system? Or don’t they?
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?