Please read attached document…

Due Friday 01/20/2017

Read the follwing case study and answer the question

It’s All About the Message : Leadership Communication at Costco
Jim Sinegal, cofounder and the recently retired CEO at Costco, began his career at age 18 unloading mattresses in a month-old venture called Fed-Mart. After several acquisitions and start-ups, Fed-Mart morphed into Costco in the early 1980s. Today Costco sales exceed $89 billion a year and it is one of the world’s top 10 retailers. Costco is a warehouse merchandiser in the mold of Sam’s Club or Walmart and sells everything from wine (more than any other single retailer in the world) and salmon fillets TVs leather sofas. But while Sam’s Club and art have been criticized for being driven strictly by profit, Costco has adopted a values driven approach that was firmly anchored by Sinegal. One investment officer described Sinegal as “the most prominent CEO terms of setting corporate culture that I can recall. He’s basica retail Steve Jobs.” His successor Jelinek, a long-time Costco employee, is expected to maintain the company’s vision and values.
Sinegal believes that employees should be paid fair wages for their valuable contributions to the organization. The average Costco warehouse employee earns significantly more than at other warehouse merchandisers. According to Sinegal, “They’re entitled to buy homes and live in reasonably nice neighborhoods and send their children to school.” Costco also offers better than average benefits, including paying 90% of health care coverage. When employees ended up paying more than 10% of their health care costs one year, Sinegal gave them additional stock for their 404(k) retirement plans. Wall Street analysts are critical of Costco’s pay and benefits policies. One complained, “It’s better to be an employee or a customer than a shareholder.”
As Sinegal explains, there is a real business advantage in treating employees well. He calls his 120,000 loyal employees “ambassadors.” These employees tell the company’s story to the more than 45 million shoppers who visit a Costco store, and they often stay with the company (Costco has the lowest employee turnover rate in retailing), Sinegal also took unorthodox view on his own compensation. Sinegal’s salary was just $350,000 plus additional bonuses. Costco stock brought his total compensation package to around $3.5 million, which was only a fraction of that earned by other business leaders. Further, Sinegal’s CEO employment contract with Costco was the shortest of more than 2,000 such contracts reviewed by the corporate governance organization. The Corporate Library – and the only one that specifically states that he could be “terminated for cause” if he didn’t perform. Sinegal’s office was a tiny alcove without a door furnished with nothing more fancy than folding chairs.
As unique as all of this is, perhaps the most exceptional element of Sinegal’s leadership was (and is) presence within the company. He led from the road, hopping on the corporate jet and visiting up to half a dozen Costco stores a day, including the grand openings of all new store locations. During these visits he interacted with his 120,000 “ambassadors,” met with customers and, quite simply, pitched in where he could help – always wearing his Costco employee name tag that simply read, Jim. When he was at his corporate office he answered his own telephone (if a customer’s calling and they have a gripe, don’t you think they enjoy the fact that l picked up the phone and talked to them?”)
Costco employees gush about the family atmosphere, and why not? The company promotes almost 100% from within, As Sinegal explains, “We have guys who started pushing shopping carts out in the parking lot who are now vice presidents our company.” It’s not loyalty that pushed Sinegal to hire from within; those who have been with the company know the Costco story and, as such, are better able to adhere to the core philosophy of providing quality and value. Examples of adherence to the corporate philosophy are labeled “salmon” stories in honor of a particularly successful effort. In 1996 Costco sold salmon fillets at $5.99 per pound. Over a five year period Costco buyers were able to negotiate price that lowered the to $3.99 per pound while, at the same time, substantially increasing the quality of the product by improving the trim and Costco to the pin bones, among other enhancements. This story is used as a teaching tool at that encourage others to hold fast to company philosophy. Even more powerful is the fact that Costco employees approached Sinegal to tell him their version of the “salmon” story, explaining the efforts they have undertaken to reduce prices while increasing value to the customer.
Discussion Questions
1. Do you agree with Sinega that will be more effective at telling the corporate story to customers if they are treated as “ambassadors”?
2. What should a CEO earn? Was Sinegai underpaid at Costco? Why or why not?
3. Have you ever been involved with an organization where the CEO had a strong (or weak) presence? What was the impact of having regular interaction (or a lack of interaction) with this individual?
4. Do you think that Costco is too generous to employees an not generous enough to stockholders?
5. Do you think Costco’s pay and benefits policies and strategy of hiring from within are mostly helpful harmful to the bottom line?
6. Have you ever been part of a group or organization that had its own version of a “salmon” story? If so, what was the impact of this story?