Obama praises Costco on pay practice

He says company proves higher wages boost productivity

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President Barack Obama has found an industry ally in his call to reduce income inequality: warehouse retailer Costco Wholesale Corp.

On Wednesday, in the wake of his State of the Union address, in which he called for lifting the minimum wage for working Americans, the president chose to speak at a Costco in Maryland.

The Issaquah-based company, he said, is proof that higher wages are "a smart way to boost productivity and to reduce turnover."

Chief Executive Craig Jelinek said the president understands the way of business pioneered by Ford Motor Co. founder Henry Ford in the early 20th century, when the car industry tycoon chose to pay workers a fair salary.

"He knows that Costco is going to do better, all our businesses do better, when customers have money to spend," Obama said.

In the State of the Union address, Obama said he would issue an executive order requiring federal contractors to pay at least $10.10 an hour.

The presidential visit underscores how Costco is gaining an increasingly prominent role in the growing national debate about income inequality.

The company is known

for paying its workers well -- an average of $20.89 per hour for its hourly employees. Starting salaries at its warehouses amount to $11.50 an hour, said Chief Financial Officer Richard Galanti, well above the federal minimum wage of $7.25.

Costco's executives are also famous for taking home less than those in competing companies at a time when executive salaries have skyrocketed and average wages have stagnated in the face of global competition.

As campaigns to raise minimum wages rage from Seattle to New York City, Costco's model is increasingly seen as an alternative to bottom-line-focused capitalism.

Many of the company's shareholders, who saw Costco profits grow even as other retailers suffered through the recession, seem happy with the approach.

In a recent securities filing, shareholder Davis Advisors said that Costco's culture, as led by its board of directors, "has been a core element of the long-term success of the company in part because it inhibits any temptation to take actions (like raising prices or cutting store employee pay and benefits) that might temporarily boost earnings and stock price" at the expense of long-term value.

It's not the first time Costco has participated in a love-fest with the administration. Vice President Joe Biden did some of his holiday shopping at a Washington, D.C., Costco in November 2012. At the time, he talked about extending middle-class tax cuts.

In February 2012, Obama attended a private fundraiser at Costco co-founder Jeff Brotman's house in Medina.

Former Costco CEO Jim Sinegal spoke at the 2012 Democratic National Convention, where he said that job creation and shareholder satisfaction could be reconciled with relatively high wages for unskilled workers. "We're proud that Costco pays the highest wages among our peers," Sinegal said.

In the 2012 election cycle, individuals associated with Costco contributed $43,860 to the Obama campaign, according to OpenSecrets.org.