The union of decent human beings

by David Esrati on November 27, 2012

in Change the world, The Economic Divide

Before Wisconsin Governor Walker tried to make state-sponsored union bashing into sport, and before the labor union movement in the twenties, what just happened in Bangladesh, where 112 people died in a sweat shop making clothes for Wal-Mart used to happen here. Exploitation of human capital for profit is nothing new.

The only question is how long can we force ourselves to look away?

Wal-Mart’s simple answer is to deny they knew about it, then cut off one head of the serpent- and hope it goes away:

Wal-Mart said Monday that the factory, owned by Tazreen Fashions Ltd., had been making clothes for the U.S. retail giant without its knowledge. Tazreen was given a “high risk” safety rating after a May 2011 audit conducted by an “ethical sourcing” assessor for Wal-Mart, according to a document posted on the website of Tazreen’s parent company, the Tuba Group.

Wal-Mart said the factory was no longer authorized to produce merchandise for Wal-Mart but that a supplier subcontracted work to it “in direct violation of our policies.” The retailer said it stopped doing business with the supplier Monday.

“The fact that this occurred is extremely troubling to us, and we will continue to work across the apparel industry to improve fire safety education and training in Bangladesh,” Wal-Mart said in a statement.

via Bangladeshis mourn garment-fire dead, plan protest | www.daytondailynews.com.

But, just blaming Wal-Mart isn’t fair. The computer I’m writing this on, made for the “most valuable” company in the world- Apple, is assembled by people working in sub-standard conditions for sub-standard pay. Both companies are based in the USA- but do very little actual making of the goods they profit from here. Both companies also pay their executives exorbitant salaries and bonuses, based in part, by their ability to stand on the backs of people who are earning a subsistence wage.

It doesn’t have to be this way. It is possible to pay people a living decent wage, provide health care, work in safe conditions and still make money. Need proof? My friend Bridget had this NYT article in her Facebook feed about Costco and its CEO Jim Sinegal- I’ve extracted the relevant parts:

Costco’s average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam’s Club. And Costco’s health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco “it’s better to be an employee or a customer than a shareholder.”

Mr. Sinegal begs to differ. He rejects Wall Street’s assumption that to succeed in discount retailing, companies must pay poorly and skimp on benefits, or must ratchet up prices to meet Wall Street’s profit demands.

Good wages and benefits are why Costco has extremely low rates of turnover and theft by employees, he said. And Costco’s customers, who are more affluent than other warehouse store shoppers, stay loyal because they like that low prices do not come at the workers’ expense. “This is not altruistic,” he said. “This is good business.”

He also dismisses calls to increase Costco’s product markups. Mr. Sinegal, who has been in the retailing business for more than a half-century, said that heeding Wall Street’s advice to raise some prices would bring…

IF shareholders mind Mr. Sinegal’s philosophy, it is not obvious: Costco’s stock price has risen more than 10 percent in the last 12 months, while Wal-Mart’s has slipped 5 percent. Costco shares sell for almost 23 times expected earnings; at Wal-Mart the multiple is about 19.Mr. Dreher said Costco’s share price was so high because so many people love the company. “It’s a cult stock,” he said.

Emme Kozloff, an analyst at Sanford C. Bernstein & Company, faulted Mr. Sinegal as being too generous to employees, noting that when analysts complained that Costco’s workers were paying just 4 percent toward their health costs, he raised that percentage only to 8 percent, when the retail average is 25 percent…

“When Jim talks to us about setting wages and benefits, he doesn’t want us to be better than everyone else, he wants us to be demonstrably better,” said John Matthews, Costco’s senior vice president for human resources.

With his ferocious attention to detail and price, Mr. Sinegal has made Costco the nation’s leading warehouse retailer, with about half of the market, compared with 40 percent for the No. 2, Sam’s Club. But Sam’s is not a typical runner-up: it is part of the Wal-Mart empire, which, with $288 billion in sales last year, dwarfs Costco….

Despite Costco’s impressive record, Mr. Sinegal’s salary is just $350,000, although he also received a $200,000 bonus last year. That puts him at less than 10 percent of many other chief executives, though Costco ranks 29th in revenue among all American companies.

“I’ve been very well rewarded,” said Mr. Sinegal, who is worth more than $150 million thanks to his Costco stock holdings. “I just think that if you’re going to try to run an organization that’s very cost-conscious, then you can’t have those disparities. Having an individual who is making 100 or 200 or 300 times more than the average person working on the floor is wrong.” (emphasis added)…

Besides paying considerably more than competitors, for example, Costco contributes generously to its workers’ 401(k) plans, starting with 3 percent of salary the second year and rising to 9 percent after 25 years.

ITS insurance plans absorb most dental expenses, and part-time workers are eligible for health insurance after just six months on the job, compared with two years at Wal-Mart. Eighty-five percent of Costco’s workers have health insurance, compared with less than half at Wal-Mart and Target.

Costco also has not shut out unions, as some of its rivals have. The Teamsters union, for example, represents 14,000 of Costco’s 113,000 employees. “They gave us the best agreement of any retailer in the country,” said Rome Aloise, the union’s chief negotiator with Costco. The contract guarantees employees at least 25 hours of work a week, he said, and requires that at least half of a store’s workers be full time.

via How Costco Became the Anti-Wal-Mart – New York Times.

And while I’m sure Costco is buying inventory made by subsistence workers as well, the expression “charity begins at home” comes to play in that at least Costco workers aren’t on food stamps like most Wal-Mart workers. When we hear about the rise of “entitlements” and the “47% who don’t pay taxes” being bandied about by politicians who pan-handle their way into power by accepting campaign payola from companies like Wal-Mart, why aren’t we asking if there is a better way? Instead of spending $^ billion on winning/losing elections, or subsidizing the payroll of companies like Wal-Mart, why aren’t we looking to build a system that only rewards those who create jobs that wouldn’t embarrass the company when the conditions are revealed (hence Wal-Mart cutting off the company that just incinerated 112 people).

It’s not about tax rates, as Warren Buffett just pointed out (once again) in another letter to the New York Times, it’s not about entitlements, it’s not about “Obama care” it’s about creating a country where “all men are created equal” and given an equal chance to contribute.

Our national pride should be on the line- not based on wars won or lost, or our “democratic process” (which isn’t so democratic when you realize that only with the help of the wealthy can anyone get elected)- but based on the common decency we grant to all.

The ratio model for CEO pay that Jim Sinegal abides by should be the first step in any process to fixing our country’s financial mess. Forget the maximum tax rate of 39%- tax compensation over a 40 to 1 ratio at 90% and see how fast things change. If Wal-Mart paid its employees enough that they didn’t qualify for food stamps and their executives weren’t spending millions buying favorable laws from the pan-handling politicians, as our nation’s largest private employer things would be a lot different.

Maybe even starting with 112 less dead people in a sweatshop.

 

 

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{ 2 comments… read them below or add one }

joe_momma December 5, 2012 at 7:30 am

But, just blaming Wal-Mart isn’t fair. The computer I’m writing this on, made for the “most valuable” company in the world- Apple, is assembled by people working in sub-standard conditions for sub-standard pay. Both companies are based in the USA- but do very little actual making of the goods they profit from here. – DE
 
LOL.  Right.  But what you meant to say was “The computer I’m writing this on, made for the “most valuable” company in the world- Apple, is assembled by people working in sub-standard conditions for sub-standard pay.   Both companies are based in the USA- but do very little actual making of the goods they profit from here.  I hate those profit seeking Apple bastards and the way they make those folks in China assemble their products even though I willing went out of my way to buy their product.  Oh yeah….when are they going to release the iPhone 6?”
 
 
 
Both companies are based in the USA- but do very little actual making of the goods they profit from here”. – DE
 
So Apple doesn’t put the parts together in the US.  That’s just a small fraction of the equation.  You are leaving out Apple’s R&D, Marketing, Accounting, Finance. Legal etc…located in the good ole’ USA.  Not to mention the patchouli scented hipsters working at the Apple stores, the pimply faced geeks at the big box stores,  wireless phone sales guys and gals.  Oh and don’t forget the plethora of 3rd party accessories that are developed for Apple products or the wonderful people at Rovio and the like that develop addictive low cost but highly entertaining apps (Damn you Angry Birds) or the 3rd party products that are made for the apps (it could be an Angry Birds Christmas this year).  In other words the amount of people and processes involved in bringing an Apple product to market is  vast,  complex and dynamic.  They really don’t need us to tell them how to do it.  
 
 
 
 
“The ratio model for CEO pay that Jim Sinegal abides by should be the first step in any process to fixing our countries financial mess” – DE
 
Fyi.  Jim Sinegal is no longer the CEO and has retired.  His total compensation in 2011 was 2.2M….not 650K.  In 2010 it was 4.6M…not 650K. The new CEO, Craig Jelinek’s total compensation is 5.8M….not 650K.  Interestingly that lines up with retailing medians in terms of compensation.  I’m not pointing this out to disparage the Costco CEO’s.  I’m pointing it out because getting effective people to run a 60 Billion dollar company costs money.  A lot of money.  If you don’t pay them, then most of them will gladly pursue some other opportunity because being CEO of an international multi-billion dollar company for 300K is not worth it.  It’s a 24-7 job where you are likely on the road more than you are at home with your family.  They could easily make that amount of money in sales vs being in management with a better quality of life.  Costco has a great business model.  It works for them.  That does not mean it is the right business model for everyone.  The last thing we need is the government getting more involved in determining what the cost structure of a company looks like….especially since they have absolutely zero credibility when it comes to their own cost structure.

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David Esrati December 5, 2012 at 10:44 am

@Joe_momma- thanks for the updates and corrections on the Sinegal side- although, generally- I’ve not had to fact check the New York Times.

As to all those other people making money off the Apple supply chain- etc- that’s great- but, there is still the problem that Apple’s cash horde is growing faster than they can dispose of it. It’s become a real problem. The proper thing to do would be to distribute it as dividends- however, the huge stock awards to internal people have made that an uncomfortable problem for these mega-millionaires.

Believe it or not- CEOs used to get by on a few million a year- easily. This idea that you have to pay them ungodly amounts- only became relevant when top marginal tax rates were dropped to historic lows and the competition for biggest pecker turned into sport. Shareholders of old, wouldn’t have stood for such outlandish compensation.

As to the willingness of sweatshop workers in China- that’s what happens when communists are given a hall pass. Just like capitalists- they will exploit the masses as much as possible. Still doesn’t make excuses for Wal-Mart employees being eligible to be subsidized by food stamps. Time to cut that loop hole out and make Wal-Mart be held accountable.

 

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