Costco Cuts Costs By Cutting Wages

Costco Wholesale Corp. has lived up to its name.

It has shown it really knows how to cut costs - even the pay for some of its workers.

For years, young Costco employees have been among the highest paid in the region. Now, after a previously undisclosed cost-cutting move by their company, those young people are starting their jobs at about the same pay level as a hamburger jockey with two years on the job.

Costco on Sept. 1 quietly initiated a new policy that cuts starting wages by 15 percent - to as low as $7 an hour - for about 3,600 new workers a year.

Jim Sinegal, president of the Kirkland-based chain of members-only warehouses, said the lower pay scale affects the three-month probationary period when a new employee starts work. Stockers and checkout assistants now earn $7 an hour for that period; cashiers earn $7.50.

After the first three months, the workers' wages will move up to the starting wage that was in place before the cost-cutting move was instituted - $8.27 an hour for stockers and checkout assistants and $8.90 for cashiers.

"It only affects the first three months. We've maintained the same wage structure after that," Sinegal said. The move affects only employees hired after Sept. 1.

Costco in recent months has been under pressure from Wall Street to boost sales growth and keep its costs under control. During the company's fiscal year ended Aug. 30, weak consumer spending and so-called "cannibalization" of Costco's warehouses by new Costco stores built nearby have been blamed for a 42 percent decline in sales growth at stores open more than a year - a measure closely watched by investors.

Sinegal said the pay cut for newcomers could save the company as much as $15 million by Aug. 30, 1995. However, one analyst, Piper Jaffray Managing Director Saul Yaari, estimated that the savings could be twice that much.

Most of Costco's 17,000 employees are young, with an average age of 26 or 27. Many are in their teens or early 20s, and a fair number work part-time while attending college.

Only about 5 percent of the workers are on salary, and about half of all Costco employees work less than 40 hours a week.

The average pay of hourly workers is $12 an hour, or about $25,000 a year. After two years, when they reach the top of the pay scale, they earn $14.67 an hour, about $30,500 a year. With bonuses, that can reach $32,500, Sinegal said.

Yaari said the new hourly pay rate for beginning workers is competitive with the rest of the industry. "Once they pass the probation period, they are moving into a very high wage scale," he said.

"In the probation period, you would work as if there is no tomorrow. After that, the sky's the limit," he said.

At full salary, Costco workers make $1.50 an hour more than those at other wholesale clubs such as Price Club or Sam's, and $2 to $3 an hour more than those at other retailers, Yaari added.