Whole Foods Market, Inc. (WFM), Costco Wholesale Corporation (COST): The Power of Incentives for Investing Success

Money Matters

A 2005 article by the New York Times describes Costco Wholesale Corporation (NASDAQ:COST) as “The Anti-Wal-Mart Stores, inc. (NYSE:WMT).” According to the article, salaries at Costco are a 42% higher than at Sam´s Club, and the company is much more generous than its competitor when it comes to health plans and other benefits.

Wall Street analysts are typically against these kinds of policies–cutting expenses as much as possible in order to maximize short term profits is the usual receipt to compete in discount retail. But good wages and benefits have been a plus for Costco and its investors: a motivated workforce means lower turnover and a more collaborative attitude by employees, and this has been translated into superior performance for the company from a pure business perspective.

Costco Wholesale Corporation (NASDAQ:COST) is outgrowing Wal-Mart and it´s Sam´s Club business, so happy employees apparently mean happy customers and happy shareholders too. The difference in growth rates cannot be exclusively attributed to compensation policies–there are many factors at play and Costco is a younger company than Wal-Mart. However, the fact that Costco is beating Sam´s Club could be interpreted as evidence of the relevance of employee motivation and providing the right incentives to achieve superior results.

Bottom Line

Human resources are perhaps the most relevant driver of long term performance in the business world. As investors, we need to analyze the incentive structures in order to make sure that the company can attract the best talent and keep those skilled employees well motivated. It can be via a personal passion, a distinct corporate philosophy or simply by providing better salaries and benefits than the competition, but the power of incentives should not be underestimated.

The article The Power of Incentives for Investing Success originally appeared on Fool.com and is written by Andrés Cardenal.

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