Both Wal-Mart and Costco are retail companies that provide products to consumers. The only
difference between the two companies is how they pay their employees. Wal-Mart pays low
wages while Costco pays higher than the market wage. With time, Costco becomes more
profitable than Wal-Mart an observation that organizations that pay higher wages become
profitable in the long-run (Thakor & Quinn 2019). A five-year comparison between Wal-Mart
and Costco common stock performance was done as of May 1, 2006. It was observed that
Costco’s value had risen by 55 percent during the period while that of Wal-Mart had fallen by 10
percent. High wages and profitability

Player’s Incentives
In a letter addressed to Costco shareholders, Jeff Brotman and Jim Sinegal once said that
the company would continue to obey the law, respect suppliers, takes care of members take care
of employees, and reward the shareholders. In Costco, rewarding employees come before
rewarding shareholders. Up-to-date Costco remains true to its values and ethics and its success
can be attributed to how it treats employees. Employees at Costco get a wage between $10 and
$18 in an hour and a bonus twice a year of between $2,000 and $3,000 (Cascio, 2018). The
company pays an average wage of $17 per hour. The high wages paid by Costco help keep the
turnover at low levels usually at 17 percent overall and 6 percent after the first year. Mr. Sinegal
says that high wage is not the only thing what motivates employees. Instead, they need to be
respected and to feel as if they are part of the organization. Looking at how Mr. Sinegal treats
employees and customers, some Wal-Mart Street analysts’ call it being overly generous (Cascio,
2018). Analyst Bill Dreher expresses his opinion in a hilarious way saying that it is better by far
being an employee at Costco than being a shareholder. Wal-Mart like many other companies
believes that shareholders are best served best if employers reduce costs including labor cost. It
is surprising that Wal-Mart does not publically announce its wage scale and pays an average of $10.11 per hour to its full-time workers. The turnover at Wal-Mart is very high at 44 percent per
year.
Costco pays high wages to its employees contributes to employees’401(k) plans and pays
premiums for health insurance cover. It also allows its employees to join labor unions.
Employees at Wal-Mart pay for their insurance premiums, are paid relatively lower than their
counterparts at Costco, and are denied rights to join labor unions. High wages and profitability
Policy Design
The pricing strategy adopted by Wal-Mart is different from that one of Costco. Wal-Mart
buyers tend to concentrate more on the value derived from prices of products while buyers at
Costco tend to concentrate more on the value derived from the quality of products. Although it is
outdated for companies to think that by paying high wages to employees it will make low profits
or be forced to increase prices, Wal-Mart continues to do so. Competitive companies like Costco
Company has indeed proved to the world that a company would still make profits while paying
its employees decent wages and treating them well.
Institutional setting and issues the player face
Costco offers high-quality products at low prices. It achieves this by ensuring that it gets
good deals from its suppliers than any other retailers. The company works on a philosophy that
higher than average wages, a good working environment, and good employee benefits enable
employees to stay longer and be more productive. As a result of treating employees well, Costco
enjoys a low rate of employee turnover and low employee shrinkage.
As of 2005, Costco managed to employ approximately 67,600 workers to work at its 338
warehouses in the United States. Wal-Mart employed approximately110, 200 employees to work
at its 551 warehouses in the United States. In terms of wages, a normal employee at Costco
received an average of $35,360 while an employee at Wal-Mart received an average of $21, 028.
This means that wage rates at Costco were higher than those at Wal-Mart by 40 percent.
As of 2005, all the 110, 200 employees at Wal-Mart managed to generate $37.1 billion in
sales while Costco with its employees 38 percent fewer managed to generate $43.05 billion in
sales. From the above, it is clearly illustrated by the two companies that pay high wages are profitable in the long-run. After learning the many benefits that would accrue to a company that
pays higher wages, Amazon has declared that it will increase the hourly wage to $15. Employees
who are paid above the market rate stay in an organization longer and act as a motivating factor.
Amazon anticipates that the increased wage will result in an increase in production which stems
from employees desire to reciprocate. Other retail chains like Traders Joe’s, QuikTrip, and
Mercadona have learned the art and continue to excel in their operations. Such companies do not
treat employees as costs to be minimized. Instead, they treat employees’ as important assets.
Investing in employees means that a company expects more productivity, a high level of
innovation, flexibility, and improved customer service. High wages and profitability
Companies that pay high wages and remain profitable
Palo Alto Networks is an American cybersecurity company. It was founded in 2005 by
Nir Zuk and has its headquarters in Santa Clara, California, United States. As of 2019, Palo Alto
Networks had a total of 7,014 employees. The company was founded to solve problems that
enterprises were facing with existing network security solutions. The company offers employees
401(k), pays for their vacation, gives them a paid sick leave, and operates in a flexible schedule
(Boyens et al., 2020). As of 2019, the company made a 22 percent increase in its revenue from
$658.5 million in the previous year to $805.8 million. With high wages and many benefits, the
company continues to be profitable. Read more
McKinsey & Company is another big company that pays more and continues to be
profitable. It is an American consulting firm founded in 1926 by James McKinsey. The company
has its headquarters in New York City, United States. McKinsey has 27,000 employees working
in its 127 offices (Weiss, 2019). The company has a policy that employees who are not promoted
are asked to leave. The company provides a health insurance cover for its employees, provides a
healthy working environment, provides retirement benefits, pays above the market rate and yet
continues to be profitable (Weiss, 2019). High wages and profitability