I noticed this as well, but it took a blog post in The Washington Monthly to crystallize it in my mind.

The Washington Monthly – Political Animal – The secret of Costco’s success revealed! (hint: no MBAs need apply)

… Costco does not hire business school graduates—thanks to another idiosyncrasy meant to preserve its distinct company culture. It cultivates employees who work the floor in its warehouses and sponsors them through graduate school. Seventy percent of its warehouse managers started at the company by pushing carts and ringing cash registers.

Those sentences speak volumes. They tell you that Costco is a company that values its own hard-won experience over trendy B-school subjects like management theory and Econ 101 abstractions. They’ve found a formula that works and they’re not going to mess with it. I’ve long found the typical B-school curriculum to be problematic. On the one hand, you have management “theory,” which frequently is not well-supported by rigorous research, and might be characterized as more theological than anything else — Tom Frank has often been insightful about the ideological function served by this kind of business literature.

Then, on the other hand, you have B-school economics. One of the great sins about economics as a university subject is that, particularly at the introductory and intermediate levels where people are most likely to study it, the econ that gets taught tends to be almost entirely theoretical, not empirical. Few economists understand how businesses work, because few of them have actually bothered to ask businesspeople how they make business decisions. Instead, they make assumptions. But even assumptions that seem highly plausible in theory can turn out to be wildly off-base in fact.

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Getting back to Costco: the abstract theorizing that MBA students learn in microeconomics courses often has little relevance to practical business situations. The simplified textbook models teach the lesson that policies like unions and the minimum wage are inefficient and wrong — that message comes through loud and clear. Economics as it’s taught in most American colleges today more or less encourages poor labor practices.

I occasionally read an article about deplorable call centre conditions, or most recently about how difficult work in Amazon’s fulfilment warehouse is. And I always think: Why not take a small hit to the company’s margins and ease things back towards being a workplace your employees don’t dread going to? (Offhand, I’m fortunate to be able to say that in my own field of software development, working conditions are usually somewhere between good to ridiculously luxurious.)

In an era of global competition it’s hard to justify not maximizing shareholder revenue, but with the below there is a spark of hope: Evidence that companies that treat their employees better also perform better.

Costco CEO Craig Jelinek Leads the Cheapest, Happiest Company in the World

Despite the sagging economy and challenges to the industry, Costco pays its hourly workers an average of $20.89 an hour, not including overtime (vs. the minimum wage of $7.25 an hour). By comparison, Walmart said its average wage for full-time employees in the U.S. is $12.67 an hour, according to a letter it sent in April to activist Ralph Nader. Eighty-eight percent of Costco employees have company-sponsored health insurance; Walmart says that “more than half” of its do. Costco workers with coverage pay premiums that amount to less than 10 percent of the overall cost of their plans. It treats its employees well in the belief that a happier work environment will result in a more profitable company. “I just think people need to make a living wage with health benefits,” says Jelinek. “It also puts more money back into the economy and creates a healthier country. It’s really that simple.”

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Jelinek earned $650,000 in 2012, plus a $200,000 bonus and stock options worth about $4 million, based on the company’s performance. That’s more than Sinegal, who made $325,000 a year. By contrast, Walmart CEO Mike Duke’s 2012 base salary was $1.3 million; he was also awarded a $4.4 million cash bonus and $13.6 million in stock grants.

Costco has no public-relations staff. Jelinek conducts an interview with a journalist alone, an anomaly at major corporations, and afterward Costco Chief Financial Officer Richard Galanti calls to inquire whether the boss inadvertently said anything negative. Sinegal returns a reporter’s phone call on a Saturday morning, leaving his cell number.

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Costco’s constitutional thrift makes its generous pay and health packages all the more remarkable. About 4 percent of its workers, including those who give away samples and sell mobile phones, are part-time and employed by contractors, though Costco says it seeks to ensure they have above-industry-average pay. And while Walmart, Amazon, and others actively avoid unionization, Costco, while not exactly embracing it, is comfortable that the International Brotherhood of Teamsters represents about 15 percent of its U.S. employees. “They are philosophically much better than anyone else I have worked with,” says Rome Aloise, a Teamsters vice president.

Most retailers “see their employees as a cost to be minimized and typically end up underinvesting in them,” says Zeynep Ton, an adjunct associate professor of operations management at the MIT Sloan School of Management. She thinks that ends up creating operational problems that shoppers are all too familiar with: surly employees in stores engulfed in chaos, an environment that makes ordering online look a lot better. One solution to surly cashiers is to get rid of them completely. Walmart said that this year it would add 10,000 self-service checkout systems (though it did not say whether these systems would displace workers). Costco has also experimented with self-service checkouts, but Jelinek says he’s now removing them because employees do the work more efficiently. “They are great for low-volume warehouses, but we don’t want to be in the low-volume warehouse business,” he says.

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Many conscientious companies such as Costco are performing well financially. Over the last few years, Nordstrom (JWN), the Container Store, Sephora, REI, and Whole Foods Market (WFM), all of which are known for treating employees well, have outpaced rivals. “This is the lesson Costco teaches,” says Doug Stephens, founder of the consulting firm Retail Prophet and author of the forthcoming The Retail Revival. “You don’t have to be Nordstrom selling $1,200 suits in order to pay people a living wage. That is what Walmart has lost sight of. A lot of people working at Walmart go home and live below the poverty line. You expect that person to come in and develop a rapport with customers who may be spending more than that person is making in a week? You expect them to be civil and happy about that?”