On Leadership: Costco chief executive Jim Sinegal


Costco CEO Jim Sinegal talks with two Costco workers at a reopening of a Costco store in Redwood City, Calif. on Oct. 20, 2009. (Paul Sakuma/AP)
September 10, 2011

Costco’s chief executive, Jim Sinegal, announced he would step down from his job at the warehouse club Jan. 1. When he does, corporate America will lose a leader of a very different sort.

Sinegal founded Costco with Jeff Brotman, its chairman, in 1983 and expanded it in the 1990s when his company combined with Price Club, owned by Sol Price. From those beginnings, Sinegal created a warehouse behemoth that pulled in $76 billion in revenue in 2010. Despite the economy, customers kept paying the $50 to $100 annual fees: 87 percent renewed their memberships in 2010. He laid no one off in the recession, other than short-term staff for holidays.

And yet, Sinegal, who no doubt has become wealthy through Costco, makes about a third the pay of an average CEO. His salary is $350,000 a year. And his total take-home pay amounted to $3.5 million in 2010 — a nice sum, to be sure, but again, less than the median $9.3 million.

It’s not just his pay that lacks showiness. His office is a tiny alcove without a door; the furnishings are as fancy as folding chairs. When a reporter visits the headquarters, which does not have any public relations handlers on staff, Sinegal comes out to the reception desk himself. He also answers his own phone (“Sinegal!”).

He could probably charge more for the goods in his store. But Sinegal holds fast to a mantra that nothing in the warehouse should be marked up more than 14 to 15 percent from cost. His discipline is legendary. “People have always asked historically, who’s your toughest competitor?” the company’s chief financial officer, Richard Galanti, told me back in 2008. “And I say it’s Jim.”

That discipline to pricing hasn’t won many praises from Wall Street analysts. Neither has Costco’s wage and benefit policies.

Consider: In 2003, Costco, which hadn’t raised its health-care premiums to employees for nine years, said it was going to miss its earnings estimate due to rising costs. Sinegal was adamantly against raising premiums. Finally, he relented. He wrote a letter to employees promising they wouldn’t pay more than 10 percent of the overall cost.

Fast forward a few years, and employees were paying a little more than the 10 percent. Most CEOs, of course, would have welcomed the cost savings, pocketing the difference. But Sinegal gave each employee an added bit of stock in their 401(k)s in 2008.

Sinegal has instilled these sensibilities in his executives, most of whom have worked with him for decades. That includes President and Chief Operating Officer Craig Jelinek, who has been named as his successor. I doubt much will change when Sinegal retires.

McGregor writes PostLeadership, about leading in a changing world.

Jena McGregor writes a daily column analyzing leadership in the news for the Washington Post’s On Leadership section.
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