Sol Price valued his workers over stockholders
Sunday, December 20, 2009 at midnight
When Sol Price died last week at the age of 93, his passing marked more than just the departure of a skilled businessman and entrepreneur.
It was also a reminder of how far we’ve come since the days when an unwritten “social contract” guided corporate America.
When Price launched Fed-Mart in 1954, a membership discount chain that gave rise to the Price Club in 1976, the guiding ethos of the postwar corporate world was that just as businesses make their wealth through the labor of their workers and the patronage of their customers, so, too, do the employers owe fair wages to the workers and low prices to the consumers.
Price revolutionized the U.S. retail scene with his bulk stores, which were the inspiration for Sam Walton’s launch of Walmart. Price kept his prices at rock bottom by such practices as slashing advertising to near zero, eschewing credit cards and limiting executive salaries. He reasoned that even if he lost some customers through some of those steps, he’d attract even more by offering low prices.
One thing that Price did not skimp on, however, was his workers.
Price Club’s written policy was that workers would be paid at “close to the highest prevailing wages in the community.” Unlike many of his retail competitors, Price maintained good relations with union members — and made sure that nonunion workers got the same benefits as union workers did.
“When Price Club moved into nonunion Arizona, it offered workers the same contract as its workers in California had,” said Jai Ghorpade, a professor emeritus of management at Price’s alma mater, San Diego State University.
Even today, Costco — which merged with Price Club in 1993 — pays its workers an average of $19 per hour, compared with less than $11 at Walmart. And Costco provides health care coverage to 90 percent of its workers, compared with about 50 percent at Walmart.
Price believed that the corporation’s chief duties were to obey the law, please customers, please employees and satisfy stockholders, in that order.
“We think the stockholder comes last,” he told Wall Street analysts in 1985. “But if you do the other three jobs well, (the stockholder) will be taken care of.”
It’s not that Price took a vow of poverty or that he ran the Price Club as a nonprofit. He died with a net worth estimated at between $275 million and $500 million. But that is not an unseemly amount of wealth considering the size of the multibillion-dollar retail empire he helped launch.
In an age when some of his peers were making 40 or 50 times the median salary of their workers, Price kept his salary at around a 10-1 ratio. (Today, the ratio at America’s top firms is more like 500-1.)
Even after keeping his salary low, he devoted a huge chunk of earnings to a wide variety of charities. He could not understand why anybody would need more than a couple hundred million dollars in the bank. And he recommended that the government concentrate more of its tax-collection efforts on the wealthy, arguing that having too much wealth in too few hands would threaten the entire economic system.
“Tax laws favor the wealthy, and the chasm between the middle class and the wealthy is widening,” he argued in 1995, complaining that the variety of tax breaks, deductions and loopholes available to the upper class constituted “food stamps for the rich” that somehow didn’t receive the same scrutiny as government programs for the poor or elderly, like Social Security or Medicare.
In espousing such a philosophy, Price was merely echoing what was the accepted thinking throughout much of the country when he started his business operations in the Fabulous ’50s.
For a look at how far we’ve come, just consider some of the stories about corporate shenanigans that have been coming out over the past couple of months.
On Monday, the day that Price died, a report showed that the chief executives of 10 Wall Street firms that either failed or received taxpayer bailouts were paid an average of $28.9 million per year in the years leading up to the Wall Street meltdown. The report, issued by Public Citizen, a Ralph Nader watchdog group that Price helped fund, said the average pay equaled 575 times the median American family’s 2007 income.
Public Citizen President Robert Weissman noted that the pay had “nothing to do with good corporate performance. These CEOs were exorbitantly compensated for driving their companies (not to mention the global economy) off the cliff.”
Public Citizen’s tally did not include the $140 billion that the Wall Street firms recently set aside as employee bonuses, at a time when most Main Street firms are forgoing such bonuses.
To put that figure into perspective, University of Maryland economist Peter Morici noted that the U.S. economy grew by $22 billion in the third quarter — its first growth since the spring of 2008.
“The bankers, after causing the greatest economic calamity since the Great Depression, are rewarded with six times the growth accomplished so far in the much-heralded ‘economic recovery,’” Morici said.
Graef Crystal, a compensation analyst in Marin County, said skyrocketing executive salaries, accompanied by a widening chasm between rich and poor, are not limited to Wall Street.
When Crystal began tracking executive salaries in 1973, three years before Price launched Price Club, the CEOs of the country’s largest companies were paid an average of 43 times the salaries of their employees. By 1991, that ratio had jumped to 140. Now Crystal estimates it to be around 350, though some firms put it at higher than 500.
“Corporate boards have been a bit more restrained lately, but their idea of restraint is not to have salaries go up as fast as they were before, instead of, God forbid, actually cutting back the salaries,” he said.
Crystal added that “there are some heroes out there,” singling out chains such as Target and Whole Foods as adhering more to the Price Club model, as well as Costco, founded by former Price Club employee Jim Sinegal.
Like Price, Sinegal keeps his salary at roughly a 10-1 ratio — though stock options sharply boost his annual compensation — and ensures that his workers receive generous pay and benefit packages.
“The thing that was remarkable about Sol was not just that he knew what was right,” Sinegal said. “Most people know the right thing to do. But he was able to be creative and had the courage to do what was right in the face of a lot of opposition. It’s not easy to stick to your guns when you have a lot of investors saying that you’re not charging customers enough and you’re paying employees too much.”
During this holiday season, a certain Charles Dickens story seems particularly apt when talking about the difference between Price’s philosophy and the spirit that guides Wall Street today.
In the opening chapter of “A Christmas Carol,” the long-dead Jacob Marley stands before his former business partner, Ebenezer Scrooge, to tell him of why his soul has been condemned to walk the Earth in chains.
Marley moans that when he was alive, instead of devoting his part of his time and money to improve the lives of others, “my spirit never roved beyond the limits of our money-changing hole.”
“But you were always a good man of business, Jacob,” Scrooge replies.
“Business!” Marley shrieks. “Mankind was my business. The common welfare was my business. Charity, mercy, forbearance and benevolence were all my business. The dealings of my trade were but a drop of water in the comprehensive ocean of my business!”
Sol Price understood that mankind was his business. Here’s hoping that someday, more corporate leaders recognize that as well.
Dean Calbreath: (619) 293-1891; email@example.com