After reading my fellow classmate Carolyn Lee’s blogpost on Costco’s attempt to maximize performance through paying well above the minimum wage, I became interested in the managerial accounting aspect of the issue – how exactly is Costco able to achieve competitively low product prices while paying workers more?
As discussed in COMM 101, wages payable normally appear on the liability of a balance sheet, meaning the higher the wages are, the lower the owner’s equity as given by the equation:
Equity = Assets – Liability
However, in Costco’s case, I believe the workforce is more of a strategic asset then a liability. Essentially, Costco is investing in their workforce with the expectation that it will lead to increased productivity and other positive effects.
One might ask why doesn’t other companies do this if paying higher wages seems so promising. It isn’t as easy as it sounds.
Increasing wages is a long term investment because workers won’t suddenly become twice as productive if you pay them twice as much.
A key topic brought up in class was how companies wanted to look good for their year-end photos, the financial statements. The quickest way to do so, is to lower wages to show an immediate increase in profits. It takes a company dedication and commitment to persistently pay higher wages to its workforce as tempting as it may seem to reduce costs in a tight budget.