Understanding how to motivate employees is an important part of performance management. To stimulate productivity, many companies actively reward exceptional employees for their work. Instead of having a conventional employee reward system, Costco’s business model embraces a reward system that motivates employees in an unorthodox way.

The White House praised Costco’s business model, stating that “increased productivity, better morale and lower turnover rates” was attributed to the company’s commitment to its employees. Image from http://www.usatoday.com/story/money/business/2014/01/29/costco-wages-walmart-federal-minimum-wage-obama/5029211/

Unlike other companies, Costco does not provide incentives to employees after a given period of time. Alternatively, all Costco employees receive competitive wages, a benefits plan and other bonuses. This essentially removes the limitations of reward systems we are accustomed to seeing. In Steven Kerr’s article, “On the folly of rewarding A, while hoping for B,” Kerr states that many reward systems are poorly conceived because they actually reward undesired behavior. Employees are able to find and exploit shortcuts to earn rewards, which can actually prevent company-wide goals from being achieved in an effective and timely manner.

By rewarding employees before, rather than after, Costco employees are immediately more engaged, or committed to the company they are working for. I believe this particular type of reward system makes it easier for Costco to successfully set expectations for its entire workforce. Costco’s employees are more likely to embrace the company’s core values and make a contribution that benefits the organization as a whole, since they know that their role in the company is valued. Additionally, the above average wages that Costco employees are paid sets a benchmark that encourages stronger performance, which justifies Costco’s decision to spend more on its workforce.

Sources:

http://business.financialpost.com/2014/10/30/a-stick-and-a-carrot-at-the-same-time-why-costco-pays-twice-the-market-rate/

http://www.ou.edu/russell/UGcomp/Kerr.pdf