Starbucks needs to reward its employees more


Howard Schultz’s coffee has already put off investors. Just three weeks ago, Starbucks Corp said the architect of its transformation from boutique coffee shop to global juggernaut would return as CEO, sending its shares up 5%. On Monday, they fell nearly as much, after Schultz said he would immediately suspend group share buybacks to invest more in staff and stores.

Investors should look beyond the fall in stock prices. It’s the right strategy for Starbucks.

Many consumer businesses are now struggling with a labor shortage. Starbucks, alongside Inc., is also facing increasing employee unionization.

Last October, the company announced that it would spend $20 billion on dividends and buybacks over three years. She has now partially reversed that decision. He does not provide details on how much money he will invest in staff, although that will be the main focus. He also did not reveal how exactly he plans to redirect spending. But this is an opportunity to redress the balance between investors and executives on one side and Starbucks employees on the other.

The easiest route would be to use the money that would have been spent on the buyouts to raise the salaries of the more than 400,000 people employed at Starbucks restaurants.

The company could follow the example of the John Lewis Partnership in the UK, which is owned by its 80,000 employees. They receive annual bonuses based on company profits, paid as a percentage of salary. Starbucks would not be able to replicate this model exactly because it is a publicly traded company, not a mutual like the John Lewis Partnership.

But Starbucks could reward its staff in the same way to give them a greater stake in company performance. And if those payments were deferred — for example, paid half immediately and half delayed for two years — that would also help with employee retention.

Starbucks already has a stock option program, known as “Bean Stock,” for employees at restaurants the company owns directly, as opposed to franchised or licensed stores. But this could be supplemented, for example, by an additional allocation of shares based on the company’s performance over three years.

Another UK firm, sportswear retailer Frasers Group Plc, has used such a plan over the past decade to pay substantial sums to shop staff. In 2013, it awarded £135 million worth of shares to thousands of workers. At that time, a store clerk earning £20,000 a year would have received around £70,000 in total, a transformational sum.

None of these models is perfect. Employee ownership of the John Lewis Partnership has not protected it from the ravages of the pandemic. It closed stores and cut jobs. He paid no bonuses last year, but reinstated one last month. At Frasers, not all employees have been eligible for stock ownership plans. While the group generously rewarded some staff, it was criticized for its treatment of others, such as warehouse staff and people employed under contracts under which the company was not obliged to provide regular work. .

But they’re both useful starting points in finding more effective ways to reward and retain staff. The ideal strategy will be good for Starbucks employees and will also benefit shareholders.

In a 2012 study, finance professor Alex Edmans found that companies on Fortune’s list of “America’s 100 Best Companies to Work For” outperformed their peers by 2.3-3.8% annually from 1984. to 2011. A rough exercise based on Edmans’ study suggests that the same relationship still holds. Only 10 companies that made the list a decade ago still make it today, but their stocks returned 484% over the period, on average, far more than the 389% total return of the list. S&P 500 index.

It’s easy to be skeptical of Schultz’s return to Starbucks. The fact that he unveiled such a bold plan on his first day back at work reinforces the impression that he continues to dominate the company, which could make it difficult to recruit the next CEO.

But if Schultz’s third stint at the helm contributes to a fairer distribution of rewards among its armies of lowest-paid workers, that would be a good thing.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail sectors. She previously worked at the Financial Times.

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