Starbucks coffee company HR compensation and rewards systems

SBUX

Starbucks is a quick service restaurant that focuses on coffee and snacks. The company operates globally, with over 18,000 stores, roughly 55% of which are company-owned and the rest are franchised. Over 10,000 of these stores in are in the United States. Starbucks earned $14.89 billion in revenue in the last fiscal year (2013 Starbucks Annual Report). Starbucks employees are known as associates. In total, there are 191,000 associates (full-time equivalent) in the Starbucks system, most of whom work at the retail level (MSN Moneycentral, 2014). For this reason, this paper will mainly focus on the human resources policies that apply at the retail level.

Business Strategy

The basic business strategy that Starbucks follows is differentiation. The company seeks to provide a unique mix of product and service offerings that distinguish it from other locations where consumers can acquire coffee and snacks. The basic commodity, coffee, is difficult to differentiate but the company has made an effort in that regard. However, Starbucks focuses on the service and atmosphere element of its business as well. The stores are all designed in roughly the same way, to provide a consistent experience that, when combined with the service and the products, results in a consistent brand experience anywhere in the world (Thompson & Arsel, 2004). This brand promise is one of the key selling points of the Starbucks brand.

The service element of the brand promise is known internally as the Starbucks Experience. The company has designed this experience deliberately as it feels that the Starbucks Experience will attract customers, and judging by the success of the company they were right about that. While the elements of the Starbucks Experience can be imitated by competitors, once the brand association with that experience has been created, the company has a source of competitive advantage, in particular as the brand association is so widely known. The Starbucks Experience, therefore, is a critical element of the company's strategy and a key success factor (Verhoef, et al., 2009).

Role of Human Resources

Not surprisingly, given the emphasis on service in the company's strategy, human resources plays a key strategic role for Starbucks. The company begins with recruiting, wherein it wants to find people who have a high degree of service-orientation. The job itself is not technical, so the company places emphasis on personality and service orientation, above experience or technical ability. It competes with many other similar quick service establishments for the same labor pool in this regard. Many of these companies also seek to hire people with higher service orientation, so there is reasonably intense competition for the best people. Starbucks has been able to win this competition for the most part, and there are a number of reasons for this. From the company's perspective, it begins with building a high quality employer brand.

In quick service, there is only so much a company is willing to pay for employees, because cost containment is essential to making margins. Starbucks is differentiated enough that it is not bound by the need to pay rock bottom wages like some of its competitors, but the company is constrained in what it can offer financially. Thus, the best way to attract workers is to create an employer brand that makes your company the first one somebody talks to when they are looking for work (Moroko & Uncles, 2008). Such a scenario means that the company has built a good employer brand, and generally has their pick of employees, allowing it to skim the cream of the potential quick service workforce.

The best attributes of an employer brand are attractiveness and accuracy (Moroko & Uncles, 2008). What this means is that people like what they hear about Starbucks' offerings, and when they investigate for themselves what they have heard is confirmed. So if Starbucks promises, say, superior wages and a positive work environment, that might attract people, but the company has to deliver on this promise in order to maintain a strong employer brand. What this means is that it is imperative for Starbucks, in order to skim the cream of the quick service workforce for the people with the best service orientation, it needs to have a reputation for having a great package to offer people, and then it needs to deliver on that.

Compensation Policies and Practices

With that basic understanding of the Starbucks strategy and what it means for human resources in mind, it is easier to examine the company's human resources policies. There are essentially two components to Starbucks' offer: wages and benefits is one set; and the other is the work environment. The company does offer some upward mobility, but this is not the main attraction for most employees. Instead, many employees are part-time, sometimes students or people who are the secondary income-earners in their families. Many Starbucks workers therefore do not see the company as more than a temporary place of employment, though for those sufficiently committed there is room to grow with the company.

The first element of Starbucks is that it does not offer exceptional wages, but will tend to be above (if only slightly) the industry standard. Where Starbucks differentiates itself is with benefits and working conditions. Starbucks has taken to offering its associates more benefits than competing firms. This includes major benefits like pensions and health care. An employee becomes eligible at 20 hours or more per week, for benefits such as retirement contribution matching, discounted stock purchase options, and bonuses. More esoteric benefits can include adoption assistance and tuition reimbursement. Health insurance is offered and can be extended to domestic partners. The company also offers career sabbaticals in-store discounts and recognition programs (Starbucks, 2014). All told, Starbucks offers far more in the way of benefits than many of its competitors, who tend to be hesitant to offer many benefits, even though they pay low wages.

The package of benefits serves to attract a higher standard of worker. They will have higher education level often, and are more likely to remain with the company. Lower turnover helps Starbucks to lower costs and provide a better service to the customer, so it serves the company's competitive advantage to encourage employees to have longer tenure. The education assistance and flexible hours makes Starbucks an attractive option for students, who often bring energy and enthusiasm to their roles.

The working environment is another specific point of attraction that Starbucks has cultivated. Recognizing that for employees who are not interested in building a long career with the company, many of the benefits will not be sufficient to differentiate Starbucks, the company has taken to building its employer brand with flexible hours, an emphasis on diversity, on community involvement and striking a work-life balance. This is somewhat out of step with industry norms, where employees are afforded perhaps less respect. Starbucks associates typically report greater satisfaction with their jobs than other quick service workers, as a result of these policies.

The company makes a point to highlight that it wants to be part of something bigger. Such an association can be powerful for people, so Starbucks cultivating that with its employees, so that by working at Starbucks they have a sense of purpose and truly feel like something bigger than themselves, is a significant attraction for workers, and enhances Starbucks' employer brand substantially.

Thus, the company's compensation package is closely tied to its overall business strategy. Starbucks has recognized that it needs to have a superior offering in non-wage respects in order to contain wages, but still skim the cream of the quick service worker pool. By offering more benefits than most comparable companies, Starbucks is able to bring in the workers in the industry who are most motivated to make a career for themselves. Starbucks also provides such employees a pathway for growth, especially given that it is still a growing company. As a result, Starbucks has begun its leadership pathway at the ground level. But the strategy also works in terms of lowering turnover, something that is associated with the delivery of superior service. It is not uncommon for staff to know the names of regulars at their stores, something that is less likely when turnover is higher.

Also, employee engagement needs to be high in order for the service levels to be high. For Starbucks offering employees things like career sabbaticals and discounted employee stock options serves as mechanisms for coaxing higher levels of engagement from employees. Martel (2003) notes that stock options are generally correlated with higher retention levels, especially of high performers. While this practice may have started at the executive level, it applies well at lower levels. Thus, Starbucks is seeking to ensure that the best people, who it already hopes to have hired, have greater desire to remain with the company, and are more engaged in the company's success.

Alignment with Strategy

With the Starbucks brand built on the Starbucks Experience, human resources policies that seek to recruit and retain the best workers in the industry seem like a natural for success. One of the challenges for Starbucks has been to maintain this even after such prolonged growth. In the 90s and 00s, when the company was growing rapidly, it needed to work hard to attract new people into quick service who might otherwise not work in the industry. The company was able to do this successfully, taking workers away from other options, and as such Starbucks was able to build itself a strong business and a strong employer brand. In more recent years, however, the company has been less likely to succeed with this strategy. Increasingly, Starbucks is pulling from the same pool of workers as other quick service companies.

Employees and employers alike are starting to realize this. As such, while Starbucks earlier in its rise focused on tapping new labor pools, it today has adjusted to winning the quick service labor pool. The company recognizes that wages are just part of the larger cost package, but this is also something employees are also beginning to realize and that is increasing their bargaining power. Starbucks has begun to directly position its wage and benefits package against other quick service restaurants to attract the best in the industry, and the company even wants to make sure people who work for competitors are aware that if they are good enough, they will do better for themselves working at Starbucks (Caldicott, 2014).

The company has also increased its tuition benefits in recognition that so many of its employees either are students or wish to be students -- some 70% by some estimates. Having a program that allows for greater access to education is expected to attract between 15,000 and 20,000 employees per year, indicating that Starbucks believes this will be a major source of competitive advantage (Caldicott, 2014). It is worth noting that many other employers are cutting back on student tuition benefits in order to cut costs. Likewise, Starbucks has health benefits at a time when many competitors see the Affordable Care Act's health insurance provisions as a burden, rather than as a means to improve their competitive positioning in the employer market. While Starbucks is attracting employees from the student ranks with programs up to and including programs for people who may be future franchisees, other quick service companies are left with the lifelong marginal workers. For Starbucks it is imperative that it either gets workers from outside the normal quick service pool or that it gets the best of quick service workers, and that many of them grow with the company.