Creating a unique blend: total rewards at Starbucks

Starbucks’ impressive results and plans for growth are built on a foundation of inclusiveness and equality. Chet Kuchinad, SVP of Total Pay, explains how the company’s reward strategy embraces both these philosophies.
Starbucks is the world’s largest specialty coffee retailer and this year aims to open 1,300 stores worldwide, hire around 200 people per day and grow US revenues by 25 to 30 percent on top of US$4.1 billion in revenues from the previous fiscal year. Its employee turnover rate is one of the lowest in the industry and, in all areas of its business, is trending downwards. So what’s behind this impressive success?
“From the very beginning,” says Chet Kuchinad, SVP of Total Pay, “our firm belief has been that if you take care of people, people will take care of customers and be engaged in their work.” There are two key elements that he believes separate Starbucks from the competition when it comes to its employee offering.
The company offers comprehensive healthcare coverage to all eligible full and part-time partners. It also offers stock options and discount stock purchases to all eligible partners. With the stock option and discount stock purchase programs, Starbucks reinforces the concept of its people being “partners” in the company.
An inclusive environment The Starbucks pay and reward package is branded ‘Your Special Blend’ (see sidebox, below). Core elements such as healthcare coverage and the stock programs are delivered consistently to eligible partners in all levels and business sectors of the company.
“We build the Starbucks experience by delivering pay elements to our partners that drive financial rewards in the success of the company in a meaningful way.” says Kuchinad. “For example, last year the Bean Stock program awards of company stock options were granted at 14 percent of eligible partners’ pay, whether they worked in our roasting plant, a store, or in our support centers. It connects us all together with the success of the company.” Last year, over 39,000 partners were eligible – this is unique to the industry and has been key to driving partners’ engagement.
Focus on healthcare The culture of partnership is continued in healthcare provision – the company chairman receives the same level of health coverage as an eligible barista. “Most companies offer family and medical leave after a year of employment,” points out Kuchinad. “At Starbucks it’s after 90 days. We have a highly diverse workforce who find great value in this benefit.”
The company’s annual Partner View survey measures satisfaction and engagement. Last year it showed that, behind work environment and the sense of making a contribution, healthcare provision is the third most important reason why US retail partners join Starbucks.
“As a result we’ve taken a very comprehensive look at our healthcare strategy and how, in an environment where companies are shifting increasing costs onto employees, we can continue to deliver value to our partners.”
Taking a proactive approach A program called Partner Connection is a key part of efforts to help the workforce with health and fitness. It links employees with shared interests and hobbies and is funded through revenue from the sale of Starbucks logo merchandise to partners. All the money goes back to partners to fund things like soccer, cycling, running and even alpine climbing clubs.
“Also, if three or more partners approach us and say, for example, that they want to stop smoking,” says Kuchinad, “we will help expenses associated with their efforts. This is always partner driven and we’re helping with a broad spectrum of things from weight management programs to fitness clubs. It’s about encouraging a pro-active approach to health.”
Creating community spirit “For me Starbucks is truly a community whether you work in a store or in a support role,” says Kuchinad. “When [Chairman] Howard Schultz says ‘leave no-one behind’ that is reflected in all of our programs.”
The CUP (caring unites partners) Fund is a financial assistance program that helps Starbucks partners who experience a financial crisis. Partners voluntarily contribute money to a fund that helps other partners during crises such as illness, the death of a family member, being a victim of natural disaster or other extreme circumstances. All Starbucks partners are eligible to apply for xxx video assistance.
Other elements that are unique, especially in the retail environment, are the employee assistance program for all partners, financial assistance when children of partners are mildly ill and need daycare, and financial assistance to partners who have chosen to adopt. “These are not big things, but they are big for partners and very meaningful,” says Kuchinad.
A culture of recognition Beyond pay and benefits, the company has a group of people who are dedicated to building and delivering recognition programs. These range from the Bravo award where partners receive a certificate and pin when they achieve a high level of service, sales or cost savings, to the Spirit of Starbucks award which recognizes people for living and contributing to the guiding principles.
Flexibility in the Total Pay package also allows discretionary spot bonuses for both retail and non-retail partners. “Again, relative to the total amount that we spend in dollars this is not a significant portion,” says Kuchinad. “But they have a very powerful impact on partners. It’s what makes our team special.”
Feedback and measuring impact As well as the Partner View survey, Starbucks has a program called Mission Review – a way for employees to communicate their thoughts and feelings to management and receive answers to their questions. “For example,” says Kuchinad “if a partner has a question about Total Pay then it will be passed to me or someone on my team and we address it within 10 business days. It’s another avenue to get partner insight.”
Although low employee turnover is due in part to local and national economies and changes in the labor market, employee feedback demonstrates that Total Pay is one of the key drivers behind employee engagement and retention.
Staying ahead of the competition So how does the company make sure its employee value proposition is always one step ahead of its competitors’? The company examines the offerings of 17 QSR (quick service restaurant) and consumer product competitor companies in the US, selected on both financial and non-financial criteria such as people practices and brand awareness.
“But we go one step further than matching the competition,” says Kuchinad. “For example, looking at healthcare – if I were to just compare our offering to the competitor group we wouldn’t have the package that we have. We differentiate ourselves by creating our own unique blend and adding the Starbucks touch. These are principles that we apply globally.
“However, pay alone will not attract people. Our Total Pay philosophy and our culture of teamwork and community are all key parts of why people join and stay with Starbucks.”

News

June 16.04
I went to see Don Norman speak about his latest book, Emotional Design, last night. It was a pretty good talk–I was surprised at how different his examples were from a similar speech he gave last year. I enjoy the emphasis on emotional design in general, but I saw two minor potential problems that may arise from emotional design.

May 19.04
After much fiddling and revising, I am finally done with the PDA use study. I did a case study of my PDA use over a six-month time period. The article summarizes the data and I analyze the reasons why PDAs are used and what can be done to improve them. In other news, summer means a lot of reading and a lot of dissertation writing.

Apr. 29.04
The semester is coming to an end and I have collected what I anticipate to be all (or most) of my dissertation data. I will finally be able to finalize some of the articles that I have been working on and post them here. Until then, I changed my article on the Maytag Skybox, partially due to the fact that the previous version of the article was hastily-written and partially because I have been influenced by reading the book Emotional Design. Also, I am almost ready to post an article on PDA use that includes a case study.

Apr.13.04
I am committing to updating this website more often, even though this site has competition from a million other things in my life, including a time-intensive dissertation. The latest Alertbox (Useit.com) has an informal review of an interesting social study “Why mobile phones are annoying.” Although the study does not answer all of the questions that it raises, it is useful nonetheless. Nielsen ranted about the difference between face-to-face and mobile phone conversations in terms of noticability, intrusiveness, and annoyance. However he ignored the story of the data he posted (some of which appeared to be reported incorrectly, but that is another story), and strongly interpreted it:
“What is certain is that the research documents the fact that mobile phones are annoying […]”
However, people rated mobile phone conversations as less annoying and less intrusive than neutral in terms of both having had an “annoying” volume of conversation and as being “intrusive.” The mean rating was barely above this neutral mark in terms of being “noticeable.” In other words, people hardly thought the mobile phone conversations were annoying at all–just less non-annoying than face-to-face conversations. Regardless of the interpretation issue, the original study brings up good queries: Are mobile conversations annoying for casual eavedroppers (because half of the conversation is inaudible)? How can social protocol and mobile phone design be changed to provide a better “bystander” experience?