A Skeptical Look at Starbucks’ Wage and Benefit Spending

Starbucks is getting a whole lot of goodwill for its announcement that it will raise wages and give sick time and other benefits to employees, as it should. But the skeptic in me can’t help but see this as a desperate employee-marketing program in a period of intense labor pains.

In light of tax reform, Starbucks (NASDAQ: SBUX) expects a 27% rate according to CFO Scott Maw, down from 32.9% in fiscal 2016 and 31.5% effective 2017 tax rate announced in November. 

The company announced that it would spend $250 million of those savings giving raises to 150,000 employees. Some simple math puts that average raise at about 80 cents an hour or $1,666 per year. For the average barista, that’s a raise from $9.61 to $10.41 an hour; for supervisors, that’s a raise from $11.86 to $12.66; and for salaried store managers, that’s a raise from $49,961 to $51,627 (All salaries from Glassdoor). It’s a really smart use of the tax reform windfall that pushes Starbucks’ wages just north of many direct competitors, and it might be enough to make a barista cross the street or stay at Starbucks.

Accruing sick time is another great idea without incurring a major cost. Employees will accrue one hour for every 30 hours worked. That additional 3% bump for the average barista’s benefits is a paltry sum for Starbucks and a real benefit for hourly workers for whom the five estimated days of projected annual sick time can make a real difference. According to the Bureau of Labor Statistics, just 35% of foodservice employees have access to paid sick days, further solidifying Starbucks’ position in the mix with other employers of choice. How those days roll over or pay out was not disclosed.

The paid parental leave is brilliant too. Six weeks of paid sick leave for new parents and non-birth parents works out to about $2,500 per new parent. This extends the salaried employee benefit of 18 weeks paid leave for new mothers and 12 weeks down into the stores. It’s a great alternative to simply quitting and will certainly help retain the handful of store-level workers starting families. The skeptic in me also sees it as a way to bring some efficiency into stores where these new parents work by getting these exhausted people out of the store for a little while.

But here is where these guys get really crafty; they even put a phantom stock-buying program right into the mix in the form of "stock grants" for all employees beginning in April. Every employee will get at least $500 grant, managers get $2,000 and the benefit will rise based on corporate employee salaries.

With a one-year vesting schedule, it’s a fantastic benefit for long-term employees. But with about a 65% unit-level turnover rate (the most recent measure from a 2013 study that has certainly ticked up), that means the majority of that stock is going right back to the company. Compared to the steady stream of stock-buyback announcements and an extremely limited number of companies reinvesting, this is genius!

This isn’t however, Starbucks’ first attempt at solving labor issues, but it signals a big pivot. A couple years ago, it began using a software platform to right-size labor for each store. They were able to keep margins flat in a highly inflationary labor environment in 2016, as Starbucks CFO Scott Maw described in the Q4 2016 earnings call.

Soon after starting that program, however, a petition popped up decrying the "gross underemployment" that the software program created. More than 20,000 people (many of whom identified as employees) have signed that petition. All this fuzzy stuff while great for employees is better for a company fighting tooth and nail against a historically terrible labor environment. 

The wage and benefit announcement came just before the brand missed projections slightly. Starbucks announced a 6% revenue growth to $6 billion for the first quarter of 2018. IT reported same-store sales growth of 2%, slightly analyst expectations of 3%, according to Consensus Metrix. 

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