Starbucks must reward its employees more

Howard Schultz’s coffee has already gone cold with investors. Just three weeks ago, Starbucks Corp said that the architect of its transformation from boutique coffee house to global juggernaut would return as chief executive officer, sending shares up 5%. They fell by almost as much, after Schultz said he would immediately suspend the group’s share buybacks in order to invest more in staff and stores.
Investors should look past the share-price slump. This is the right strategy for Starbucks.
Many consumer companies are now grappling with a shortage of labor. Starbucks, alongside Amazon.com Inc, also faces growing unionisation among staff.
Last October, the company said it would spend $20 billion on dividends and buybacks over three years. It has now partly revoked that decision. It isn’t providing details on how much of the money it will invest in staff, although they will be the primary focus. Nor has it disclosed how exactly it plans to redirect the spending. But this is an opportunity to redress the balance between investors and executives on the one hand and Starbucks employees on the other.
The simplest route would be to use the money that would have been spent on buybacks to raise the wages of the more than 400,000 people employed in Starbucks restaurants.
The company might follow the example of the the John Lewis Partnership in the UK, which is owned by its 80,000 employees.
They receive annual bonuses based on the profits of the business, paid as a percentage of salary. Starbucks wouldn’t be able to replicate this model exactly, as it is a publicly listed company, not a mutual like the John Lewis Partnership.
But Starbucks could award its staff in a similar manner to give them a greater stake in the company’s performance. And if these payments were deferred — for example, half paid immediately and half delayed for two years — this would also help with employee retention.
Starbucks already has a share-option program, known as “Bean Stock,” for employees in the restaurants that the company directly owns, as opposed to the franchised stores or those operated under license. But this could be augmented, for example, with an extra allocation of shares based on the performance of the company over three years.
Another British company, sportswear retailer Frasers Group Plc, has used just such a plan over the past decade to pay out substantial amounts to shop-floor staff.

—Bloomberg