Why CEO Howard Schultz of Starbucks Coffee provides competitive benefits to his part-time employees.
Howard Schultz, the CEO of Seattle-based Starbucks Coffee, believes his business cannot achieve profitable growth without providing competitive benefits. Two years ago he began providing all 1,800 employees, including the part-time workers who make up 50% of his retail sales force, with a benefits package that includes stock options, medical and dental insurance, and even a free pound of coffee each week.
Schultz believes that type of comprehensive benefits coverage is not only feasible but ultimately profitable for growing companies of all sizes. Here's how the CEO of the $50-million company responds to the most common objections:
* Insurance is too expensive to include part-time workers. "Including part-timers does increase our insurance fees, but you can't just consider that fact in isolation," Schultz emphasizes. "By providing them with insurance, we've helped bring turnover to below 50% in an industry where it typically runs more than 100% annually. Thanks to lower turnover, we've saved more in training costs than we've spent on insurance."
* Part-timers are too transient to benefit from stock options. "That's shortsighted," says Schultz. "If you make a part-time worker feel he's an owner -- and structure stock options to reward longevity on the job -- your part-time workers will become as committed as your full-time workers are." One way Schultz discourages transience is through a combined reward/vesting system in which workers receive new stock options each year but gain ownership rights to those options only at a 20%-per-year rate.
* Part-time workers don't spend enough hours on the job to get interested in their employer's long-term future. A management-level committee works at educating part-time and full-time workers about the ways their own performance, as well as the company's, will affect the profitability of stock options and other benefits. For example, all employees receive a five-page color brochure, "Partners . . . in Growth," which defines what Schultz calls "bean stock terms" (the way stock options work), illustrates the potential dollar value of options over a 5-to-30-year period, and answers typical questions such as, Do I have to pay cash when I exercise my options?
* Spend too much on resources and you won't have the cash flow to support growth. The growth curve of Starbucks proves otherwise. During the past three years, while the company upgraded benefits and started awarding stock options, revenues have grown at an 80% compounded annual rate. Meanwhile, profit margins have increased during each of the last 10 quarters.
* It's an administrative nightmare to include part-time workers in a full-scale benefits plan. "I'm the first to admit that these plans are incredibly tough to design," says Schultz. "That's why I spent the money up front -- $60,000 to consul-tants -- to make certain that our plan would fit federal guidelines, maximize tax benefits, and at the same time achieve all our internal goals for motivating and rewarding part-time and full-time workers." -- Jill Andresky Fraser