Question

When Howard Schultz founded Starbucks in 1987, he wanted to create a company that would genuinely care for the well-being of its employees. He had been very influenced by his memories of his father, noting that his father “struggled a great deal and never made more than $20,000 a year, and his work was never valued, emotionally or physically, by his employer … This was an injustice … I want our employees to know we value them.” He also believed that happy employees are the key to competitiveness and growth. As he stated: “We can’t achieve our strategic objectives without a work force of people who are immersed in the same commitment as management. Our only sustainable advantage is the quality of our work force. We’re building a national retail company by creating pride in–and stake in–the outcome of our labor.”

Schulz set out to accomplish his goals by creating an empowering corporate culture, exceptional employee benefits, and employee stock ownership programs. While Starbucks enforces almost fanatical standards of coffee quality and customer service, the culture at Starbucks towards employees is laid back and supportive. Employees are empowered to make decisions without constant referral to management, and are encouraged to think of themselves as partners in the business. Starbucks wants employees to use their best judgment in making decisions and will stand behind them. This is reinforced through generous compensation and benefits packages.

In 2000, Schultz announced that he was resigning as CEO and left the firm to pursue other ventures (though he remained chairman of the board of directors). However, after Starbucks began to suffer from slumping net income and decreasing share price, Schultz returned to the helm in 2008. Rather than cutting costs and reducing the work force, Schulz announced his “Transformation Agenda”–a controversial plan to invest in Starbucks’ employees, environment, and community. His plan included:

Competitive employee compensation plans that include equity-based compensation for nonexecutive partners. In 2013, $230 million was paid out in equity awards. In 2015, Starbucks gave all baristas and supervisors a pay raise and increased starting pay rates across the United States. In 2018, Starbucks’s U.S. baristas earned between $7 and $15 an hour (with an average of $9 an hour), plus an average of $742 a year in cash bonus, $286 in stock bonus, $442 in profit sharing, and $1,095 in tips.

Industry-leading health care benefits and 401K benefits for both part-time and full-time workers. Other companies that offer health benefits to part-time workers typically only do so for employees who work at least 30 hours a week. Starbucks broke with industry norms by creating benefits for employees who work at least 20 hours a week.

Tuition reimbursement for students. In June 2014, Starbucks unveiled a “College Achievement Plan” wherein employees who work more than 20 hours a week can work towards a bachelor’s degree through an online program from Arizona State University.

An ethical sourcing plan. Starbucks’ coffee must be purchased from suppliers that adhere to Starbucks’ “C.A.F.E.” standards. These standards include practices related to product quality, economic accountability, and transparency (e.g., suppliers must provide evidence to demonstrate that the price Starbucks pays reaches the farmer), social responsibility (e.g., third-party verifiers provide audits to ensure that suppliers are using safe, fair, and humane working and living conditions, including minimum-wage requirements and the prohibition of child and forced labor), and environmental leadership (e.g., measures to manage waste, protect water quality, and reduce use of agrochemicals).

In founding Starbucks, Schultz's stated primary focus was which of the following groups of stakeholders?

a. Suppliers

b. Customers

c. Stockholders

d. Employees If Starbucks takes a position on various controversial issues, which of the following would be important to have in place? a. Suppliers and customers who wholeheartedly agree with the position Starbucks is taking b. A policy of neutrality in the customer interface that all employees must adhere to c. Executive managers who wholeheartedly agree with the position Starbucks is taking d. A policy for protecting employees who may not agree with the position Starbucks is taking In which of the following ways does Starbucks focus on employees maximizing returns to stockholders? a. Compensation that includes employee stock ownership plan b. Creating categories of stockholders, such as common and preferred c. Turning external stakeholders into internal stakeholders d. Setting a limit on the number of stockholders a company has

Answer 1

1. Employees

In founding Starbucks, Schultz's stated primary focus was employees. He wanted to create a company that would genuinely care for the well-being of its employees.

2. A policy for protecting employees who may not agree with the position Starbucks is taking

This is because Starbucks is one of the few companies which takes care of its employees very well and would whole heartedly support its employees even in a situation where employees may not agree with the position Starbucks is taking.

3. Compensation that includes employee stock ownership plan

Starbucks focuses on employees maximizing returns to stockholders by providing a compensation that includes employee stock ownership plan because even in 2008 during the time of recession, the company invested in its employees and provided competitive employee compensation plans that included equity-based compensation for nonexecutive partners. In 2013, $230 million was paid out in equity awards.