Starbucks’ turnaround strategy has been the talk of the town ever since CEO Brian Niccol took over leadership of the company last year. As part of the most recent change in its operations, Starbucks has announced a 2% raise for all salaried employees in North America, opting for a merit-free pay raise strategy in 2025. Niccol’s cost control raises are an interesting strategy as they will limit any variations in the pay expected by workers hoping for a raise this year.
While the uniformity may be a boon for some, the flat 2% pay raise is likely to be lower than the bump up many workers were hoping to see. The proposed raise also lags behind the U.S. inflation rate of 2.7% and the average salary increases that are being offered by other businesses, which could result in several disappointed workers.
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Starbucks’ Caps a 2% Raise for All Salaried Employees in North America
Starbucks confirmed the flat 2% pay raise earlier this week, applicable to all salaried employees in North America. Bloomberg News stated that the raise will apply to all corporate staff, workers from manufacturing and distribution, as well as store managers. Hourly wage workers are not expected to benefit from this change. The reason for this merit-free pay raise? The company is capping expenses in order to “carefully manage all [its] other costs.”
In previous years, managers were allowed to contribute to the decision of individual pay raises for workers under their wings, but for 2025, Niccol’s cost-controlled raises will limit how much employees can seek during their annual discussions on pay. For now, it is difficult to gauge employee response to this move. While a guaranteed hike in pay is typically a good thing, the flat 2% pay raise leaves much to be desired.
Starbucks has also been embroiled in contract negotiations with its unionized workers, and it appears to be far from reaching a satisfactory agreement with them, despite the considerable time that has passed since the union was established. According to Reuters, the union previously rejected a proposal that guaranteed annual raises of at least 2%, which shows the general sentiment around Starbucks’ 2% raise.
How Does Starbucks’ Pay Policy Change Figure Into Its Turnaround Strategy?
The “Back to Starbucks” turnaround strategy is an expansive one that marks a bold step away from the organization’s approach in the years before. Determined to increase the foot traffic in stores and turn Starbucks’ outlets into community hubs, the company has attempted to make strategic changes to improve the in-store experience. This has come with a renewed focus on its green-aproned workers.
Some changes, like the improvements to the parental leave policy, have been well-received by the staff. On the other hand, other aspects, like the emphasis on 4-day RTO policies for corporate employees and changes to the barista dress code, have resulted in outspoken resistance. To continue with the ambitions to curb expenses, Starbucks is also reportedly exploring a zero-based budgeting strategy, where managers will have to justify their costs and expenses rather than rely on the budget from a previous year in order to make a case for themselves.
Starbucks’ 2% raise strategy is not a considerable hike based on available data, with a Korn Ferry survey suggesting that an average 3.6% increase in salary is expected to be offered this year. We expect that with merit-based raises being replaced, Starbucks will have some disgruntled employees on its hands. The company will have to explore alternative strategies for guaranteeing active retention to hold on to its talent—if this continues to be a goal, of course.
Are Merit-Free Pay Raises a Good Idea?
With economic uncertainties prevailing in the market, tariffs poised to hike costs, and Starbucks’ own expenses resulting from the turnaround plan looming over the business, it’s no surprise that the company is opting to play it safe and conserve its resources for other investments. Data shows that workers are unlikely to quit in large numbers in the coming months, making it easier for Starbucks to commit to the strategy without fearing a mass quitting event.
However, counting on fear to keep employees seated at their desks is a risky strategy. Disgruntled employees aren’t ideal employees, and a slight shift in the job market could result in a mass exodus of the workforce. Standardizing benefits to ensure all workers are fairly rewarded in addition to their pay can be a good idea, but offering limited merit-free pay raises does take some of the motivation out of the equation.
Aware that stellar performance is unlikely to be fairly compensated, workers might be lulled into a false sense of complacency, where they don’t have to push themselves to perform to the best of their abilities in order to keep their jobs. This might work in the short term, but eventually, the organization will have to look at other forms of compensation for high performers to keep them driven towards a common goal.
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