Stockholders who are restive about the ‘fairly flat’ recent performance of their shares can expect continued growth as the company invests in its work force, including a focus on pay equity, says executive chairman Howard Schultz.
Starbucks will continue investing in its workers even if that means forgoing the short-term stock-price lift it might have seen by passing more of its tax-cut windfall on to shareholders, Howard Schultz said Wednesday.
The coffee giant’s executive chairman urged shareholders who are disappointed with the “fairly flat” performance of Starbucks stock over the last year — a period that has seen broader markets up 15 to 20 percent — to take a longer view.
The reduction of the corporate-tax rate to 21 percent yielded hundreds of millions of dollars in savings. “We could have taken that money and given it all away to our shareholders, and maybe the stock would have gone up a point or two,” Schultz said.
“We’re trying to make long-term decisions,” he continued. “We’re trying to value the dignity of work. We’re trying to do everything we possibly can to demonstrate to the world … that there is a better way. And the better way is not a zero-sum game where you leave your people behind.”
Starbucks touted a host of benefits and accomplishments related to its workers — including in the strategically paramount China market — some of which were “accelerated due to changes in tax laws,” said the company’s top human-resources executive, Lucy Helm.
Helm said the company’s U.S. employees performing similar work are now paid equitably regardless of gender or race. That hasn’t always been the case. The gender pay gap in the U.S. economy broadly is 80 percent, Helm said, meaning women, on average, earn 80 cents for each dollar earned by men. In retail, the gap is even wider.
She said the pay-equity milestone was an “emotional moment” for her after 19 years at the company and as a woman in senior leadership. (The company’s 150,000-person U.S. workforce is 66 percent women and 43 percent minorities, but only 32 percent of its top 50 leaders are women, and 18 percent are minorities. A shareholder proposal to provide a more granular view of diversity at Starbucks failed.)
Over the last 10 years, Starbucks has put in place systems and practices to root out pay inequity, including ensuring starting pay is equitable, openly discussing pay, and conducting audits “to address and close any unexplained pay gaps between men and women and between people of different races,” Helm said.
The company now turns its attention to striving for 100 percent pay equity for employees in all company-owned stores around the world. Starbucks, which has more than 300,000 employees globally, would not disclose pay disparities in other markets, nor did it specify a timeline for reaching the goal, but said it would provide an update in a year. Meanwhile, pay equity at Starbucks-licensed stores in the U.S. and abroad will remain up to the third-party owners of those businesses. Starbucks also is making its “pay-equity principles” and expertise available to other employers.
Helm said Starbucks intends to “set a new bar for multinational companies who recognize the importance of equal pay for equal work.”
In China, too, the company is trying to set a standard with its benefits package. Last year, the company began offering critical illness insurance for the parents of employees. Since then 93 percent of eligible full-time workers have signed up, covering 14,000 parents.
“We want to inspire more companies to do the same for their people,” said Starbucks China CEO Belinda Wong, adding that Starbucks has met with more than 100 companies about the insurance benefit, and some will soon launch similar coverage for employees’ parents.
Starbucks employs more than 45,000 people in China and opens a new store there every 15 hours, on average. Starbucks has grown from 800 stores in China to more than 3,200 stores in the last five years and aims for more than 5,000 by 2021.
While it is thriving in China today, Schultz said the company lost money there for nine consecutive years.
“There were so many people who doubted whether in a tea-drinking society we could break through,” Schultz said, adding that China will be Starbucks’ largest market. “This was the crowning achievement of the entire company over the last almost 50 years,” he said. (The first Starbucks store opened at Pike Place Market in 1971.)
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Pay equity is in keeping with Starbucks’ record on pay and benefits, Helm said. Earlier this year, Starbucks announced pay increases for U.S. employees which take effect next month, additional stock grants of $2,000 for store managers and at least $500 for employees, family sick pay, and expanded paid parental leave. CEO Kevin Johnson told employees in January that the company would boost U.S. benefits more quickly than planned, thanks to its tax savings.
The company was the first retailer to provide part-time employees with health benefits for themselves and their families, including domestic partners, in 1988, “when that just wasn’t done,” Helm said. In 1991, the company began including part-time workers in its stock options program. That’s why the company insists on referring to its employees as partners, “because they are owners of this company,” she said.
Indeed, about half the audience of about 3,000 people in McCaw Hall obliged when Johnson asked employees to stand up and be recognized during the shareholder meeting. They also cheered wildly throughout, but particularly when the pay and benefits milestones were announced, and when Schultz took the stage.
While Starbucks isn’t planning to pass its full tax savings on to shareholders, it does plan to spend $15 billion on stock buybacks and dividends over the next three years, said Johnson.
“We are optimistic about the future,” said Johnson, who has been CEO for nearly a year.