Starbucks (NASDAQ:SBUX) has been largely ahead of the curve when it comes to worker perks and benefits. While some of its large peers have been dragged kicking and screaming into providing benefits such as health insurance, the coffee company has not had this problem.
Employees, or "partners," as the chain calls them, receive health insurance if they work more than 20 hours a week and have access to a range of other perks the company refers to as the "Special Blend." This is a customized package created with the worker's input to match his or her unique situation.
"Benefits-eligible partners (those working 20 or more hours a week) can get a wide range of perks, benefits and assistance," the company says on its website. "Your Special Blend might include bonuses, 401(k) matching and discounted stock purchase options. We offer adoption assistance and health coverage for you and your dependents, including domestic partners."
Starbucks also offers a unique program through which it pays for employees to go to college.
Overall it's a fairly generous system that shows respect for workers and puts some money behind use of the word partners. It's good for the people who work at Starbucks, but it's also a smart investment for the company.
Treating people well is cost-effective
Unlike some food industry workers, Starbucks baristas have a lot to learn and training new employees takes a toll. The coffee giant has a low turnover rate in an industry that has a notoriously high rate of employee churn, according to The Washington Post. The paper explained that minimizing turnover could make expensive programs such as paying for workers to attend college a smart investment:
A Center for American Progress study estimates turnover costs employers 16% of salaries for employees who earn under $30,000 a year. (Starbucks baristas make $8.80 per hour, or about $18,000 per year for full-time work.) That means it may cost Starbucks about $3,000 to replace a barista. Since food businesses can have more than a 100% turnover rate if they replace their entire staff more than once per year, the cost of school could be worth it.
Starbucks CEO Howard Schultz has said that "peer companies see average annual turnover of 350%," The Wall Street Journal reported last year. The coffee chain's boss said at the time -- and this was before the tuition program -- that "turnover among Starbucks baristas is close to 100% per year," and the paper noted this was good for the retail and restaurant industry.
Though it's a for-profit company Starbucks has always aligned itself with social good, so it's probably fair to say it is doing the right thing by both its employees and its shareholders. Offering a valuable package of benefits keeps workers from leaving and ultimately saves the company money.
The college program keeps people on board
When Starbucks first launched its College Achievement Plan in June 2014 it was to help people with at least two years of school finish their degrees. Now the coffee company has expanded its partnership with Arizona State University to cover all four years of college; in the first month of the program, more than 1,800 employees signed up, according to a press release.
"These impressive numbers reflect that the students recognize how a college degree can dramatically elevate the possibilities for their income and quality of life," said ASU Provost Robert E. Page Jr. in a Starbucks press release.
Only U.S. partners working more than 20 hours a week who do not have a college degree are eligible for the program. That's about 70% of its 141,000 employees in the country, CNN Money reported.
Starbucks explained how the program works in a press release:
The Starbucks College Achievement Plan offers 100 percent tuition reimbursement for all four years of college. All benefits-eligible Starbucks partners working part time or full time may choose from 50 undergraduate degree programs through ASU Online, with no commitment to stay with the company post-graduation. Starbucks will invest $250 million to help at least 25,000 partners graduate by 2025.
The coffee chain does not pay the full cost of the tuition. It laid out how the plan works on its website:
Partners in the program receive an upfront College Achievement Plan Scholarship worth 42% of their tuition costs. This is funded by ASU and applied at the time they enroll in classes. Partners will also have access to financial aid grants and Starbucks will reimburse any remaining tuition and mandatory fees not covered at the end of each semester (two sessions). This means that eligible partners receive full tuition coverage as they work toward completing their degrees.
Tuition at the school costs about $15,000 per year, according to CNN Money. Since a $250 million investment works out to $10,000 for each of those 25,0000 Starbucks "partners" -- Starbucks may have to increase funding or cap enrollment in the program depending upon the breakdown of students with existing credits to those needing four years of schooling.
But no publicly traded company -- even a socially conscious one like Starbucks -- spends $250 million just to be nice. The college program offers a wonderful opportunity to Starbucks employees, but it also ties them to the company for the length of their education.
That's a strong mutual benefit in which the worker gets a college degree for free and Starbucks holds on to an employee for at least four years.
More companies need to do this
Starbucks has demonstrated that companies and workers need not be antagonists. Offering a strong benefits package including health insurance and tuition reimbursement can actually benefit both groups. It saves the company money on recruiting and training new employees while giving the worker a better life.
More companies would be wise to look at this example and see that investing in employees can pay off better than viewing every dime spent on them as wasted money. Starbucks is spending money, but ultimately saving it in a way that benefits the business, its shareholders, its employees, and even its customers.
Daniel Kline owns shares of Apple. He drinks an iced, decaf, soy latte of various types. The Motley Fool recommends Apple and Starbucks. The Motley Fool owns shares of Apple and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.