Last week, the CEO of Starbucks, Kevin Johnson, announced the ‘Partner and Family Sick Time’ benefits for all of Starbucks’ U.S. employees. Starbucks is giving employees a number of additional perks, including increased wages, stock grants, six-week paid parental leave for non-birth giving parents and five days of paid sick leave per year. The $250 million stock and benefit package follows similar offerings by other American companies like Walmart, Apple Inc. and American Airlines Group Inc.. So, what is the upside?
Employee satisfaction leads to a higher level of customer service, which raises the value of the service for customers and increases customer loyalty. Starbucks is an example of this. Starbucks has always offered its entry-level baristas above industry average pay, health care benefits, and stock options. Now the world’s largest coffee shop chain, Starbucks’ rapid growth is built in part on every barista’s attention to customer service. This model of service has led to more profitable customers who return to Starbucks on average 20 times per month.
Employee satisfaction also reduces the cost of employee turnover. Dissatisfaction in pay and benefits leads to unhappy workers and higher rates of turnover. Although turnover costs per employee vary between industries and salaries, it is clear that investments in employee benefits can lead to significant cost savings. For every new hire, there is a period of time where the company has invested more money in that employee than the productivity the company has received. According to a Harvard Business School survey of 610 CEOs, it is “around the five-month mark [that] companies can expect a new hire to reach full productivity.” This can be even more harmful to a company if it is never reached and an employee quits before that break-even point––the company will have never gained the benefit of that employee’s productivity.
Some effects of employee morale on a company’s profits are much harder to track and quantify, but are just as important. For example, while difficult to measure, customer goodwill toward a company can have a substantial impact on sales, brand image, customer attraction and customer retention. With transparency of employee treatment only increasing by way of technology and social media, the way companies treat their employees will likely be known to its customers––it will increasingly be one of the reasons why some companies flourish while others wither.
Ask yourself if your company’s pay and benefits are positive influences on employee retention and performance. If the answer is no, now is the time to review what benefits will have that effect.
*Special thanks to Thomas Raine, who assisted in the drafting of this post. Thomas is a second year Juris Doctor Candidate at the University of Miami School of Law.