Starbucks shakes things up

Facing growing competition for workers, Starbucks plans to raise employee compensation by as much as 15 per cent later this year.

Staff in its U.S. company-operated stores will get a bump in base pay of at least 5 percent on October 3, Starbucks said in a statement Monday. The coffee chain also is doubling the size of its annual stock award to employees who have been with the company for two years. Combined, the changes will bring the compensation increase to as much as 15 per cent.

"The range of increase will be determined by geographic and market factors and is intended to ensure Starbucks remains a retail employer of choice in all the markets where we operate," Chief Executive Officer Howard Schultz said in the statement.

Starbucks faces a tightening labor market in much of the U.S., as well as minimum wage increases in some states and cities. That's pushed restaurants and retailers, including Wal-Mart Stores, McDonald's and Target, to boost pay in a bid to retain hourly workers. Starbucks said last year that employees who work at least 20 hours a week were also eligible to have full tuition covered for online classes at Arizona State University.

"What they're trying to do is retain their employees because they believe it helps drive same-store sales growth," said Peter Saleh, an analyst at BTIG LLC. "There's definitely a business proposition behind this."

Starbucks same-store sales rose 6 percent last quarter and are projected to climb 5.8 per cent in the current period, according to data compiled by Bloomberg. The chain has the ability to raise prices to help compensate for the increased worker wages, Saleh said.

Starbucks didn't indicate how much the pay increases would cost. But the coffee company previously said that investments in employees and digital operations will amount to as much as $300 million this fiscal year, more than double the roughly $145 million it spent in 2015.

Starbucks also plans to raise prices on certain beverages on Tuesday. The company said earlier this month that some cafes incorrectly overcharged customers as much as 30 cents ahead of the planned hike.

In addition to the compensation changes, Seattle-based Starbucks is loosening its dress code, Schultz said. Details on that policy change will be released by the end of this month.

"We've heard your requests for more freedom when it comes to bringing your 'whole self' to work," he said. "Our latest dress code changes are designed to work well with the green apron while expanding your options, providing more room for self-expression, and allowing you to choose from items that may already be part of your everyday wardrobe."