Human resource management is one of key sectors affecting strategic planning of any company. It is possible to outline the following functions of HRM: manpower planning, recruitment and selection, motivating employees, performing evaluation for employees, management of organizational relations, provision of employee services, training and development for employees (Foot & Hook, 2008). In HRM context, an important role belongs to design and implementation of wage and salary scale as the leading factor driving employee motivation (Foot & Hook, 2008).
The purpose of this paper is to consider existing methods of developing pay structure, to analyze effectiveness of pay structure policies and practices at Starbucks Corporation and to develop recommendations for possible improvement of existing pay structure of the company.
1. Common pay structure practices
There are three key approaches to the analysis of jobs and pay design: analytical schemes (quantitative methods), market pricing and non-analytical schemes (qualitative methods) (Mathis & Jackson, 2010). Analytical evaluation of jobs is based on considerations of different job-related factors in order to determine the relative value of the job. Two most popular analytical methods to job evaluation are point plan and factors comparison approaches (Mathis & Jackson, 2010). Point plan approach uses ratings for several compensable factors which should be added to obtain a point score for the job. Factors are commonly broken into degrees, and specific point value is assigned to every factor and every degree. Factor comparison is a similar technique, but in this case jobs are compared with regard to several factors, and there commonly is a factor comparison scale for evaluating jobs belonging to a particular group. Analytical methods involve complex estimates, but they allow to create a clear and exact scheme for pay design.
Non-analytical (qualitative) approaches are job ranking and classification (Armstrong, 2007). Job ranking is based on a general ranking of jobs within the organization from lowest to highest, and pay is usually associated with job rank. Job classification is a more detailed scheme, where there are specific classes of jobs and grades within these classes. Both methods are easier than quantitative methods, but ranking is rather simplistic, and most organizations use job classification.
Market pricing analysis of jobs is based on average market wages for comparable jobs. This method uses data obtained by external benchmarking, and allows to determine competitive salaries (Armstrong, 2007). Although this method is widely used, because it increases competitive position of the organization, it is often not exact, because this method is only focused on competition, and simplifies job structure in order to fit the description of comparable market jobs.
2. Starbucks case
There are four types of employment relationships characterized by different levels of pay and commitment: cult-like relationships (high commitment, high pay), “hired guns” (low commitment, high pay), family (high commitment, low pay) and commodity workers (low commitment, low pay) (Bratton & Gold, 2001). Starbucks strategy relates to the family type, because the company offers base rates only slightly above the average (or equal to average) for their employees, but the company focuses on benefits, incentives, flexibility advantages and stability in the process of determining wages and salaries (Michelli, 2007).
The objectives of Starbucks pay design are to make the employees (referred to as partners) feel valued and gain their loyalty with offering additional opportunities for personal development and benefits. Starbucks uses egalitarian approach to wage and salary rates (Bussing-Burks, 2009), e.g. similar jobs have similar base pay. Overall, pay design at Starbucks is based on a combination of job evaluation and market pricing. Job evaluation technique used by Starbucks is job classification, with several classes of jobs associated with particular department, and levels associated with each class of job. There exist particular descriptions of these jobs, which are updated every year to match the existing types of work. At Starbucks, base pay for the majority of jobs is determined using market pricing , and the size of benefits and incentives is also chosen basing on market data.
While base pay is chosen as minimal or slightly above minimal, Starbucks offers health insurance for all partners (even for part-time employees) and offers stock options to them (Bussing-Burks, 2009). All partners also receive free coffee every week (Bussing-Burks, 2009), which is also regarded as specific bonus. Bonuses are also awarded to improved team performance at Starbucks (Bussing-Burks, 2009). Pay design is commonly open and clear to partners, and they can introduce suggestions on improving pay design.
For improving the motivation of partners and competitive position of Starbucks among other companies, it is possible to recommend the following modifications to the process of pay design. First of all, in order to make partners feel more attached to the company, it is possible to match the payment with the workload and add payment for those partners who have to work during especially busy times or in especially busy environments (e.g. managers of busy locations).
It will also be useful to add specific incentives for individual performance; although Starbucks values team performance most of all, certain employees (e.g. baristas) might be better motivated by individual bonuses and incentives. Adding specific prizes for the best partner according to the customers’ opinion will greatly encourage team spirit.
Currently there is a large difference between bonuses of line employees (baristas and supervisors) and manager bonuses, and this acts as a demotivating factor for the former (Bussing-Burks, 2009). Thus, it is necessary to distinguish between bonuses for these two groups, and to establish two different factor comparison scales for determining the effectiveness of operation for managers and for line employees. Overall, despite the existing areas for improvement, Starbucks developed an effective approach to pay design, which allows to encourage high employee commitment.