Taking Care of Their Own

TAKINGCARE OF THEIR OWN Starbucks and Costco are prime examples of the brand benefits of a happy workforce

BY CHRISTINE BIRKNER | SENIOR STAFF WRITER

 cbirkner@ama.org Illustrations by Emily Flake

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orkers, and the way that corporations treat them, are in the national spotlight now more than ever. Employee benefit issues dominate the headlines, with workers in historically low-paying industries such as fast food and retail fighting for higher wages and better health-care benefits.

In 2014, Wal-Mart, Target, The Home Depot and Walgreens eliminated health-care coverage to employees who work fewer than 30 hours a week, resulting in strikes calling for higher wages and more consistent full-time work. In December 2014, strikes for higher wages at fast-food outlets and convenience stores including McDonald’s, Dollar Tree, Dollar General, BP and Sunoco spanned 190 cities, according to Bloomberg Businessweek.

Brand reputations often are stoked by outward-facing marketing efforts and corporate social responsibility initiatives, but employee treatment is becoming a bigger part of the CSR pie, experts say. To differentiate themselves in the marketplace and boost customer perception, companies could benefit by treating their employees better—and letting their customers know about it.

“In the past, consumers cared about: ‘Are you giving back? Are you supporting causes through philanthropy?’

Today, they’re recognizing that the way for companies to be a positive force is by looking at how they make products, how they treat the environment and how they treat employees,” says Alison DaSilva, executive vice president at Boston-based Cone Communications, a marketing agency specializing in CSR and cause marketing. “When a company is treating employees well, it’s a critical factor in purchase decisions.”

Moreover, better employee treatment helps attract better talent, which can lead to more revenue, says Jane

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Kwon, practice leader at Aon Hewitt, a Lincolnshire, Ill.based human resources and management consulting firm. “If you have more loyal, engaged employees, there’s a direct impact on their productivity, their likelihood to stay with that company and their ability to drive customer satisfaction. All of those have an impact on revenue and growth.” In a 2014 study by the Alexandria, Va.-based Society for Human Resource Management, U.S.-based employees ranked compensation/pay and benefits packages No. 1 and No. 4, respectively, as aspects contributing to job satisfaction, which ranked higher on their happiness lists than the organization’s financial stability and the work, itself.

Treating employees well also results in better customer service and higher customer loyalty, says Zeynep Ton, adjunct associate professor of operations management at Cambridge, Mass.-based Massachusetts Institute of Technology and author of The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower

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Costs & Boost Profits. “Companies that have a combination of operational excellence and investment in people offer much better service than their competitors do, so customers have a reason to shop at these places rather than others.”

Adds Janice Fine, associate professor of labor studies and employment relations at Rutgers University in New Brunswick, N.J.: “More and more, consumers are making the distinction about companies that treat their employees fairly, and companies are making a cost-benefit calculation that it’s easier to pay a higher wage per hour or agree to the demands of its employees than to risk losing business.”

Two such companies, Starbucks and Costco, operate under “employees-first” philosophies, offering wages and health-care benefits that surpass the industry standard, and they’re reaping the rewards. Both have proven that companies that look out for long-term employee happiness can be more efficient and profitable. While neither company aggressively markets these efforts, experts agree that positive employee treatment can be a worthwhile marketing peg, whether or not it’s widely promoted.

“It’s a relatable concept for consumers and it’s starting to emerge in their purchasing decisions,” says Lukas Snelling, co-founder and general manager of Brave One, a San Francisco-based digital marketing agency focusing on social impact and CSR. “The old way of capitalism was, ‘Let’s see how effectively we can exploit our employees to maximize profits.’ The new way of capitalism is, ‘How effectively do we create value in the world for our customers and our employees?’ Customers have no desire to patronize businesses where employees are visibly upset or otherwise exploited by their employer. Treating employees better is a way to capture market share that they wouldn’t have otherwise.”

Brewing a Satisfied Workforce

For the past several years, Seattle-based Starbucks Corp. has appeared on countless “Best Places to Work” lists and garnered media attention for its positive treatment of employees (or “partners,” as Starbucks refers to them). Most retail companies set health-care eligibility thresholds at 30 or 35 hours per week, but since 1988, Starbucks has offered health care to part-time employees working an average of 20 hours per week. In January 2015, Starbucks gave all of its baristas and shift supervisors a raise, and increased starting pay rates across the U.S. based on experience and location. The company also offers an employee stock-sharing program called Bean Stock.

In June 2014, the company launched the Starbucks College Achievement Plan, which offers full tuition coverage for employees to finish a bachelor’s degree at Arizona State University, either online, or in person. Two thousand Starbucks employees applied to the program, and more than 1,000 started classes at ASU in October, according to the company.

Starbucks doesn’t have a dedicated marketing campaign to promote these internal efforts, but it does create small posters and other signage for in-store promotions, and it often features employees in its media outreach efforts.

Eighty-seven percent of the company’s brand affinity is driven by the way that it treats its employees, according to a 2014 Starbucks customer survey. “We regularly hear from loyal customers that one of the main reasons they come back is because of our longstanding history of investing in our partners,” a Starbucks spokeswoman says.

Treating its employees well also has benefited Starbucks’ bottom line, she adds. “It’s enabled us to attract and retain the best talent. … When we take care of our partners, they want to take care of our customers. They want to deliver the best experience, and go above and beyond. That leads to happy shareholders and a profitable company.”

Starbucks’ policies could cause a shift in HR practices across the retail industry, Kwon says. “Perks that companies like Starbucks are offering are forcing all employers to look at what they offer and ask themselves, ‘If Starbucks is going to differentiate themselves, it’s going to have an impact on the marketplace, so what do we do differently?’ Free tuition assistance is not the norm for most industries, but Starbucks is moving the mark in terms of what the norm is.”

Adds the Starbucks spokeswoman: “When customers go anywhere, whether they’re buying a cup of coffee, or they’re buying clothing, they want to know that the company they’re purchasing it from is taking care of their employees. That gives you a moment of pride, as a consumer, to know that you’re supporting a company that’s doing the right thing, taking care of the people who make that company possible.”

The ‘Best Ambassadors’ Issaquah, Wash.-based Costco Wholesale Corp., the secondlargest retailer in the U.S. behind Wal-Mart, also is working against the norm in terms of its employee benefits. Costco has some of the highest wages, and lowest turnover, in the retail industry. Federal minimum wage is $7.25 per hour and Wal-Mart’s average wage is $12.67 per hour. Meanwhile, Costco pays its employees an average of $21 per hour, not including overtime pay. Costco CEO Craig Jelinek also has spoken in support of raising the federal minimum wage.

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85% of Americans “Paying competitive wages by retail standards allows us to attract really great employees,” says Patrick Callans, Costco’s senior vice president of human resources and risk management. “We support increasing the federal minimum wage because we feel like our business model is consistent with the idea that if you pay people more, you will have more productive employees.”

Eighty-eight percent of Costco employees have company-sponsored health insurance. Costco offers health insurance to employees working at least 23 hours per week and guarantees a schedule of 24 hours per week for parttime employees. Costco’s higher wages and better benefits help boost employee retention. The median turnover rate for part-time workers in the retail industry is 74.9%, according to Philadelphia-based management consulting firm Hay Group, but Costco’s turnover rate is 10% overall, and 5% for employees who have been with the company for a year or more.

Sixty-two percent of Costco’s employee base has been with the company for more than five years, and 38% has been with the company for more than 10 years, according to Callans. “There are definitely efficiencies and productivity increases that come from not having to constantly hire and train new employees. That longevity is important for us.”

Says Rutgers University’s Fine: “Lots of studies show that when workers are paid more and they’re more satisfied, they don’t leave their firms. Lower turnover is good for the bottom line because the cost of hiring, searching and training are eliminated.”

Since 2010, Costco’s stock price has more than doubled, and the company’s sales for the fourth quarter of 2014 rose 9.3%, while Wal-Mart cut its earnings forecast for 2014. (Wal-Mart did not respond to requests for comment for this article.)

“In general, people prefer buying from Costco instead of Wal-Mart because the prices are about the same and everyone knows that Costco treats their employees much better,” says Joel Rogers, a professor of law, political science, public affairs and sociology, and director of the Center on Wisconsin Strategy, a think tank at the University of Wisconsin-Madison that focuses on employment issues, and author of What Workers Want.

“Most consumers would rather deal with a firm that treats its employees well than a firm that’s known for treating its employees badly. Companies have repeatedly shown that they can win by doing this.”

While everyone may very well know about Costco’s positive employment practices, the company doesn’t actively seek publicity for its treatment of employees, preferring, instead, to let its employees do the talking, Callans says.

“Our employees are our best ambassadors, and we think

consider a company’s CSR practices, including employee treatment, when deciding which businesses they want in their communities.

82% say that it’s a

factor in deciding what to buy or where to shop. that word of mouth about how good we are at what we do is really the best form of promotion. It’s a fair assumption that if our employees are out there saying positive things about the company, it probably has some impact on the way our customers feel about shopping at Costco.”

A Halo Effect Like Costco, most companies that focus on treating their employees well don’t have marketing campaigns spotlighting these efforts, MIT’s Ton says. “These companies say that the best advertisement is to offer a great experience in their stores. They’d rather spend that budget on their employees than promotion. Even if the companies aren’t advertising this, customers will have to do their part to nudge companies so they’ll want to operate that way. One great way to nudge is to shop at stores that treat their employees better.”

Consumers are, indeed, more likely to patronize businesses that treat their employees well, research shows: 85% of Americans consider a company’s CSR practices, including employee treatment, when deciding which businesses they want in their communities; 82% say that it’s a factor in deciding what to buy or where to shop; and 82% say that it’s a factor in which products or services they recommend to others, according to a 2014 study by Cone Communications.

More consumers are paying attention to employee treatment because companies that are for or against raising the minimum wage often are being called out on the news and in social media, Cone’s DaSilva says. “Companies might not be marketing it boldly yet, but that will come. The wellbeing of the employee is a trend that’s not going away. …

When employees are happy, they’re better ambassadors and advocates for the brand. They’re your first point of contact. When you’re at a cocktail party, and you’re talking to someone, and they say, ‘I love my company,’ you can’t put a price on that.” m

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