Pour Your Heart Into It (18 page)

But I argued passionately that it was the right thing to do. On the surface, I acknowledged, it will seem more expensive. But if it reduces turnover, I pointed out, it will cut our costs of recruiting and training. Starbucks provides at least twenty-four hours of training for every retail employee, so each person we hire represents a significant investment. At that time, it cost $1,500 a year to provide an employee with full benefits, compared with $3,000 to train a new hire. Many retailers encourage turnover, either consciously or unconsciously, in the belief that it keeps down wages and benefits. But high turnover also affects customer loyalty. Some of our customers are such regulars that the minute they walk into the store, a barista recalls their favorite drink. If that barista leaves, that strong connection is broken.

Part-timers, I argued, are vital to Starbucks. In fact, they represented two-thirds of our workforce. Our stores have to open early—sometimes at 5:30 or 6
A.M.
—and often don’t close until 9

P.M.
or later. We depend on people willing to work short shifts on a steady basis. In many cases, part-timers are students or individuals who are juggling other obligations. They want health-care benefits as much as the full-time employee does, and I argued strongly that we should honor and value their contribution to the company.

The board approved, and we began offering full health benefits to all part-timers in late 1988. To my knowledge, we became the only private company—and later the only public company—to do so.

It turned out to be one of the best decisions we have ever made. It’s true, our health insurance program is costly. Over the years, we’ve added coverage far more generous than most companies our size, with coverage for preventative care, crisis counseling, mental health, chemical dependency, vision, and dental. Starbucks subsidizes 75 percent of coverage; each employee pays only 25 percent. We also offer coverage for unmarried partners in a committed relationship. Since our employees tend to be young and healthy, our rates stay within reason, allowing us to afford broader coverage while keeping monthly payments relatively low.

But Starbucks gets back plenty for its investment. The most obvious effect is lower attrition. Nationwide, most retailers and fast-food chains have a turnover rate ranging from 150 percent to as high as 400 percent a year. At Starbucks, turnover at the barista level averages 60 percent to 65 percent. For store managers, our turnover is only about 25 percent, while at other retailers, it’s about 50 percent. Better benefits attract good people and keep them longer.

More significantly, I found that the health plan made a huge difference in the attitudes of our people. When a company shows generosity toward them, employees show a more positive outlook in everything they do.

The true value of our health-care program struck me most deeply in 1991, when we lost one of our earliest and most devoted partners, Jim Kerrigan, to AIDS. Jim started as a barista behind the counter of our second Il Giornale store, in 1986, and he quickly rose to the position of store manager. Jim was a fantastic advocate of Il Giornale and later of Starbucks. He loved it.

Then one day, Jim came into my office and told me he had AIDS. It took incredible courage. I had known he was gay but had no idea he was sick. His disease had entered a new phase, he explained, and he wouldn’t be able to work any longer. We sat together and cried, for I could not find meaningful words to console him. I couldn’t compose myself. I hugged him.

At that point, Starbucks had no provision for employees with AIDS. We had to make a policy decision. Because of Jim, we decided to offer health-care coverage to all employees who have terminal illnesses, paying medical costs in full from the time they are not able to work until they are covered by government programs, usually twenty-nine months.

After his visit to me, I spoke with Jim often and visited him at the hospice. Within a year, he was gone. I received a letter from his family afterward, telling me how much they appreciated our benefit plan. Without it, Jim wouldn’t have had money to take care of himself, and he was grateful for that one less worry during his last few months.

Even today, there are scarcely any companies of our size that offer full health-care benefits to all employees, including part-timers. That fact was brought home to me memorably in April 1994, when President Clinton invited me to Washington, D.C., for a one-on-one meeting in the Oval Office, to tell him about Starbucks’ health-care program.

Others have been to the White House many times, but to me, born in the Projects of Brooklyn and working in Seattle, the thought of a chat in the Oval Office was overwhelming.

When I arrived at 1600 Pennsylvania that day, I tried to act nonchalant, but I could feel my heart thumping in my chest. Someone met me at the back door and took me in through a basement corridor, past pictures of great presidents, Washington, Jefferson, Wilson. These are the same halls, I thought, where Lincoln walked, and Roosevelt, and Kennedy. And what got me here was not some extraordinary feat, not walking on the moon or finding the cure for cancer. All I had done was provide health care to the people of my company, all of them, something any employer could do.

I was taken upstairs and shown to a chair outside the Oval Office.

“The president will be with you in three minutes,” a woman said. I straightened my tie and took in every detail around me. Phones were ringing, thick documents were stacked on the desk, and somber faces from history looked down from portraits on the walls.

“The president will be with you in one minute,” the woman said. I tugged on my cuffs and straightened my tie again. I watched the second hand go around the clock, and the door didn’t open. I fidgeted in my chair. Finally, the door burst open, and the president’s hand was in my face. He ushered me in. I had seen the Oval Office so many times in movies that now it seemed surreal. On his desk, I noticed immediately, was a green-and-white Starbucks cup, filled with hot coffee.

I don’t know why I said it, but the first words out of my mouth were: “Don’t you ever get intimidated, walking around here?”

He laughed and said “All the time.” He put me at ease and we talked for about fifteen minutes.

When the meeting was over, he led me across the hall to the Roosevelt Room for a small press conference. After speaking to the reporters, we attended a private luncheon with other CEOs. It was a heady experience.

At one point, with a few minutes between events, I asked to use a phone. How many guys like me do this kind of thing? I called my mother in Brooklyn, saying, “Mom, I just want you to know, I’m callin’ you from the White House.”

“Howard,” she said, “it doesn’t get any better than this!”

I wish my dad could have been there. In a sense, he was.

M
EANINGFUL
M
ISSION

S
TATEMENTS
H
AVE
T
EETH

From the beginning, I wanted employees to identify with the mission of the company and to have the sense of accomplishment that goes with being part of a successful team. That meant defining a strong sense of purpose and listening to input from people at all levels of the enterprise.

Early in 1990, we as a senior executive team carefully examined our values and beliefs and then drafted a Mission Statement at an off-site retreat. Our aim was to articulate a powerful message of purpose and translate that into a set of guidelines to help us gauge the appropriateness of each decision we make, at all levels of the company. We submitted a draft to everyone else at Starbucks for review and made changes based on these comments. The Mission Statement that emerged from that process puts people first and profits last. It’s not a trophy to decorate our office walls, but an organic body of beliefs, not a list of aspirations but a foundation of guiding principles we hold in common. (
For Mission Statement
.)

Drafting the Mission Statement was just the first step in a strategic planning process that lasted three months and involved more than fifty employees. We wanted to make sure we in management were hearing the views of our co-workers—and to ensure we had a long-term plan that our people had helped shape. At the urging of the board of directors, we invited in a Portland consulting firm called the Mt. Hood Group and assembled several teams, each composed of nonexecutive members from the stores, offices, and plant They met frequently that summer of 1990, away from the work-place, to discuss problems and make suggestions to management about decision-making, market expansion, and “people growth.” We implemented almost all their recommendations.

The “people growth” team had some of the most far-reaching ideas. They recommended that Starbucks implement a long-term stock option plan, a dream I had harbored almost since the beginning. And they insisted that writing and posting a Mission Statement wasn’t enough. Starbucks needed a way to make sure we were living up to it. So they suggested a “Mission Review” team. Every employee in each store and other location would be given a postcard-sized comment card and encouraged to report to the Mission Review team if they saw a decision that did not support our Mission Statement.

Most executives would feel threatened by such a setup. I sure did. The day of their presentation to management in September 1990, the “people growth” team members were tense. They had practiced several times, and they wondered if it might be confrontational. As I listened, I thought:
Do I want a team of employees monitoring management like this, holding us to our own high standards?
If I turned it down, what would that say about the sincerity of management toward the Mission Statement? We listened respectfully and asked a few questions. After a few days of consideration, we approved the idea.

Within a few months, the Mission Review system was set up. It’s still in place today. Any employee, anywhere, can make a suggestion or report an action that seems contradictory to our purpose, and we promise that a relevant manager will respond within two weeks, either by phone or by letter. Printed comment cards are given to each new employee upon hire and are also kept in common areas along with other company forms. Hundreds are submitted each year. People also have the option of not including their name. They don’t get a response, but their comment appears with others in a report I review carefully every month.

As the company has grown, Mission Review has become a vital link to the concerns of our large and scattered workforce. Every quarter, a team of people from different parts of the company meets to go over top employee concerns, seek solutions, and provide a report at our quarterly Open Forums. Not only does this process help keep the Mission Statement alive, it provides an important avenue for open communications with our people. Many great suggestions have been implemented.

W
HY
H
AVE
E
MPLOYEES
I
F

E
VERYONE
C
AN
B
E
A
P
ARTNER?

By October 1990, I could report to the board that we had achieved our first profitable year. Comfortably in the black, I could now undertake a venture that had a profound, long-term effect on the success of Starbucks.

If I hang my hat on one thing that makes Starbucks stand out above other companies it would be the introduction of Bean Stock. That’s the name we gave to our stock option plan. With its introduction, we turned every employee of Starbucks into a partner.

I wanted to find a way to share both the ownership of the company and the rewards of financial success with the people of Starbucks. But I wasn’t sure how best to do that. In January of 1991, a woman in our human resources department, Bradley Honeycutt, researched various alternatives for introducing such a plan. In conversations with consultants and surveys of other companies, she found a lot of different models but none that did what we wanted to do. Most plans were available only for public companies, such as outright stock grants and stock purchase programs, or for top executives, such as stock options. Privately held companies, like ours, didn’t grant stock or options because there was no market for them; their only alternative was to set up an Employee Stock Ownership Plan (ESOP). But that plan was mainly a way of raising capital.

We had a different aim. My goal was to link shareholder value with long-term rewards for our employees. I wanted them to have a chance to share in the benefits of growth, and to make clear the connection between their contributions and the growing value of the company.

Finally, we decided to do something novel. Even though we were a private company, we would grant stock options to every employee, company-wide, from the top managers to the baristas, in proportion to the level of base pay. If they, through their efforts, could help make Starbucks more successful every year, and if Starbucks someday went public, their options could eventually be worth a good sum of money. We had, in effect, given them a chance to create their own value.

Several of us had been tossing around names for the plan, trying to be creative. Bradley came up with the name
Bean Stock
one Sunday, when she was out jogging with her husband. It’s not only a playful reference to the coffee beans we sell, but it also evokes Jack’s beanstalk, which grew to the sky. So, eventually, did ours.

In May 1991, we formally presented the idea to the board of directors. All spring, I had been busy crusading with board members, in groups and one-on-one, explaining why I was convinced this proposal would work. Their main worry was that it would dilute the shareholdings of investors who had taken a risk with hard cash.