One of the reasons Americans feel unsettled with state of the economy is this: Salary increases have continued to lag even though job creation, as well as a number of other economic factors, have finally come back after the Great Recession.
I've grown weary with the annual salary forecasts that HR consultants spit out that predict yet another year of 3 percent raises, and the monthly analysis of the Labor Department's employment numbers seems to never tire of pointing out that despite any upturn in unemployment, wage growth remains "disappointing."
Could a 5% raise really be a game changer?
That's why Starbucks announcement that all store employees and managers in the U.S. are getting at least a 5 percent raise in October could be a game changer.
A broad letter written by (Starbucks) Chairman and CEO Howard Schultz ... says effective Oct. 3, all retail employees (which it calls “partners”) and store managers at U.S. company-operated stores will receive an increase in base pay of at least 5 percent, a range that will be determined by the geographic location of the store and other market factors. The retailer is also doubling the company’s stock option awards, which it calls the Bean Stock program, for partners that have worked at the chain for two years of continuous service. The combination of those changes are why Starbucks says compensation can increase by as much as 15 percent."
This isn't the first move by Starbucks to raise the bar on employee salaries. Last year the coffee chain announced that it was increasing starting salaries for Starbucks' employees as a way to better compete for talent.
The cost of the raises were not disclosed, but the company had previously said it would spend $275 million in 2015 and 2016 on "digital and partner investments." A significant part of that cost will go to employee wages, spokesman Corey duBrowa told CNNMoney.
Is this the launch of the new "War for Talent?"
My take: OK, I know you're wondering why I consider a 5 percent raise for hourly employees at a coffee chain to be such an economic game changer, and it's for two reasons --
- It finally gets us out of the 3 percent raise mentality we've dealt with for at least a half-dozen years; and,
- It shows that a large American employer is finally waking up to the fact that they may need to increase pay to not only hold on to talent but to compete for new workers as the new "War for Talent" seems to finally be ramping up.
I've been writing since at least 2010 about the terrible state of annual raises for American workers. They've hovered around 3 percent (actually from 2.7 to 3.1 percent) during that time, and just last year, Towers Watson North America practice leader Sandra McLellan said:
To a large extent, 3 percent pay raises have become the new norm in corporate America. We really haven’t seen variation from this level for many years. While most organizations are finding the talent they need at current salary levels, we are seeing more employers prioritizing how their salary budgets are being spent, especially in light of their ongoing difficulty in attracting and retaining top performers or employees with critical skills.”
Well, Starbucks decision to make 5 percent raises the bottom line for the 157,000 people they employ in the U.S. is going to finally punch through that 3 percent raise barrier we've been stuck in and make a 5 percent raise the new bottom line. Other companies are going to be be forced to follow suit, like it or not, to keep their employees happy.
Talent managers will have to up their game
And, keeping employees happy is going to be a bigger concerns for executives because they are going to become a lot harder to find and even harder to keep for companies not willing to stay competitive. There has been talk about when the new War for Talent would finally get going, and consider me one analyst who believes that Starbucks decision to raise salaries and other benefits is the first shot signaling that the "War" has finally begun.
With raises stuck at 3 percent, even top talent was only getting 4 or perhaps 5 percent hikes. Now with a 5 percent bottom line, top talent will be commanding 6-8 percent or so moving ahead -- and that's starting to get back to a decent raise to reward your best people.
Talent managers are going to have to step up their game as the battle for better people gets more intense. They will need to work harder to find people, and, get sharper with interviews and reference checks.
Plus, the candidate experience will need to get a lot better, too. With better raises and wages comes more mobility, and the best people simply won't put up with the hiring BS that all too many companies still try to put candidates through. They'll find other places to apply to that treat them the way they should be treated.
Some will think I'm jumping the gun here, but I don't think so. Given how raises have lagged so terribly, all it takes is a Starbucks to kick up increases and a whole bunch of other companies to follow suit.