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Starbucks employees are set to see significant reductions in their annual bonus payouts this year, a result of the coffee giant’s underwhelming financial performance, although the CEO will still get $23m.
The chain has revenue growth of less than 1% and has seen an 8% decline in operating income, factors that have directly impacted bonus calculations.
The annual bonuses, awarded each December, are calculated using a weighted formula that emphasizes company performance.
For senior executives, 70% of the bonus is tied to operating income and net revenue, while inclusion goals and individual achievements account for the remainder. For other corporate staff, the split is more balanced, with equal weight given to individual and business performance.
The firm adjusted its executive compensation structure in 2023, further linking rewards to corporate outcomes. Now, 70% of senior management bonuses hinge on financial metrics, a sharp increase from 50% in fiscal 2022, while the individual performance weight dropped to 15% from 30%.
Starbucks CEO bonus
Despite these changes, CEO Brian Niccol will still collect his guaranteed $23 million equity award for fiscal year 2025. The Starbucks board has stipulated it will have discretion to adjust his compensation starting in fiscal 2026.
Niccol’s lucrative bonus package contrasts sharply with the cuts felt by employees and reflects the complexities of executive pay during a challenging year for Starbucks’ financial performance.
The company’s struggles are multifaceted. In the most recent fiscal year, same-store sales - a critical measure for retail businesses- declined by 2% overall and 6% in the US during the final quarter. It marked the first same-store sales drop since the 2020 pandemic upheaval.
Starbucks has also grappled with operational difficulties, including long lines during peak hours and a bloated menu filled with elaborate, customized drinks. Former CEO Laxman Narasimhan previously flagged morning traffic congestion as a persistent issue, with frustrated customers abandoning orders.
Niccol, who took the helm in September, has promised to address the challenges head-on. In an open letter on his first day, he vowed to revitalize Starbucks’ reputation as a welcoming coffeehouse with a strong community ethos. His plans include streamlining operations, reducing menu complexity, and introducing new technology to support baristas.
“We’re getting back to Starbucks,” Niccol wrote, emphasizing the importance of creating a space where customers feel at home.
Starbucks has already begun making operational changes, such as reintroducing condiment carts removed during the pandemic and axing unpopular menu items like its olive oil-infused coffee line.
Starbucks comeback
The company aims to recapture the intimate atmosphere of its earlier days by adding cozy chairs and ceramic mugs in stores, and even reviving the once-iconic practice of baristas writing customers’ names on cups.
While Starbucks CEO bonuses remain a focal point, the company’s broader challenges suggest a pivotal moment for the brand as it seeks to regain consumer trust and improve its financial performance. Whether these adjustments will succeed in revitalizing Starbucks remains to be seen, but Niccol’s strategy signals a commitment to transformation.
The reduction in bonus payouts for corporate employees is likely to dampen morale and raise questions about fairness in the workplace. Bonuses often serve as key motivators and recognition for hard work, and their absence may contribute to dissatisfaction, potentially leading to higher employee turnover or challenges in maintaining engagement during an already difficult period for the company.
