• Uncategorized

Performance and Compensation Management 1


By(Students Name)


Performanceand Compensation Management

StarbucksCorporation is an American coffee company that was founded inSeattle, Washington in 1971 by Jerry Balswin, Gordon Baker, and ZevSiegl. Its first shop was located in the historic pike place market(Michelli 2013). The company started as a small business thatprovided coffee beans to espresso bars and high-end restaurants. Overthe last few years, it has become the largest retail coffee companyin the world. Howard Schultz, the current CEO of Starbucks joined thecompany in 1982 as a retail operation and marketing director heprevailed on the founders to try opening the coffeehouses (Michelli2013). In 1983, Schultz visited Italy and liked the Italian coffeeshops and how they operate. He envisioned setting up the same in theUnited States. From the onset, Starbucks set out to be a place wherepeople can meet up and converse with a sense of community.In 1987,Schultz and a group of investors bought the company. Since then, thecorporation has become the top ranking coffee roaster and retailer inthe world. The mission of the company is to inspire and nurture thehuman spirit. Starbucks recognized potential in the internationalmarket and tapped it. Notably, it owns about 24000 shops in countriessuch as Japan and China Tokyo’s Starbucks was the firstinternational shop. Besides selling high-quality beans,Starbucksspecializes in a variety of coffee drinks, tea, hotchocolate, and a selection of food items, which are mostly snacks.Starbucks’ success attributes to the changing coffee image amongconsumers. This paper will focus on identifying issues with thecompany’sperformance and compensation management, as well assuggest steps to take for improvement and change in addition torecommendations for the organization

Performancemanagement is a procedure where employees and managers work togetherto plan, monitor, and review workers’ purpose and overallcontribution in an organization (Goel 2012). Performance managementis not just an annual presentationbut an ongoing procedure of settinggoals, gauging progress, and providing continuous coaching, as wellas feedback to ascertain that employees are meeting their objectivesand career targets. Performance management’s elementary goal is topromote and improve workers’ effectiveness at work. An efficientperformance management evaluation will include the three fundamentalsteps, that is, planning where the employer sets expectations,monitoring and evaluating progress, as well as the annual review ofperformance (Shields 2016). After completion of the three steps, anew cycle begins and goes on through the same process.

Itis notable that employees and managers dislike the performancemanagement process intensely however, it is a crucial for anyorganization that values goal achievement. For a company to keepcustomers happy, they must treat their employees well and reward themif they reach their objectives (Goel 2012). Performance managementgoes hand in hand with compensation supervision, if an employeereaches their target in sales and customer services, then they getrewards either in monetary or non-monetary form. Rewarding employeesemphasizes the respect the employer has towards the workers. Besides,this encourages the employees to have respect among themselves whenthe team is united, communication lines are open and the workers willlikely share good ideas and present the same, which will help tobuild the company’s success.

AtStarbucks, performance management occurs in two steps measuring thejob performance, and sharing the feedback with their employees. Oneof the methods Starbucks uses to evaluate employee performance is thecustomer comment cardsthis is where the clientsevaluate theemployees’ service (Michelli 2013). In many Starbucks stores,managers reward employees who score highly in the customer commentcards (more than 70 out of 100). Besides, the workers also evaluatemanagers’ performances in their leadership roles using the commentcards. The company then provides feedback, training, and rewards tothe workers. However, the customer comment cards are a loophole inthe Starbucks’ performance management. Sometimes, the clientsignorefilling them thus, this does not help the management gauge theperformance of the employee. Few customers are motivated to fill thecards if no incentives are offered. The customers can sometimes bebiased towards particular employees for example, regular customersdevelop personal relationships with certain employees, which makethem rate their services better. The partners (name used foremployees at Starbucks) may give the management bad reviewsemployees are known to have a bad relationship with their managers.If the bonuses of the management depend on the reviews by theemployees, most of them fail to get the reward resulting indissatisfaction and low morale.

Asdiscussed earlier, satisfied and well-remunerated employees treat thecustomers’ well, thus resulting in high sells. In this case, someworkers who do not get good ratings on the cards end up not gettingbonuses or rewards. These groups of employees feel unsatisfied andunderpaid than their peers, which makes them bad service providers tothe customers. The issue needs immediate attention sinceorganizations with bad customer service get few clients andconsequently register minimal revenue. MacDonald’s is a chain offast-food restaurants, which is a big competitor of Starbucks interms of revenue (Crosson &amp Needles 2013). MacDonald’sperformance management is devised in a way that employees areevaluated on competency in their specific fields by unbiasedreviewers this ensures that workers are evaluated according to theireffort and not by customer cards filled by people who are justinterested in going through the questions hurriedly to leave.Therefore, the Starbucks’ method is more customers-oriented than itis to the evaluation of employees (Michelli 2013).

Significantimprovements need to happen if the issue is to be rectified. Theperformance appraisal dictates the rewards given to employees thesebonuses motivate them to work hard to obtain the goals expected ofthem by the organization (Goel 2012). The customer comment cardsshould be used to rate products and employees because they putworkers under pressure. For the employees to work effectively, theyshould feel at ease while ate their duties however, this doesnotimply that they should not be held accountable for customerservice. The customer cards should not dictate the number of bonusesinstead, they should be given according to individual sales andcompetency (Flamholtz&amp Randle 2015). Recommendations thatcontribute to improvement and change include evaluation of employees’performance using alternative methods such as workcontractsappraisal of employees should be done by unbiased reviewerswho assess competency according to each individual’s jobdescription. For improvements to occur, the customer cards should beused as a way for the employee to enhance themselves and service butshould not justify how rewards are distributed among workers. Ifimprovement does not happen, employees’ dissatisfaction will leadto misunderstandings like the one that happened in 2005 withStarbucks employees in New Zealand (Lawler &amp Worley 2011). Themisunderstanding caused the company to lose much money in revenuefailure to address the issue will be disastrous. Fixing the concernof customer cards will make the employees feel at ease when dealingwith clients in this case, they do nothave to behave in a certainway towards the customers to get good reviews. Employees who feel atease while at work are found to be effective and for this reason,serve customers well (Biro 2016). If change is implemented, thecompany will enhance its revenues because of low staff turnover. Thecompany will be a good place to work for the employees, a fact thatattracts customers.

Compensationmanagement is everything offered to employees either in monetary ornon-monetary forms in return for their skills and time. It ensuresthat the company keeps the valuable workers by keeping them satisfied(Kelly 2014). Most companies are hesitant to invest in the proceduredue to the costly spreadsheet errors and the inability to manage andapply rules and best practices of the procedure effectively.Different types of compensation include salary, bonuses, overtimepay, commission, and benefits packages (health, retirement savings,dental insurance, and vacation time). The importance of compensationmanagement is to make the most of the company’s income in a waythat rewards workers for their work. Compensation management ensuresthat efficient employees are rewarded for their work to avoid losingthem to competitors (Crosson&amp Needles 2013). There are twotheories that human resource managers use to create compensationmanagement plans they include the equity theory and agencyhypothesis. The rewards are positive reinforcements for hard workingemployees. Compensation management improves the company’sreputation satisfied employees attract prospects concerning freshtalent. According to Abraham Maslow’s hierarchy of needs,compensation is dividedbetween the middle and lower ranks withfulfillment and satisfaction topping the ladder (Goel 2012). However,most employees will disagree with the theory as they think that goodcompensation is the ultimate motivator. According to employers, themoney they pay employees in return for their work is something theyneed to plan for in an elaborate and orderly manner. It is vital thatan employer quantifies the employees’ work properly if they are tobenefit fully from the workers’ talents.

Acompensation management issue facing Starbucks is the irregularamount of reimbursement paid to each employee by the company. TheEquity theory states that any employee’s productivity decreases themoment they realize that they are paid unfairly (for instance, if anemployee Frank found out that his fellow colleague, Billy who theywork the same hours and have equal levels of experience is paidbetter than him, Frank will lose motivation for the job). Therefore,the issue of salaries and compensation irregularities should be fixedto give the company a good reputation. A corporation with excellentremunerations is often ranked as the top in the industry or used asan example to others. Failure to change the current compensationmanagement problems will lead to the company losing its valuableemployees, and if they stay the service they give to customers willbe poor since they are disgruntled. Unsatisfied employees portray thecompanywith a bad image the customers will imagine that if theycannot take care of workers, then customer service is poor (Kelly2014). MacDonald’s is a leading competitor in the food industrythe company uses the agency theory of compensation where themanagement tries to improve productivity and to pay fairly accordingto workers’ expertise. MacDonald’s compensation theory is morefocused on career development rthan Starbucks’ one, which rewardstalents as compared to levels of experience and skills. According toBoudreau and Jesuthasan (2011), if change was to happen, the companyshould employ facilities responsible for evaluating how much eachemployee earns regardingsalaries and benefits by considering workexperience, job skills, and level of education (surveys can also be agood way of finding out employees’ needs and desires).Recommendations that contribute to change include understanding theworkforce and the management stepping up to the challenge. Currently,the workforce comprises of the traditional workers and the newboomers, all work differently, have dissimilar lifestyles, and expectdiverse forms of compensation. The new boomers entering the workforcecome with expectations of high-end salaries thatdiffer from themature and realistic workers. As an employer, Starbucks should studythe diverse workforce and consider their expectations. Anotherrecommendation is for Starbucks to identify the employeesunderstanding each worker’s needs can be done through compensationsurveys. The surveys give the employer a perspective of the workers’desires (Shields 2016). After the survey, the employer can categorizethe employees in groups such as special benefits, opportunity,education and training, working schedules, as well as more money.Categorizing the employees according to their needs helps theemployer to quantify their contribution properly (Shields 2016).Standardizing employees’ salaries and benefits could be a solutionto the unequal remuneration issue at Starbucks. If the workers arehappy, then there will be an improvement of customer service, whichbrings in many customers. The large demand of Starbucks’ productsresults in excellent income for the company. An article by Biro(2016) in the Forbes Magazine show that revenues increased by 22.2percent for the year 2014. This regarded theFortune100 Best Companies to Work For.In other words, it means that investing in employees pays and it isthe right move to take.

Insummation,performance management and compensation management are twointertwined factors that go hand in hand. If there is an issue withperformance management then it is most likely that there is a problemwith compensation management as well. Starbucks started as a smallcompany that distributed good quality coffee beans to high-endrestaurants and espresso bars. The turning point of Starbucks waswhen Howard Shultz, the current CEO joined as retail and marketingdirector two years into his tenure, he pitched the idea of coffeehouses to the owners. The first Starbucks coffee shop opened in 1971in Seattle. Five years later, Howard and a few local investorspurchased the company from its founders. Since then, the store hasbecome the premier coffee roaster and retailer in the world.Starbucks is in the international market and owns 24000 shopsglobally. Along with selling coffee beans, Starbucks offers specialtycoffee drinks, tea, and snacks. Performance management is theprocedure an employer evaluates the purpose and contribution of anemployee it is done in three steps planning, gauging performanceand giving feedback. In comparison, compensation management iseverything an employee receives in monetary or non-monetary forms inreturn for their services. Despite being a successful businessfranchise, Starbucks has loopholes in its performance management.They use customer cards to review the performance of their employees.However, the cards tend to be unreliable since few customers botherto fill them out without incentives. The regular customers tend to bebiased to some employees since they develop personal relationshipswith them. Customer review cards should not be used as performanceevaluation tool since it links to compensation. By considering thedisadvantages of the cards, some employees will be discriminatedregarding bonuses. For the employees to feel at ease while working,they must not feel like there is a need to outdo themselves beforeclients to get a good review but rather act in a professional way.Compensation management is everything employees get in return fortheir services to the employer. The issue of performance evaluationis closely related to the issue of compensation at Starbucks. Theemployees are given bonuses according to the customer reviews thiscreates a compensation problem of inequality. The equity theory isused to develop compensation plans it states that workers’ actionschange based on the comprehension of how they are paid compared totheir colleagues. The fact that employees in the same job descriptionare paid differently creates dissatisfaction among other workers.Some of the recommendations to deal with issues of inequality are tounderstand the workforce and identifying groups. Therefore,understanding the workforce means that an employer should realizethat each group of people has different needs and expectations.Identifying groups through surveys aid the employer to know thevarious needs and desires of different workers.



Boudreau,W. J. &ampJesuthasan, R. 2011. Transformative HR: How GreatCompanies Use Evidence-Based Change for Sustainable Advantage. NewYork. John Wiley &amp Sons.

Crosson,V. S. &amp Needles, E. B. (2013).Managerial Accounting. New York.Cengage Learning

Flamholtz,E. and Randle, Y. 2011.Corporate Culture: The Ultimate StrategicAsset. California. Stanford University Press

Flamholtz,G. E. &amp Randle, Y. 2015. Growing Pains: Building SustainablySuccessful Organizations. New York. John Wiley &amp Sons.


Kelly,D. 2014. The Book on Incentive Compensation Management. New

Lawler,E. E. &amp Worley, G. C. 2011.Management Reset: Organizing forSustainable Effectiveness. New York. John Wiley &amp Sons.

Michelli,J. 2013. Leading the Starbucks Way: 5 Principles for Connecting withYour Customers, Your Products and Your People. New York. McGraw HillProfessional.

Shields,J. 2016.Managing Employee performance and reward-Second editon.London. Cambridge University press edition.

Close Menu