Starbucks replaces merit raises with flat 2% salary hike for salaried workers in 2025

Starbucks CEO Brian Niccol has announced a shift in the company’s compensation strategy, replacing the previous merit-based system with a uniform 2% pay raise for all salaried employees in North America in 2025 [1]. This change applies to corporate workers, manufacturing and distribution staff, and store managers but does not extend to hourly employees such as baristas. The decision is part of a broader cost-control effort as the company invests in a business turnaround under Niccol’s leadership.

Previously, managers had discretion in determining the size of raises for individual employees. The new flat-rate approach aims to simplify the compensation process and promote internal equity. Niccol, who previously led a successful turnaround at Chipotle, has also introduced stricter return-to-office policies and required some remote workers to return to corporate headquarters [1].

The 2% increase is below the current U.S. inflation rate of 2.7% and lags behind average salary increases reported by compensation surveys. A Payscale survey found U.S. employers are increasing salaries by an average of 3.6% this year, with expectations of a slight decline to 3.5% in 2026 [1]. According to Ruth Thomas, Payscale’s chief compensation strategist, economic concerns such as tariffs and policy uncertainty have become more influential in shaping compensation decisions than labor competition [1].

Korn Ferry’s recent survey also found that 3.6% is the expected average salary increase for 2025 in the U.S., with 88% of respondents anticipating revenue growth. However, one-third have already cut salary budgets due to economic uncertainty, highlighting the tension between retaining talent and managing costs [1]. Ron Seifert, Korn Ferry’s North America Workforce Reward & Benefits Leader, noted that a 2% raise can be offset by competitive non-monetary incentives. Starbucks, for instance, pays corporate employees an average of $15.23 per hour as of mid-August 2025 [1].

The company’s internal message emphasizes the need to carefully manage costs to fund improvements in customer service and other key initiatives. Niccol’s leadership has been characterized by a focus on both operational efficiency and cultural transformation, with this pay policy reflecting a broader philosophy of fairness and inclusion [1].

While some view the flat raise as a way to reduce disputes and promote unity, others worry it may weaken the connection between performance and reward. Starbucks has not disclosed how it plans to recognize top performers outside of salary increases, but Seifert suggests companies often use non-public mechanisms to compensate high achievers [1].

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[1] title1: Starbucks' CEO is ditching a merit system and giving all ... (https://fortune.com/2025/08/21/starbucks-ceo-replaces-merit-raises-flat-salary-increase/)