McDonald’s: Total Rewards
Introduction to and purpose of the organization
Historically, the fast food industry as a whole has a very high rate of employee turnover. Employees tend to be quite transient in their loyalties to these organizations, in part because fast food corporations often make very little investment in their workers and strive to give employees minimal benefits and pay. McDonald’s has struggled in recent years with criticism for how it treats its employees. “A reliance on cheap labor has been crucial to the fast food industry’s success. It’s no accident that the industry’s highest rate of growth occurred during a period when the real value of the U.S. minimum wage declined by about 40%…The chains are willing to put up with turnover rates of 300 to 400% in order to keep their labor costs low. It doesn’t really matter to them who comes or goes, since this system treats all workers as though they’re interchangeable” (Schlosser 2012). However, having this view of the labor force can cost the organization in the long run because retraining workers is very expensive.
Additionally, fast food is ultimately a service industry. Workers are the ‘service’ the company pays for in terms of worker friendliness and a positive attitude to customers. Workers who are undertrained, over-stressed, and poorly compensated are unlikely to be willing to provide good customer service. This has cost McDonald’s in the long run, given that it once used to dominate the fast food industry and is now being undercut by companies which provide extensive benefits to its employees, such as Starbucks. Starbucks charges somewhat higher prices for its items (even McDonald’s gourmet coffee is cheaper) but offers better ambiance and above all better service. McDonald’s must restructure its total rewards program to enhance employee commitment and buy-in and thus also improve the overall customer experience to remain relevant.
Organization: Summary and description
McDonald’s is the leading fast food retailer in the world, despite having rather humble beginnings as a fast food hamburger chain with a limited menu. McDonald’s began emphasizing its burger and fry combinations and later branched out to offer chicken and breakfast options. Today, although it has ventured into healthy eating with its salads and lighter fare, mainly in response to criticism that it was contributing or even causing the nation’s obesity epidemic McDonald’s still remains focused upon its core, fast food image and products. This has continued to be its recipe for international success, if not foodie acclaim. “McDonald’s is the leading global foodservice retailer with more than 35,000 local restaurants serving nearly 70 million people in more than 100 countries each day” (“Getting to know us,” 2014). Internationally. McDonald’s has been known to tailor its foreign offerings specifically to suit the needs of its different audiences (for example, European McDonald’s serve alcohol; the Israeli McDonald’s is kosher and serves a McShawarma wrap). But even when exhibiting great diversity, McDonald’s always remains true to its core, brand capabilities which is to offer cheap, satisfying food that tastes virtually the same all around the world.
McDonald’s must continue to honor what made its brand great, even while recognizing that consumer tastes, needs, and lifestyles are changing. (Still, the time-pressed and budget-pressed nature of most modern consumers in the wake of two-earner families with children facing a recession has proven to be financially advantageous to the company). It still wishes to retain its core, consumer base of children without seeming to pander to children’s poor eating habits and drawing criticism and calls for government regulation as a result. McDonald’s stated mission is: “to be our customers’ favorite place and way to eat and drink” and to give an exceptional customer experience (“Mission and values,” 2014). Its values involve a commitment to customers, employees, ethics, growth, communities, improvement, and the McDonald’s system, according to its website (“Mission and values,” 2014).
However, critics have alleged that McDonald’s has not truly honored this stated commitment to its employees, particularly at the lower levels. According to Eric Schlosser, whose book Fast Food Nation, was a scathing critique of McDonald’s: “the fast food chains have worked hard to ‘de-skill’ the jobs in their kitchens by imposing strict rules on how everything must be done, selling highly processed food that enters the restaurant already frozen or freeze-dried and easy to reheat, and relying on complex kitchen machinery to do as much of the work as possible. Instead of employing skilled short-order cooks, the chains try to employ unskilled workers who will do exactly as they’re told” (Schlosser 2012). Despite such criticisms, McDonald’s strong brand name and low price point (its dollar menu has proven to be particularly popular) remains a successful organization with strong core competencies in its sheer size and industry dominance. And despite all of the criticisms leveled at its employee treatment, McDonald’s does have a very effective system in place for training employees which has proven to have been a useful way to leverage human economic capital for the organization
Total rewards model
All organizations today are seeking to use employees to their maximum benefit. One way to do so that has proven popular is the total rewards model. Five elements are defined as composing a traditional package of total rewards, “each of which includes programs, practices, elements and dimensions that collectively define an organization’s strategy to attract, motivate and retain employees. These elements are: compensation; benefits; work-life balance; performance and recognition; and development and career opportunities” (“What is total rewards,” 2014). Of course, not every organization leverages total rewards in the same fashion. Some occupational spheres such as education offer attractive benefits but not as much in the way of compensation. Other places of employment such as investment banking offer high salaries but what most people would consider a poor work-life balance. Historically, retail establishments have offered lower-level workers very little in the way of any of these elements, although some companies such as Starbucks have attempted to compensate through enhancing worker benefits while others have tried to make up for poor pay with performance recognition to motivate employees to perform because of social reinforcements.
McDonald’s is no different: certain aspects of the total rewards philosophy it embraces to a greater degree than others. McDonald’s has a performance-incentive plan which offers greater compensation to employees who are cited as performing above and beyond the minimum: “Unlike base pay, which is the fixed amount of pay for the job you do, short-term incentives are the variable, at-risk portion of cash compensation you may earn each year. Rewards are based on annual performance — both business and individual — with measures tied directly to the McDonald’s business strategy, and payouts are aligned to the annual performance of the part of the business you support.” (“Pay and rewards,” 2014). McDonald’s also offers social recognition to employees who perform to a high standard in the form of its Presidents’ Award “given to the top 1% of individual performers worldwide” and the Circle of Excellence Award (“Pay and rewards,” 2014). It also offers promotional opportunities through its famous institution ‘Hamburger University’ which it uses to train managers in the values of the organization.
One of the problems with McDonald’s, however, (or indeed any fast food organization) is that there is heavy segmentation of the workers between the lower and upper echelons. Managers at the upper levels of the company earn considerably more than those at the lower echelons although promotional possibilities do exist for workers to become store managers or franchise owners. This, however, has become a source of considerable unrest at many fast food companies, as noted in the movement to demand $15-per-hour pay for employees. Although fast food workers are not the only low-paid workers in America, they have formed the crux of this new labor movement, due to their low pay, poor benefits, hours kept just low enough to justify them as being called ‘part time’ employees, and lack of social mobility. “For the seventh time in nearly two years, fast food workers around the country walked out of their restaurants last week to demand a pay raise to $15 per hour and the right to unionize. In New York City, 21 workers were arrested for sitting in the middle of the street outside the McDonald’s in Times Square” (Weissman 2014).
Further current capabilities
This low-high wage divide is creating more and more tension with the organization. However, there are certain factors on the side of McDonald’s management. First, customers are extremely unwilling to pay slightly higher prices, given that McDonald’s has marketed itself as being at the low end of the fast food hierarchy chain of value (with stores such as Starbucks and Panera being at the high end). This allows McDonald’s to justify its low wages and lack of benefits. But this also means that the skill level and service is often very low at a McDonald’s, given the fact that workers’ needs are not being met. A fast food wage is not a living wage and not…