Executive Summary
This report was commissioned to investigate whether fast food workers deserve a living wage as opposed to the current federal minimum wage and if so, ways of effectuating the same. To this end, the paper provides an analysis as well as an evaluation of the current financial estimates and cash flows as evident in the McDonald’s Corporation Annual Report and its capacity to deliver on the aforesaid. The research paper also draws attention to the Australian franchise and their business model which has been able to overcome the hiccups that now face the corporation in the United States and argues for the adoption of a similar model so as to obviate the industrial unrest. It examines the trends in the industry and the competitors of the McDonald Corporation and evaluates both the domestic as well as the international market share of the corporation. Further investigation portend that the decline in the performance of the corporation in the last five years has been as a result of increased energy and commodity prices in the world market , recession in the economy which has reduced disposable income of individuals and increased competition in the industry.
The report finds that the corporation’s prospects are good but not as impressive as they ought to be. It takes into account the high staff turnover in the corporation and the numerous strikes in demand for a higher living wage owing to the increasing cost of living. As such, this paper recommends the adoption of the Australian model which has put in place a sliding minimum wage depending on age with an increasing wage proportional to age or number of years worked. It is recommended that this will work as an incentive for the workers especially the teenagers to stay put and as such, reduce the expenses incurred in training new workers in case of staff turnover. In addition, it is our recommendation that the older and skilled workers be awarded with a living wage to reflect the current cost of living in view of the fact that these jobs are no longer a preserve of teenage workers.
Nationwide strikes rocked America in December last year as workers in the fast food industry staged a strike as they demanded a living wage of $15 an hour. Workers in the fast food industry or restaurants such as McDonald earn as little as the federal minimum wage of $7.25 which has been on the spotlight for its inadequacy given the escalating cost of living. It is instructive to note that in cities such as New York City, the rent for houses averages a figure of $3,000 per month which makes the current minimum wage barely adequate for the workers, taking into account other necessary expenses. It is the case that many workers in the fast food industry do rely on services from the government such as Medicaid to cater for their medical services owing to their unaffordability. I examine this conundrum in the industry with a focus on one of the largest fast food restaurant, McDonald Corporation, and its business strategy. We examine the trends in the industry, and the competition as well as the Human Resource strategy in which need be embraced by the department so as to support the company’s business strategy. In conclusion, the paper examines other alternative solutions which the corporation could take and whether the decision the company took, was the best.
Trends and Situation in industry
The Fast foods industry is made up of restaurants where patrons are required to pay before eating. More so, purchases for the fast foods may be consumed on the spot, carried away or even delivered to the customer. It is important to note that the fast foods industry does preclude the snacks and coffee shops. Over the last few years, the industry just like any other industry of the economy, has suffered from recession that gripped America and other European economies. This caused most individuals to eat out less, though that is now bound to change and is indeed changing, with the increasing incomes at disposal. The increase in the amount of disposable income among individuals is thus causing an increase in the demand for fast food options. As such, the fast foods restaurants are bound to benefit from this increased demand, and thus need to expand their menus as well as increase new operations in the international market in the next few years so as to capitalize on the new markets. The limited service restaurants, which form the biggest segment of the industry, subsumes carry out restaurants, pizza delivery shops, pizza parlours, sandwich shops and fast food establishments. It is the case that the segment has dipped greatly over the last five years owing to the already mentioned global recession, with the segment accounting for 97% of the industry establishments and 95.8% of revenues in the year 2008 compared to 96.7% of the industry establishments in the year 2013.
Indeed, the fast food restaurants form the biggest segment in the foods industry with well over 200,000 restaurants in the United States alone as well as making sales of over $120 billion. The industry has also been facing slow growth over the years due to increasing energy prices and rising food prices. The high costs of food prices, weakening and volatile job market and a housing slump have taken a heavy toll on the consumer spending which accounts much for the continued success of the industry. Further, the high energy prices as well as the inflation in commodities prices have continued to take a significant bite at the profit margins of the companies in the industry.
Competition
Some of the major players in the industry such as McDonald have faced intense competition for the market share from other established players such as Yum Brands, Kentucky Fried Chicken and Pizza Hut, Burger King, KFC, Subway and Taco Bell among others. It is also important to note that these companies have taken out the war for the market share out of their countries into several European economies. McDonalds makes 60% of the sales in the overseas markets while Yum Brands constitute 50% of the sales in the overseas markets. Companies which have had exposure to the international market have been able to successfully overcome the challenges of high energy prices as well as the shrinking North American market. These two corporations have posted consistent good results by showing double digit percentage sales in the international market, a fact attributable to emerging markets in China, India and Russia and a growing middle class population. In the competition arena, it is also worth mentioning the fast casual restaurants such as Cosi, Panera and Chipotle which are a growing source of headache for the fast food restaurants. The competition forged by these fast casual restaurants mainly emanate from their ability to combine the convenience offered by the fast food restaurants with the much needed quality of casual dining. However, the fast food restaurants have the upper hand from the fast casual restaurants, owing to their relative lower food prices.
Business Strategy
The McDonald Corporation has adopted a business strategy where it has made use of the strength of the alignment between the corporation, its franchisees as well as its suppliers. This kind of business model is what has enabled the McDonald Corporation to deliver locally relevant experiences to its customers. In addition, this business strategy has made it possible for the company to identify and implement innovative ideas that are able to match the dynamic and ever changing tastes and preferences for customers. In addition, the McDonald Corporation has adopted a plan that is focused on its customer named “Plan to Win” which is focused on providing better experiences rather than enlarging the organization. This has enabled the corporation to grow globally yet adapting to the local demands at the same time. A number of initiatives have been executed in relation to the five key drivers of customer experiences namely People, Price, Products, Price and Promotion. As such, the strategies adopted by the corporation have been customer-oriented and have sought to optimize price, product mix and promotion as ways of driving both sales and profits. This has been greatly aided by the focus by the company on driving the efficiencies in operation and the effective management of the restaurant level costs. This management of costs has happened by way of leveraging the scale of the company and its risk management practices. Further, the ability of the corporation to replicate and execute the strategies in various part of the world where it has its operations have contributed greatly to the profitability of the company.
A number of reasons have been behind the clamor for increased need for the awarding of a living wage as opposed to the minimum wage offered to the workers by the corporation more so in the United States. As mentioned at the outset, the high costs of living have been fuelling the clamor for living wages as opposed to the minimum wage currently offered by the corporation. However, this is not all. It is instructive that the corporation and other fast food conglomerates as well as several conservatives have advanced the argument that fast food jobs are meant for teenagers who need not a living wage. They submit that the teenagers are inexperienced and get the entry-level jobs and are thus not in need of a living wage. Nonetheless, much as this argument may be merited, it need be mentioned that a huge population of the workers at the moment is not made up of teenagers. Owing to the recession in the economy and the unemployment in the United States, most of the jobs at the corporation as well as other fast food joints and companies are not held by teenagers, but adults who have families to support. Following the recession that faced the country in the year 2008, most of skilled old workers assumed jobs at the corporation and are dependent on the fast food wages to sustain their families. Indeed, statistics from the Center for Economic and Policy Research in Washington reveal that only 30% of the workers at the fast food restaurants are teenagers. The same statistics show that around 36% of adult workers in the industry depend on the same wages to cater for their family needs. It is the case that jobs at fast food joints are not complicated as to require skills. However, it goes without saying that corporations will prefer to hire more experienced and skilled workers at the expense of the teenagers. This has been the prevailing situation and hence the continued clamor for increased wages.
HR Strategy
We begin from the position that McDonald as a corporation faces staff turnover as one of its hugest challenge in its operations. Indeed, it is the norm in the fast foods industry in America owing to the nature of its workers and the compensation scheme adopted by the companies. It is safe to state that the industry has been a 100% turnover industry since the corporation has been losing nearly the entirety of its workforce every year. The trend certainly changed in the year 2011 where the corporation lost around 90% of its workforce. However, we submit that this is too high a price to pay noting the high training expenses incurred by the corporation. The reason behind this trend is attributed to the low pay and the huge bulk of its employees who are teenagers that are sure to flake in the first event of frustration as compared to the older workers. Given the case that the corporation and indeed the industry, has benefited from the older and skilled workers owing to the recession in the economy, the company can adopt a Human Resource strategy to its benefit. As stated in this paper, it is essential to award the older workers a living wage so as to cushion them from the harsh cost of living and reduce the high turnover thus enabling the company to avoid the high training expenses. Such a Human Resource strategy of pegging compensation to the skills of individual workers will greatly aid the company by enabling it to retain the skilled workers. The $ 15 hourly minimum living wage as sought by the older skilled workers is well within the reach of the corporation in view of its financial results, and should as such be adopted by the corporation. This will be key as the older and skilled workers will then be charged with the responsibilities which are quite rough and tough for the teenagers. Such a model is thriving in the corporation’s franchise in Australia (McDonald Australia) which registered $1.54 billion in revenue and $260.88 million in profits while paying the workers a living wage of $15 an hour. We further argue that the implementation of the same strategy does not need legislation like the current federal minimum wage and will greatly propel the corporation and give it a competitive edge over its rivals. Chapter thirteen of the book “Compensating Human Resources”, on Base Wages and Salary Systems can help address the issue of helping support this business strategy at the corporation as it is in urgent need of implementing the same.
HR Implementation
As such, the Human Resource Organization at the corporation should aim at establishing a base wage and salary system which will lay out the pay ranges for the various jobs depending on the relative worth of the job to the company. It is beyond contest that teenagers as well as older skilled workers working at the corporation are all offered the same minimum wage of $7.25 and hence the staging of strikes. Without doubt, the teenagers are unskilled, inexperienced and untrained and with lesser expenses to meet. This is not so with the older and skilled workers who are not only experienced, but also have bigger obligations to meet. Consequently, there is a need for a job evaluation to be conducted by the HR department at the corporation so as to determine the relative worth of the jobs and then price the jobs to ensure external equity. This move is key for the corporation as the workers will feel valued and fairly compensated hence lead to better productivity and an elimination of the industrial unrest which frequently disrupts business. The HR department should also identify the compensable factors which the corporation deems important to compensate and this will work well especially for the older and skilled workers. This mode of compensation is critical especially with respect to the workers who may engage in the same kind of work despite harboring varying skills.
Alternative Solutions
It is the case that the McDonald Corporation could have done something differently in their remuneration structure to avoid disgruntlement. It has been stated that the corporation just like others in the fast foods industry, face a huge turnover thus incurring heavy expenses in the training of new workers. The corporation could thus borrow a cue from how its franchise in Australia is doing with teenage workers. Even in the absence of legislation to fix the same, we submit that the McDonald Corporation could set a sliding minimum wage based on age. To this end, the corporation could increase the minimum wage for the teenagers and then set it at an increasing rate with increasing years. For instance, the minimum wage for 17 year-olds in Australia is pegged at $9.46 while that for 19 year olds is $13.51. The adoption of a similar compensation scheme as an HR strategy for the teenage workers, will greatly reduce the staff turnover among the teenagers. In such an event, most teenagers hired by the corporation at a younger age at the entry level will stay put in the hope of receiving a boost in their pay in the subsequent years. The knowledge that their pay will automatically increase as they get more experienced and get older will act as an incentive for the teenage workers to continue working. Such a move would not only save the company from the training costs of new workers but also fulfill the purpose of youth employment and enable the young workers learn on the job and gain the much needed skills. From the perspective of Human Resource Management, the decision to be award compensation without talking into account the skills and individual circumstances of the workers was not the best decision and is indeed, the reason for the subsisting discomfort.
Conclusion
As highlighted in this paper, the compensation scheme at the McDonald Corporation does not take into count many other factors such as the needs and skills of workers as well as other compensable factors. Indubitably, the clustering of workers who have differing needs and skills is bound to create feelings of inequity in the pay packages which has a negative effect on the corporation as a whole. Indeed, the feeling of inequity in compensation of the respective workers reflects badly on the whole organization. even among the customers who eat out at the restaurant. It is the contention of this paper that the company needs to award the workers with a living wage and discard the federal minimum wage.
References
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Otis, J., & Leukart, R. (2009). Job Evaluation. New Jersey: Englewood Cliffs,NJ; Prentice Hall.
