McDonald’s brand of quick serve restaurants is on the leading fast food chains in the world. It was founded in the year 1940 by two young brothers from California, viz. Richard and Maurice Donald with the opening of the first outlet in San Bernardino (McDonald’s, 2013). The restaurant was later taken over by one its franchises Ray Croc in 1961 who had spearheaded the expansion of business operations across globe. The company got listed in the year 1965. McDonald’s mainly operated its stores through the franchise model by licensing its brand to the franchisees. Just 15 percent of the total restaurants of McDonald’s are owned and operated by the company directly. McDonald’s products are targeted at multiple customer segments like families, children, and business executives.
For a hospitality firm with direct interaction with its consumers regularly, human resources play an important role in the efficient functioning of McDonald’s. Past research in the area of hospitality management had emphasized the contribution of employee performance to the bottom line of a service firm (line (Kuslavan, et al. 2010). Hence, all major international firms in the hospitality and restaurant management business put a lot of emphasis on the recruiting, training, and proper handling of their human resources. Human resources management is a key strategic and operational concern within hospitality management and restaurant businesses (Baum, Amoah, Spivack 1997). Employees of McDonald’s fall into three major groups, viz. restaurant workers, corporate staff, and franchise workers. Restaurant workers and corporate staff of McDonald’s are directly recruited, trained, and paid by McDonald’s. But in the case of the franchise workers, even though the employment is provided by the franchisees, McDonald’s provides all the required training which is required for them.
McDonald’s follows a highly structured training program for its employees. Ends-level workers who interact the most with the customers regularly first go through the fundamental ‘Crew Training System’. Training for the basic ends-level workers involves on the job training and is mostly vocational. Once the front-line employees pass through the basic training and completes some service in the company with satisfactory performance, he will be eligible to attend McDonald’s prestigious Hamburger University. Employees will be trained in the basics issues related to HRM and promoted to the levels of assistant managers. Hamburger University also has courses in advanced management areas. Every year, nearly 2,500 managers and potential franchises take part in the Advanced Operations Course (AOC) offered by the Hamburger University. Performance of McDonald’s employees is carried out regularly through different performance appraisal techniques like 360 degree appraisal systems and Graphic Rating scales. McDonald’s also follows a unique compensation system for its employees under which employees are compensated in multiple ways like direct financial payments like salaries and indirect financial payments like medical facilities and free life insurance.
Employee compensation structure and overtime abuse are the two HRM areas which are facing problems and leading to an underperformance in two HRM functions, viz. employee motivation and change management.The compensation that is paid to the employees can play a major role in motivating the employees of an organization (Rynes, Gerhart, and Minetta 2004). As the age old adage goes, money is the primary motivation for any employee. Lower wages aid to the low level employees of McDonald’s lead to a large number of problems at McDonald’s like lower satisfaction levels among the employees and higher employee turnover rates. Lower compensations also lead to a decrease in the quality of the service offered to the customers. As the low level employees of McDonald’s interact with the customers directly, lower satisfaction levels among them can impact the operational quality of the firm and even a disruption in the efficiency of operations by withdrawing co-operations from the operation process. Like many other American corporations like Wal-Mart which had rose to prominence in the recent past, McDonalds’s too relies on the cheaper items that are offered in the outlets for its growth and dominance in the industry. Some of its menu items like the highly popular dollar menu keep its customers returning to its stores. In order to keep the prices of such items low, McDonald’s pays wage rates which are on par or slightly higher than the stipulated US$ 10.10 per hour. The issue of lower wage rates had recently led of its employees to file a lawsuit against the fast-food restaurant. In lawsuits filed by employees from three states, it was alleged that McDonald’s was underpaying its employees and also resorting to various wage theft practices. Two dozen workers from the three US states of Michigan, California filed six lawsuits alleging that McDonald’s was resorting to various wage theft practices like forcing its workers to clock out but continue working, asking them purchase company-required uniforms with their own money, and asking them to wait for the customers to increase before they can clock in (Goodwin 2014). Even though the number of employees who have filed the lawsuits is limited, granting of class action status to the lawsuits will make thousands of employees to join the legal action.
Many analysts and employees of McDonald’s opine that for a company whose revenues stand at US$ 23 billion and net profits at US$ 5 billion year, it can easily pay better salaries to its employees. Concern had also been expressed at the overtime abuses by McDonald’s. In the year 2013, President Obama had asked the country’s labour department crack down companies like McDonald’s that were alleged to be resorting to overtime abuses on its employees (Goodwin 2014).Some economists have even opined that refusal to increase the minimum wages of people working in organizations like McDonald’s was increasing the wage gap between the rich and poor in USA. Despite all the criticism that had been levelled against McDonald’s, the company had so far refused to raise the minimum wage levels of its workers and look into the allegations of overtime abuse by some of its employees. Responding to the lawsuits filed by its workers in three states, a spokesperson of McDonald’s had just said the company was looking into the allegations made in the lawsuits (Dizard 2014). Another major issue with McDonald’s is that it doesn’t allow its employees to organize a protest. There were instances when some of its protesting employees were sacked. The company also discourages its employees from forming into unions. Another reason given by McDonald’s for its inability to look into the allegations made by workers regarding the compensation related malpractices is that majority of is McDonald’s brand of stores are not owned and operated by the company but by its franchisees. Since the franchisees have direct control over the employees who are working in its stores, McDonald’s says that it can’t solve these problems (Noah 20014).
The problems at McDonald’s are related to the employee compensation and overtime abuse can take a heavy toll on employee morale, operational standards, and service quality of the firm. The reputation of McDonald’s among its customers could also take a hit as some customers don’t like deal with companies which don’t ethical practises towards its employees and the society. Below are the recommendations to solve the problems in both these HRM areas:
Being a service firm where the performance of its employees determines the success of firm, McDonald’s should seriously look into the criticism from its employees that they are not adequately compensated for their work. According to the human capital theory, the actions of human resource managers go a long way in determining the employment and earnings of its employees (Strober 2008). Lack of adequate compensation can impact the motivation levels of the employees. Organizations should ensure that their employees are adequately motivated to deliver their best results. There are a number of motivation theories which deal with the motivation levels of people (Lindner 1998). Below is the list of these theories:
- Maslow’s hierarchy of needs
- Herzberg’s two-factor theory
- Vroom’s expectancy theory
- Adam’s equity theory
- Skinner’s reinforcement theory
For employees working in any organization pay and recognition are the two primary ways in which they can be motivated. According to Vroom’s expectancy theory, motivation of an individual will depend up on the desirability of the outcome. If the employees are highly desire the outcome they receive from a job they will motivated to work hard towards achieving the objectives of the organization. Porter and Lawler’s (1968) expectancy theory also concludes that motivation of a person to complete a task is depended upon the rewards that are expected by them. Herzberg’s two factor theory also deals with the motivators like compensation and growth of a person in an organization that can improve the satisfaction levels of employees. As can be inferred from all the theories discussed above, motivation of a person is depended upon the expectation that monetary/non-monetary rewards would follow the effort put by them.
The human resources managers of McDonald’s should come out with a better compensation structure for its employees. One of the best way to keep its employees satisfied is to come out with a wage structure which always pays its employees a good mark up over the minimum wages which are legally stipulated by the government. As the employee related expenses are bound to increase to McDonald’s due to an increase in the minimum wages, McDonald’s should into the other ways to keeps its costs under control. Performance of the employees should also be strictly tied-up to the compensation earned by each of its employees. According to the reinforcement theory propounded by BF Skinner, reinforcement is a consequence that will be followed by a specific antecedent stimulus. Reinforcement stimulus is a rewarding stimulus received by employees like the compensation and other perks received by them. Lack of proper reinforcement stimulus for employees can lead to lower motivation levels and higher attrition rates. McDonald’s should try to improve its employee performance appraisal mechanisms so that it can easily explain the compensation paid to its employees. McDonald’s also pays very less money to its employees for meeting their other expenditure like the health care (US$ 20 per month) house rent (Strasser 2013). A steep increase in the money paid to employees in meeting such kind of expenses should also be thought about by the company. Some restaurant chains in the US like In-N-Out Burger and Chiptole pay their workers higher per hour wages of US$10.53 and US$ 8.57 respectively (Nolledo 2013). The wage figures paid by these restaurants are close to the US$ 9 proposed by Obama. But they are still short of the US$ 15 per hour being demanded by the workers of fast food restaurants in the USA. A significantly higher wage levels paid by Chipotle keeps its workers satisfied and keep away from protests and lawsuits against the company. Even though not comparable directly with McDonald’s fast food restaurant industry, a case in point is the US Company Costcowhich pays a high mark-up wage (almost 100 percent) over the legal minimum wage to its employees (Mazzoni 2014). Costco pay a minimum wage of US$ 21 per hour to its employees which is way ahead of the legal minimum wage of US$ 10 for US workers. Such good mark-up over the legal minimum helped to keep its employees happy and earned it the reputation of being a leader in social sustainability.
Even though McDonald’s doesn’t operate most of the stores, the overtime abuse committed by its franchise partners can hit its reputation. According to Herzberg’s two factor theory, hygiene factors like improper work conditions, lack of job security, and lack of fringe benefits can act as demotivating factors and hit the performance of the employees. Overtime abuse committed by some of the franchisees of McDonald’s can act as dissatisfiers and impact the motivation levels of employees. Maslow’s hierarchy of needs (1943) also deals with the different kinds of needs of people at different stages of their lives. One of the most important among them is the safety needs of people like financial security, personal security, and employment security that can impact their motivation levels. Lack of safety needs at the place of work can lead to insecurity and loss of motivation among the employees. Overtime abuse of employees can seriously impact the safety levels of the employees and make them demotivated. McDonald’s should every step it could to prevent overtime abuse by its franchisors. Equity theory propounded by JC Adams (1963) is another important motivation theory which talks about equity sought by employees at workplace between the inputs they bring into the job and the outcomes they receive from it. According to the expectancy theory, employees compare the outputs they receive from a job when compared with the outputs received by others in the same office/ another industry. Overtime abuse committed by McDonald’s franchisors on the employees can make the employees see that there is a disparity between the inputs contributed by them and the outputs (compensation) they receive. This has the potentiality to hit the motivation and commitment levels of the employees towards the organization.
The best way to prevent the overtime abuse by its franchise partners is by putting conditions on the employee work related policies of its franchise partners. As part of the franchise agreement entered by the franchisor and the franchisee, the franchisor puts down the conditions for the partnership between them. These conditions range from the royalty to be paid to the franchisor to the issues for which the franchisor will be totally responsible like the marketing and promotional issues. Some franchisors also undertake to help the franchisees in the recruitment and training of the franchisee’s employees. In the present case, McDonald’s can put conditions to its franchisees regarding the overtime practises followed by them. Strict conditions on how the employees work hours are monitored and counted can put a stop to the overtime related abuse by its franchisees. Following the same human capital theory, stern conditions by McDonald’s on its franchisees can help in controlling the overtime related abuse by them. McDonald’s can implement a new system where the check in and check out process of the workers at its franchise outlets is monitored regularly by the human resources executives of McDonald’s. This unique monitoring system can make its franchises to desist from resorting to overtime abuses. Control on employee abuse will also improve the employee motivation levels, customer satisfaction, and reputation of the company among the public. A case in point where the franchisor has put strict control on the human resource practices of its franchises is Subway. Subway has a strict monitoring mechanism over its employees where any human resources related abuses will be strictly punished (Subway n.d.). The terms of the franchisee agreement entered by Subway with its franchisees includes the terms related to the human resources practices that need to be followed.
Good HRM practises with regard to the compensation paid to the employees and protection given to them against work related abuses helps in improving the productivity of employees and maintaining a good reputation regarding the firm in the public. There were numerous instances like Wal-Mart where allegations regarding the unfair treatment of its employees has damaged the reputation among the public. Companies also had to face costly lawsuits spending millions of dollars in order to come out these lawsuits. Another big problem is the disruption of the organizations activities due to the protests from employees. The lawsuit filed by some of its employees might just be a begging of this trend. Hence, McDonald’s should follow the suggestions mentioned above and come out employee friendly practises related to compensation and prevention of overtime abuse so that it keep its employees motivated and increase their contribution in the future growth of the company.
- Baum, T, Amoah, V, &Spivack, S 1997, ‘Policy dimensions of human resource management in the tourism and hospitality industries’, International Journal of Contemporary Hospitality Management, vol. 9, no.5, pp.221 – 229.
- Dizard, W 2014, McDonald’s feels heat over low wages.Available from: http://america.aljazeera.com/articles/2014/3/5/mcdonalds-low-wagesecriskfactor.html. [8 April 2014].
- Goodwin, L 2014, Fast-food workers sue McDonald’s, claim wage theft. Available from: http://news.yahoo.com/fast-food-workers-sue-mcdonalds-for-wage-theft-171757955.html. [8 April 20014].
- Kusluvan, S, Kusluvan, Z, Illhan, I, &Buyruk, L 2010, ‘The human dimension: A review of human resources management isssues in the tourism and hospitality industry’, Cornell Hospitality Quarterly, vol. 51, no. 2, pp. 171-214.
- Lindner, JR 1998,‘Understanding employee motivation’,Journal of extension, vol. 36, no. 3, pp. 1-8.
- Mazzoni, M 2014, 3p weekend: 10 U.S. companies that pay above minimum wage. Available from: http://www.triplepundit.com/2014/02/3p-weekend-10-companies-pay-living-wage/. [8 April 2014].
- McDonald’s, 2013, About McDonald’s. Available from: http://www.aboutmcdonalds.com/mcd/our_company/mcdonalds_history_timeline.html .[8 April 2014].
- Noah, T 2014, Inside low-wage workers’ plan to sue McDonald’s – and win. Available from: http://www.msnbc.com/msnbc/how-workers-plan-sue-mcdonalds-%E2%80%94-and-win. [8 April 2014].
- Nolledo, M 2013, The best and worst paying fast food companies. Available from: http://www.prdaily.com/Main/Articles/The_best_and_worst_paying_fast_food_companies_14966.aspx. [8 April 2014].
- Rynes, SL, Gerhart, B, &Minette, KA 2004, ‘The importance of pay in employee motivation: Discrepancies between what people say and what they do’, Human Resources Management, vol. 43, no. 4, pp. 381-394.
- Strasser, A 2013, McDonald’s CEO claims company has ‘always been an above-minimum wage emloyer’ Available from: http://thinkprogress.org/economy/2013/07/25/2353261/mcdonalds-ceo-claims-company-has-always-been-an-above-minimum-wage-employer/. [8 April 2014].
- Strober, MH 2008, ‘Human capital theory: Implications for HR managers’, Industrial Relations, vol. 29, no. 2, pp. 214-239.
- d., Sustainable sourcing. Available from: http://www.subway.com/subwayroot/about_us/Social_Responsibility/SustainableSourcing.aspx. [8 April 2014].