McDonalds Compensation Strategy - Essay Example

Running Head: MCDONALD’S COMPENSATION STRATEGY McDonald’s Compensation Strategy [The of the will appear here] [The of the id will appear here] [The name of the course will appear here] [The name of the course number will appear here] Introduction McDonald’s is one of the most widely recognized and popular fast food restaurants. The company operates in around 120 countries around the world with around 34,000 restaurants worldwide. This requires the company to hire a large pool of human resource in order to maintain and improve its current operations. The human resource strategy of McDonalds is developed by Richard Floersch, the Executive Vice President and Chief of the Human Resources Division and later the strategy is implemented in every country including UAE. In this paper, the compensation strategy of McDonalds UAE would be discussed and analyzed. Improvements in the strategy would be suggested at the end of the paper. Management Ideology McDonalds, in its values, regards its employees as an important part of the system. They state that they are committed to their people and ‘provide opportunity, nurture talent, develop leaders and reward achievement’ (Mission and Values, 2013). Human Resource Structure in McDonald’s A typical McDonald’s restaurant has 8 levels of hierarchy. These are shown in Figure 1. In each restaurant, McDonalds usually employs 60 individuals. These mainly consist of the crew members who occupy the lowest rung of the organizational hierarchy. The job of the crew members is clear cut without them having to take any decisions. They have to prepare the food the standard way, serve the customers and maintain an efficient work and service flow within the restaurant. Above the crew members are the training crew, floor managers, shift running floor managers, trainee managers and assistant mangers. Like the job of the crew members, the job of these employees is also quite standard. Each day, they have to follow the same steps without them having to take any decisions or choices in their roles. The managers are the controlling head of the restaurant. They are responsible for running the daily operations within the restaurant and have to handle and monitor the rest of the employees. These managers are responsible for sales of the restaurant and for providing training to the employees placed below them. . Figure 1 McDonald’s in UAE, similar to McDonalds is every other country hires on the basis on equal opportunity. McDonalds has a strong commitment towards diversity and inclusion. It therefore disregards any difference of color, race, religion, age or gender when employing or paying its workers. The average salary of an employee within McDonald’s varies from region to region. In most countries, employees are paid on hourly basis. However, in UAE, hourly pay is not common and employees are paid fixed rates monthly amount. Compensation Strategy The compensation strategy that McDonalds follows in UAE is similar to that of the US. This is because HR strategy of the company is followed globally and developed by the Chief of the Human Resources Officer, Richard Floersch. On the basis of the ‘Plan to Win’ strategy of McDonalds, the employees at the company are paid on the philosophy of pay for performance. This means the better the performance, the better the pay. The Compensation Strategy of McDonalds is: Base Pay This refers to the standard fixed salary that each employee at McDonalds is entitled to get regardless of their performance. While in many countries around the world, McDonald’s pays on the hourly basis, but in UAE, the amount of salary and work hours are fixed. The Base Pay of the Employees is set on the basis of external competitiveness. This means that McDonalds offers the same salary range to its employees as the rest of its competitors in the area. McDonald’s competitors in UAE include Burger King, Wendy’s and Yum Brand. All these offer similar pay scales. Short Term Incentives The employees at McDonalds are provided with the chance of earning extra money other than their base pay. While the base pay is fixed, short term incentives allows the employees to earn cash compensation for their good performance. For this, a target incentive plan or TIP is initiated in the company. When an outlet meets or exceeds the target set by the company, the employees within the franchise are provided with a bonus above the base pay. The evaluation of this performance is made and paid yearly. This evaluation is based on the performance of both the individual and the outlet in which they work. Long Term Incentives Since McDonald’s pays its employees on external competitiveness, there is a huge risk of high turnover. In order to control this issue, the company offers long term incentives to employees. This includes long term incentive awards of LTI stock awards. These awards are usually given after the employees has completed two or five years in the company. These awards aim at retaining the employees by promising them monetary benefits if they complete a certain period of their employment. Non-Monetary Rewards or Recognition Programs These programs aim at improving the confidence and loyalty of the employees towards the company. The employees under this program are given awards for their good performance. McDonalds awards it employees with two kinds of awards: The President’s Award and the Circle of Excellence Awards. The President’s Awards are given to the 1% best individual performance globally. The Circle of Excellence Awards is team awards given for fulfilling the vision of the company. Company Car Program This is another program initiated by the company. Under this program, the employees within the company can avail the opportunity of company car for both personal and business use. Under this program, the company maintains a wide variety of vehicles that employees can chose and this depends on the hierarchal level that the particular employee enjoys within the company (McDonalds, 2014b). Benefits Apart from the above mentioned monetary and non-monetary rewards, the employees at McDonalds are also entitled to certain benefits. These include: Health Benefits The Health Benefit Plan at McDonald is called the PPO medical plan offering employees to benefit from a variety of health insurance. These include vision insurance where employees are entitled to checkups, glasses and even contact lenses. Discounts for eye treatments are also available. The health plan also includes dental health and checkup. Employees at McDonalds are entitled to short term and long term disability benefits, life insurance, accidental death insurance and even travel insurance. Investment Plans McDonalds values its employees and therefore also undertakes the responsible to investing in their future. Employees at McDonalds can buy stock in the company under the McDirect Shares that allows the employees to build ownership of the company. Employees at McDonalds can also benefit from taking financial planning services from the company and even save money with the company under the McSave plan. Under this plan, the company invested is given to the Prime Reserve Fund. Education Incentives The employees at McDonalds are encouraged to pursue further education. For this, the company provides the employees with education loan and other support mechanism. The work hours of the employees are also made flexible in order for them to easily pursue their education. The company has also established the Hamburger University in Dubai. This university is responsible for providing training to the employees regarding their job at the outlet. Internal alignment Internal alignment refers to the comparison of the job pay structure of an employee with others in the same company. Employees on the pay level should be provided with almost the same pay scale and benefits in order for the compensation to be fair. The employee compensation strategy at McDonalds UAE is internally aligned. The employees at the company are hired on a fixed pay scale basis. The base pay remains nearly the same in all outlets of McDonalds in UAE. External competitiveness The pay scale of McDonalds is based on a comparison with pay scale of other competitors in the markets. In this regards, the compensation strategy of McDonalds is extremely competitive. The pay scale of fast food restaurants in the UAE such as Burger King, Hardees etc. is on the same range. However, upscale restaurants such as Starbucks offer a higher pay scale to its employees. McDonald’s pay scale is lower than that of Starbucks and thus McDonalds has a risk of losing it employees to Starbucks as a result of employee turnover. McDonalds, however, cannot offer a higher compensation rate to its employees. This is because the company’s products are competitively priced in the market and increasing employee compensation would have a direct impact of the price of its products. Recommendations Perhaps because of the competitive compensation strategy at McDonald’s, the company faces a high turnover rate. It is not just McDonald’s that faces a high turnover rate but rather organization such as Hardees, KFC that offer minimum wages to their employees face issues of high turnover. Since these jobs do not require high skills and thus pay low wages, therefore employees are more likely to switch jobs. Also the employees at McDonalds are not allowed to participate in the decision making process. Their job at the outlet does not require them to take their own initiative. They are trained to perform specific steps. The monotony of the job does not challenge their skills and capabilities. Thus the employees do not develop a sense of ownership with the company. This is the core problem which is leading to high turnover rates in the company. McDonalds can offer its employees to participate in the decision making process. Since the employees in the restaurant interact with the customers on a daily basis, they have better insight regarding the choices and preferences of the customers. These employees could be asked to provide suggestions for menu choices. This would increase involvement of the employees and develop a sense of ownership. Also employees can be given incentive to participate in the program. Incentive can be in the form of monetary benefits. When a particular menu suggestion becomes popular among the customers, the employees can be given bonus for that. McDonald’s employees in UAE are more satisfied than workers in USA. This is because the average employee of McDonald’s is not students but rather immigrants from India and Philippines that come to UAE to escape their country’s unemployment crisis. Such employees are more concerned with the security provided by the job. They fear being deported to their home country if their visas expire. Therefore, McDonald’s by offering job security to its workers can decrease issues of high turnover. Conclusion McDonalds has been in the negative limelight for some time for its labor practices. The company has been repeatedly criticized for its compensation strategy and for the way they treat their employees. In UAE, the situation is a little better considering that many of the employees in the company are immigrants from underdeveloped nations who have escaped their own countries to seek jobs in UAE. However, high turnover is still a big issue. This issue can be solved by involving employees in the decision making process and providing job security to them. References McDonalds (2014) Mission and Vision, Retrieved from http://www.aboutmcdonalds.com/mcd/our_company/mission_and_values.html McDonalds (2014b) Pays and Rewards, Retrieved from http://www.aboutmcdonalds.com/mcd/corporate_careers/benefits/highlights_of_what_we_offer/pay_and_rewards.html Milkovich, G. and Newman, J. (2004) Compensation, New York: Tata McGraw-Hill Education Read More