Compensation Practice Term Paper

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Compensation Practices at McDonald's


McDonald's is an American multinational fast food chain. It was established in 1940 by Richard and Maurice McDonald as a small BBQ restaurant. The current McDonald's started growing globally when a business man Ray Kroc purchased this entire fast food chain from the owners and began franchising it to private investors in the local and international markets. McDonald's is headquartered in Oak Brook, United States and currently operates in 119 countries worldwide. Globally, McDonald's has more than 34,000 fast food restaurants, outlets, and stores (McDonald's, 2013).

The major product lines and brands of McDonald's include Big Mac (hamburger), chicken sandwiches, Chicken McNuggets, desserts, Quarter Pounder, French fries, milkshakes, salads, coffee, soft drinks, soups, and a wide range of breakfast items (McDonald's, 2013). The huge scale of operations and extremely large supply chain and distribution network enables McDonald's to serve more than 69 million customers every day. McDonald's has a sound financial strength, a well-developed brand image, and a high level of brand appreciation by its stakeholders (ADVFN, 2013). It has always focused on expanding business operations on continuous basis either through self-ownership or franchising to private investors (About McDonald's, 2011).

Compensation Practices at McDonald's

McDonald's has an approximate workforce of 400,000 employees worldwide. Its human resource management policies and strategies are formulated at the Headquarters while implemented in all 34,000 locations around the globe (McDonald's, 2013). The HRM policies and practices of the company reflect its emphasis on equal employment opportunities, respect for cultural diversity, strong organizational culture, and diverse working environment in different markets of the world (D'Annunzio-Green, Maxwell, & Watson, 2004).

The compensation practices are an important part of McDonald's human resource management strategies. This section describes the major compensation practices which McDonald's has employed in its headquarters, regional offices, restaurants, and outlets in all the corners of the world:

Major Components of the Compensation Package

a. Basic Salary:

Basic salary is the most important component of McDonald's compensation package. It is an essential component which is paid to all types of employees irrespective of their position or experience in the organization (D'Annunzio-Green, Maxwell, & Watson, 2004). McDonald's pays competitive basic salaries to its employees. However, it varies with respect to their educational qualification, professional experience, and tenure of employment with the company (McDonald's, 2013).

b. Short-Term Incentives:

Short-term incentives are paid on the basis of employees' efficiency and performance during a specific period of time. These incentives are generally paid in the form of cash or direct promotion to a higher or more challenging job position within the same department. McDonald's pays these incentives as a part of its performance appraisal program which is primarily aimed at keeping the employees motivated and satisfied with their job (Dowling & Welch, 2008).

c. Long-Term Incentives:

LTI stocks are one of the most common long-term incentives in the compensation package offered by McDonald's. These stocks allow the organizational members to become shareholders of McDonald's for a specific period of time. They can not only earn attractive return on these stocks, but also enter into a long-term relationship with the company. This component of the compensation package is also an effective technique for enhancing employee motivation (McDonald's, 2013).

d. Company Car Program:

McDonald's also offers company maintained cars to its middle and top level managers. A specific quantity of fuel is also offered to the top level managers. For the Corporate Directors, McDonald's also provides full time drivers. All these benefits are a part of the company's financial perquisites for its higher management officials (McDonald's, 2013).

e. Monetary and Non-Monetary Benefits:

In addition to the aforementioned components, McDonald's also provides transportation allowance, medical allowance, life and health insurance for the employees and their family members, children education plan, paid holidays and vacations, long-term benefit plans, dental treatments, and Sabbatical programs.

Compensation Challenges for McDonald's

McDonald's manages a large workforce of more than 400,000 employees worldwide. These employees consist of multicultural people from all the regions of the world. Designing compensation strategies for these employees becomes a big challenge for McDonald's. Therefore, its international compensation packages include some extra benefits which are not offered to its local employees.

International compensation packages are specifically designed for the expatriates (parent country nationals) who join the company's new offices and outlets in foreign markets worldwide (Sims, 2002). These expatriates serve the company in new markets for specific projects or business assignments, or on the basis of permanent transfer to those markets (Dowling & Welch, 2008). For these Parent Country Nationals, the company offers free visits to home country on quarterly or semi-annual basis, cost of living allowance, hardship allowance, life and medical insurance, accidental insurance, and other benefits under Foreign Service Inducement (FSI).

Equal Employment Opportunities:

McDonald's strongly believes in providing equal employment opportunities to all the members of the society irrespective of their gender, race, nationality, religious or cultural background, language, or ethnicity (Janssens & Steyaert, 2003). Its compensation plans are completely non-discriminatory which shows that it has always expressed true concern for its multicultural organizational members. The minorities and female employees are paid equal salaries, perquisites, and other short-term and long-term incentives which other organizational members receive from the company (Pathak, 2011).

Impacts of Compensation Practices on the Company and its Stakeholders


McDonald's has designed different compensation packages for different types of employees depending upon the nature of their job and nationality. These compensation packages have a large impact on its performance and public image in the global market. For example, the expatriates from parent country only agree to work for McDonald's by leaving the comfort of their home because they are paid highly attractive compensation for their services. By taking the services of its expatriates, McDonald's is better able to penetrate and operate in the new target markets. Reason being, they are well-familiar with the corporate wide policies, culture, and practices which are the core strengths of McDonald's (Holden, 2002).

Equal Employment Opportunities:

By providing equal employment opportunities to the female employees and minority groups of the society, McDonald's depicts that it shows an equal concern for its organizational members without any discrimination (Anca & Vazquez, 2007). This practice has a positive impact on its public image in the worldwide society and among key stakeholders like suppliers, distributors, customers, and regulatory authorities (Janssens & Steyaert, 2003).

Competitive Salary and Benefit Plans:

McDonald's offers attractive salary and benefit plans to its employees which are competitive to those of its industry rivals. These salaries and plans help its employees in satisfying their physiological needs and keeping their morale high. As a result, McDonald's observes a significant decline in its employee turnover and absenteeism. Being a competitive multinational corporation, McDonald's also keeps an eye on its competitors' compensation strategies so as to design even better strategies to retain its existing employees and attract new employees from the market (Gold, Thorpe, & Mumford, 2010).

Impacts of Laws, Unions, and External Factors on Compensation Practices

Local Laws:

Being a multinational corporation, McDonald's has to adhere to the local laws, regulations, and industrial relations practices in every target country. For example, the equal employment opportunity laws, minimum wage rates, annual leaves, life insurance and long-term benefit plans, and employment termination regulations need to be followed in order to operate in a legal way.

Labor Unions:

Moreover, the industrial relations and labor unions pressurize the company's management to formulate more favorable human resource management policies for their employees. As a socially responsible corporate entity, McDonald's ensures that its employees remain satisfied with its policies, practices, and corporate wide principles in all aspects. It makes every effort to avoid management-employee conflicts which arise when one of the parties prefers personal agendas over organizational interests (D'Annunzio-Green, Maxwell, & Watson, 2004).

External Environmental Factors:

In addition to the labor unions and industrial relations regulations, McDonald's also faces negative pressures from the external environment which constitutes economic forces, political forces, and social, demographic, and cultural forces (Sims, 2002). The economic situation; like level of unemployment, living standards of the general public, minimum wage rates, inflationary pressures, and industry growth directly impact the way McDonald's designs its recruitment and selection, employee development, and compensation programs (D'Annunzio-Green, Maxwell, & Watson, 2004).

The political instability and governmental behavior may also turn in favor or against its compensation practices any time. Similarly, the social and demographic factors like population shift, brand acceptability, attitude towards foreign brands, etc. affect the company's recruitment and compensation practices in one way or another (Gold, Thorpe, & Mumford, 2010).

Traditional Base Pay

In its Employee Handbook, McDonald's promises to offer market-based salaries and compensation packages to its employees without showing any type of discrimination or favoritism towards any class or nationality (D'Annunzio-Green, Maxwell, & Watson, 2004). In addition to providing attractive salaries, McDonald's offers numerous financial and non-financial benefits to its employees in order to make them satisfied with their job and keep their morale high (Dowling & Welch, 2008). The traditional base pay which includes basic salary and few essential components is designed by keeping…

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