McDonald's Total Rewards Program: Employee Strategy Analysis

Introduction and Organizational Overview

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. As Eric Schlosser has observed, "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, maintaining 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 toward customers. Workers who are undertrained, over-stressed, and poorly compensated are unlikely to provide good customer service. This has cost McDonald's in the long run: the company once dominated the fast food industry but is now being undercut by competitors that provide extensive benefits to 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, in order to remain relevant.

McDonald's: Company Description and Brand Identity

McDonald's is the leading fast food retailer in the world, despite having rather humble beginnings as a hamburger chain with a limited menu. McDonald's began by emphasizing burger-and-fry combinations and later branched out to offer chicken and breakfast options. Today, although it has ventured into healthier eating with salads and lighter fare—mainly in response to criticism that it was contributing to the nation's obesity epidemic—McDonald's still remains focused on 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 offerings specifically to suit the needs of different audiences—for example, European McDonald's locations serve alcohol, and the Israeli McDonald's is kosher and serves a McShawarma wrap. Yet even while exhibiting great diversity, McDonald's always remains true to its core brand capability: offering 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. The time-pressed and budget-conscious nature of most modern consumers—particularly in two-earner families with children navigating economic uncertainty—has proven financially advantageous to the company. It still wishes to retain its core consumer base of children without appearing to pander to poor eating habits and drawing criticism or calls for government regulation. McDonald's stated mission is "to be our customers' favorite place and way to eat and drink" and to deliver an exceptional customer experience ("Mission and values," 2014). Its values involve a commitment to customers, employees, ethics, growth, communities, continuous improvement, and the McDonald's system ("Mission and values," 2014).

However, critics have alleged that McDonald's has not truly honored its stated commitment to employees, particularly at the lower levels. According to Schlosser, "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 particularly popular—remain hallmarks of a successful organization with strong core competencies rooted in its sheer size and industry dominance. And despite the criticisms leveled at its employee treatment, McDonald's does have an effective system in place for training employees, which has proven a useful way to develop human capital within the organization.

Total Rewards Model at McDonald's

All organizations today seek to use employees to their maximum benefit. One approach that has proven popular is the total rewards model. Five elements are defined as composing a traditional total rewards package, "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 workplaces, 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 any of these elements, although some companies such as Starbucks have attempted to compensate by enhancing worker benefits, while others have tried to offset poor pay with performance recognition to motivate employees through social reinforcement.

McDonald's is no different: it embraces certain aspects of the total rewards philosophy more fully than others. McDonald's has a performance-incentive plan that offers greater compensation to employees 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 high-performing employees in the form of the Presidents' Award, "given to the top 1% of individual performers worldwide," and the Circle of Excellence Award ("Pay and rewards," 2014). It also provides promotional opportunities through its famous institution, Hamburger University, which it uses to train managers in the values and operations of the organization.