McDonald’s (MCD, Financial) is increasing wages for 90,000 of its U.S. employees. According to a report by The Wall Street Journal, the fast food restaurant giant will increase hourly wages by at least $1 over the local minimum wages currently paid to its employees starting on July 1. However, the wage hike will only be applicable to the employees of company owned U.S. restaurants only, not franchises. McDonald’s operates around 14,500 restaurants in the U.S. Of this, 13,000 restaurants are franchises and around 10%, or 1,500, are company-owned restaurants. Here’s a lowdown on why McDonald’s decided to improve the wage rate, and what it means for the company.
Reasons for wage hike
McDonald's is restructuring its workers compensations in several ways. Besides hiking their wages per hour, McDonald’s will help its employees, who have worked for more than a year, to attain school diploma. According to the New York Times, McDonald’s would also provide financial aid to employees to cover their costs of college. In addition, employees’ completing one year of service in company-owned restaurants will be eligible for one-week paid leaves. However, the sad part is that workers providing service at franchises, which makes majority of McDonald’s workers, won’t get the benefit of this vital move as the wage restructuring does not apply to them. The company says that it is up to the franchises to decide the pay policies.
Increasing worker agitation is the key reason behind raising hourly wage rates. Other U.S. chains including Wal-Mart (WMT, Financial) and Target (TGT, Financial) have decided to improve worker hourly compensation as a measure to redress income inequality and tackle rising competition for workers. Wal-Mart will increase the hourly wage rate to at least $10 for 500,000 workers in 2016.
Labor groups have been criticising the wage conditions at several fast food chains. Labor activists have been pressuring McDonald’s to reform their working conditions and increase wages. However, McDonald’s said that this isn’t the reason behind its decision to increasing wages. Every step that any company takes is aimed towards earning profits and maximising market share. Rise in wage would increase operational costs, but it makes more sense as workers feel more motivated which results in increased efficiency. Steve Easterbrook, the company CEO, said:
"We know that a motivated workforce leads to better customer service so we believe this initial step not only benefits our employees, it will improve the McDonald's restaurant experience."
Efforts made to revive sales
McDonald’s move to hike wages is directed towards improving its operational challenges and staying competent. Easterbrook said “What we need to underpin that is highly motivated teams in our restaurants.” Happy employees are more motivated and efficient in work. And this should improve the service quality across company owned restaurants and support its sagging sales.
Besides, the company has undertaken several other coordinated measures to revive sales. First, McDonald’s recently announced that it will soon get rid of chicken containing antibiotics, and shift to naturally-raised poultry. Second, McDonald’s is planning to provide an all-day breakfast menu to the customers at most locations in San Diego. If the test receives a jubilant response from customers, the company would start implementing the plan in other restaurants.
Parting thoughts
A combination of all these efforts made by McDonald’s should definitely bear fruits. The move to provide better wages should lead to better employee satisfaction, resulting in better service to customers. This should support the company to boost its sales and profits. It would be interesting to track how the wage reform helps the company improve its operational performance.
