Compensation and Benefits System of McDonald Corporation

Compensation and Benefits System of McDonald Corporation
Compensation and benefits system adopted by organizations has a major
role in determining their capacity to attract, motivate, and retain
skilled, experienced, and talented employees. The current business
environment that is characterized by stiff competition, high business
risk, and uncertainties necessitates the recruitment of employees with
capacity to sail the business enterprise through these challenges. A
well designed compensation and benefits system aligns job responsibility
and employee performance with compensation awarded (Samuels, 2013). The
purpose of this paper is to evaluate the importance of compensation and
benefits system in attracting and retaining skilled and experienced
employees in the fast food industry. This will be accomplished by
examining the compensation and benefits system of the McDonald’s
Corporation. The compensation and benefits system makes the major
difference between employers of choice and ordinary employers mainly
because competent employees seek for an organization that see them
beyond objects or resources and offer them job security, future, and
Overview of McDonald’s Corporation
McDonald’s is the leading chain of fast food restaurants in the world
with an estimate of 68 million customers who take meals from company
restaurants daily in more than 118 countries (Randy, 2009). Most of its
restaurants are located in America, Japan, and Australia. The company
has grown from a family burger stand that was started by McDonald and
Dick in San Bernardino in 1948 to a global chain of restaurants. The
company has been expanding over the years through franchise and opening
of other branches and employs over 1.7 million workers across the globe.
The standalone restaurants are designed to accommodate a wide range of
customer preferences by offering drive through and counter services with
outdoor and indoor seating arrangements. In addition, McDonald’s has
been on the move to follow the emerging trends in the industry, by
opening modernized restaurants such as McExpress (located in shopping
malls), McStop (targeting truckers and other travelers, and McCafes that
sells high quality coffee.
Current situation
Although McDonald’s have made significant contributions towards the
creation of employment opportunities, there are several allegations that
have been raised against the company pertaining compensation and
benefits given to employees. A research by Casey (2012) revealed that
McDonald’s management especially for restaurants located in the New
York City have been stealing from their workers in different ways. The
researcher identified that Domino’s and Burger King are the leading
restaurants in stealing employee wages by paying them wages that are
less than the minimum wage that is legally mandated, imposing improper
deductions, and forcing employees to work off clock without overtime
compensation. This implies that McDonald’s Corporation does not have a
clearly defined compensation and benefits system to be used in all
restaurants or neglect of the system if it ever existed. Consequently,
the company has been able to retain experienced and skilled employees, a
situation that has resulted in the employment of students and other
employees who work in part-time to supplement their income. Another
challenge that McDonald’s is facing is establishing the balance in
employee compensation in all countries where it operates. For example,
employees in Australia receive the highest pay ($ 15 per hour) followed
by France ($ 12) and American employees receive the least and varies in
different states (Weissman, 2013).
Literature review
A review of another organization that had a similar situation
Conflict between employers and employees on matters of compensation and
other benefits is a common phenomenon. Wal-Mart Incorporation is the
largest retail company in the world, which had a similar situation to
what McDonald’s Corporation is currently facing. According to the
Spark (2002) Wal-Mart was one of the poorest large scale employers in
the United States in 2002. The company was sued for cheating and
stealing from workers who were forced to work off the clock. In
addition, the company was accused of paying its worker wages that were
below the statutory minimum wage in different states especially in
Colorado where some workers received below $ 5.15 per hour. The research
also showed that Wal-Mart had the largest number of workers who relied
on state subsidized benefits and government assistance to survive. These
are some of the challenges that forced Wal-Mart employees to legal
actions in pursuit for justice.
The long-time conflict between Wal-Mart management and employees has
resulted in a reasonable evolution of the compensation and benefits
system over the years. One of the first and significant steps made by
Wal-Mart was to raise the minimum hourly wage for its associates to an
average of $ 10.76 (Wal-Mart, 2013). In addition, other benefits were
reviewed depending on each category of employees. For assistance the
health benefits policy was reviewed to include both full-time and
part-time employees as well as the children of associates who became
eligible the moment their parents enrolled. Additionally, a profit
sharing plan was introduced where associates who worked for the company
for 12 years would receive a 2 % of their monthly pay contribution
(Wal-Mart, 2013). Moreover, a stock purchase strategy was initiated to
assist the company associated with purchasing stock. This was
accomplished by contributing 15 cents to associate stock purchase for
each of the dollar of the stock purchase.
Although the strategy adopted may not solve all the prevailing
challenges, it was a milestone towards a better future for the company
and its employees. However, Wal-Mart is still far from achieving the
level of one of the best employers not necessarily in the world, but in
the United States alone. The compensation and benefits strategy adopted
by Cirrus Logic Incorporation is one of the best programs that Wal-Mart,
McDonald’s can emulate or learn from in order to establish a long-term
solution to employer-employee conflicts. Yahoo Finance (2013) reported
that the benefits program used by Cirrus is formulated by considering
the regular employee feedback, which has enabled the company to come up
with one of the best compensation programs in America. The report showed
that Cirrus Logic provide its workers with the most competitive salary,
bonus, generous personal time off, welfare benefit and the most
outstanding health benefits program in the industry. Compared to
Wal-Mart and McDonald’s, Cirrus Logic has managed to counter employee
turnover challenge and achieved improved customer satisfaction, creative
thinking, innovation, and positive public perception (Yahoo Finance,
Applicable theories
Expectancy theory
Expectancy theory that was developed by Vrooms is one of the most
appropriate perceptions with regard to the development of employee
compensation and benefit system. While examining the applicability of
expectancy theory in an organization set-up, Lunenburg (2011) identified
a combination of four assumptions and three elements of the theory that
can help employers in designing compensation systems that will motivate
their employees. First, the theory is based on the assumption that
employees join a given company with expectations about their motivation,
needs, and past experiences, implying that employers should address
these factors to ensure that employees are satisfied and inspire to
work. Secondly, the behavior of employees is guided by their expectancy
calculations. Third, the needs of employees (including high salary,
advancement, and job security) are different from the needs of the
organization. Lastly, employees selects among alternatives in order to
maximize outcomes for them. Based on these assumptions, Chiang & Jang
(2008) identified that employers in the hotel industry successfully
motivate their employees by addressing their expectations,
instrumentality, and valence.
Equity theory
Equity theory addresses employee motivation using the perception of
equality of input and output and the impact of their inequality
(Al-Zawahreh & Al-Madi, 2012). Human resources managers can use equity
theory of balancing between what employees give to the firm and what
they get from the firm for as a compensation for their input. However,
the theory assumes that employees’ motivation can be affected by a
third party who may be a co-worker, relative, or a group of co-workers.
Equity between input and output is achieved when employees perceive that
their inputs balance their output or the input of other people balance
their output (Al-Zawahreh & Al-Madi, 2012). Inequality, on the other
hand, occurs when employees perceive that they are either underpaid or
overpaid. This is a challenge to the human resource departments because
they have to ensure that compensation balances the work performed by
employees, implying that they should compensate work and not
Equity theory is widely applied by employers to motivate employees
especially in the lowly paid positions. Tudor (2011) investigated the
techniques that employers in the fast food industry can use to motivate
their employees given that this industry is characterized by the
existence of lower paid job positions than high paid jobs. The
researcher identified that employers in the fast food industry can
motivate employees with low pay incentives by using compensation as a
motivator and recognizing the fact that employees have different money
needs. In addition, giving comparable industry pay can reduce employee
turnover or switching from one employer to another. Moreover, helping
employees meet their personal goals (such as achieving academic goals
and socialization) through their employment ensures that there is a
balance between work demands and personal life (Turdor, 2011).
Implications of literature and recommendations for McDonald’s
The piece of literature reviewed in the present study has three key
implications for human resource management. First, human resource
managers should increase their trust in workers and believe that they
are capable of performing the assigned work successfully. This is an
effort-to-performance strategy that may be accomplished by McDonald’s
by recruiting employees with the necessary skills and knowledge in all
restaurants, training employees and clarifying job requirements, and
alleviating problems that may hinder performance. This implies that
human resource managers should endeavor to explain the job requirements
and help employees in attaining the expected level of performance
(Lunenburg, 2011).
Secondly, human resource managers should enhance their belief that good
performance achieved by employees deserves a valued reward. This is
important in satisfying the performance-to-reward expectancy. The
McDonald’s management can adopt this strategy by measuring job
performance with accuracy, informing employees about the rewards that
they will get as a result of superior performance, and giving examples
of other workers whose rewards were improved as a result of successful
performance. The effort to establish a link between performance and
reward makes compensation successful tools for employee motivation. Pay
for performance strategies may include incentive stock option, piece
rate, and commission plan (Lunenburg, 2011). However, rewards for
recognition of performance may not necessarily be in the form of money,
but may include words intended to acknowledge performance.
Third, based on the valence element of expectancy theory, employers
should distribute rewards in a way that enhance expected value. This can
be accomplished by individualizing rewards and distributing rewards that
are valued by employees. For example, employers can allow employees to
select benefits from a list of alternatives. This is important because
employees prefer different types of rewards. The McDonald’s management
should introduce an incentive plan that will allow employees to choose
fringe benefits from alternatives provided in a menu. This will help the
company in satisfying its employees, thus increasing performance and
reducing employee turnover. However, McDonald’s should be vigilant at
all stages of salary and benefits determination, including job
discrimination, job evaluation, salary survey, and salary structure in
order to ensure that payment matches performance and responsibility
assumed by employees. The discrepancy of wage differences in different
countries can be overcome by using the headquarter-based compensation
plan which will ensure that employees of each level are compensated
without discrimination based on geographical location. This is important
because there is no justification given by McDonald’s to pay different
rates in varying geographical locations.
The purpose of the present study was to evaluate the challenges caused
by the current payment and benefit system for McDonalds Corporation. The
major challenges identified include the high rate of employee turnover
and regular conflict with employees, which are caused by payment below
statutory wage rate, forcing employees to work for unpaid off clock
time. Based on the two theories described (expectancy theory and equity
theory), the McDonald’s management has a major role to play in
establishing a lasting solution. This is because the management is
mandated to evaluate expectancies of employees during the recruitment
and give them rewards that satisfy their desires. In addition,
McDonald’s management is mandated to establish equity between employee
input and compensation. Although much of the blame is laid on McDonald
as the employer, there is a need to ensure that compensation and
benefits awarded are commensurate with employees’ job performance and
responsibilities they assume.
Al-Zawahreh, A. & Al-Madi, F. (2012). The utility of equity theory in
enhancing organizational effectiveness. European Journal of Economics,
Finance, and Administration, 46 (2012), 158-170.
Casey, N. (2012). Wage theft reports: Fast food wage theft in NYC. Fast
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Randy, J. (2009, October 28). McDonald’s abroad. Time World. Retrieved
October 21, 2013, from HYPERLINK
Chiang, C. & Jang, S. (2008). An expectancy theory model for hotel
employee motivation: Examining the moderating role of communication
satisfaction. London: Routledge.
Lunenburg, C. (2011). Expectancy theory of motivation: Motivating by
altering expectations. International Journal of Management, Business,
and Administration, 15, (1), 1-6.
Samuels, D. (2013). About effective compensation & benefits system. New
York: Hears Communications Incorporation.
The Spark (2002). Wal-Mart employees: Underpaid, overworked. Detroit MI:
The Spark.
Turdor, R. (2011). Motivating employees with limited pay incentives
using equity theory and the fast food industry as a model. International
Journal of Business and Social Science, 2 (23), 96-101.
Wal-Mart (2013). Sustainability progress to date 2007-2008. Wal-Mart.
Retrieved October 21, 2013, from HYPERLINK
Weissman, J. (2013, August 5). The magical world where McDonald’s pay
$ 15 an hour? It’s Australia. The Atlantic. Retrieved October 21,
2013, from HYPERLINK
Yahoo Finance (2013, September 19). Cirrus Logic named one of the best
employers in America for third consecutive year. Yahoo Finance.
Retrieved October 21, 2013, from HYPERLINK

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