On June 4, 2018, employees work behind the counter at a McDonald’s restaurant within the company’s new corporate headquarters in Chicago, Illinois. Scott Olson is a writer and a musician. News from Getty Images | Getty Images Tom Locke’s tipping moment on employee salaries occurred in March, after a meeting with Heidi, a fatigued store manager in Coventry Township, Ohio, just outside of Akron. Locke knew that, despite her decade-long dedication to his family’s firm, TomTreyCo, staffing shortages at the tail-end of the Covid-19 epidemic were truly taking a toll as he sat talking with her in a booth. She mentioned working a 12-hour shift, sleeping three hours in her car instead of driving the half-hour home, and then standing for another full day. Locke recently recalled, “I could sense the worry in Heidi’s face.” As a result, he decided to make a change at the 45 McDonald’s sites in Pennsylvania, West Virginia, and northeastern Ohio that are part of his franchise business: he upped workers’ wages. The lowest-paid employees would be paid at least $13 an hour, with supervisors earning up to $20 an hour, much above what other local competitors were paying. “We were in a really great financial position,” Locke said of the April decision, which he reached after consulting with his senior team and analyzing the cost and margin implications of several models. “I believed if there was ever a moment we could do this, raise the wages of all of our associates, it would be now,” he said. Fast food workers are paid under duress. With the support of pro-labor legislators and well-organized advocacy groups like ‘Fight for 15,’ which advocates for a $15 per hour minimum wage, fast-food workers’ pay levels have come under close examination in the last decade. McDonald’s, arguably more than any other brand, has been the target of such criticism and controversy, despite the fact that its franchise model means that the great majority of restaurant locations are run by independent franchisees, such as Locke’s TomTreyCo, rather than the franchisor, McDonald’s. However, due to the intricate nature of the franchisor-franchisee relationship, a decision to boost salaries on either side of the franchise equation can have far-reaching consequences. McDonald’s announced in May that workers at its 650 company-owned locations will receive a 10% pay raise by the end of June, just months after other fractious disputes with franchisees over tuition programs and technology fee payments. Entry-level employees will earn $11 to $17 per hour, and shift managers will earn $15 to $20 per hour, depending on location. According to the corporation, by 2024, the average hourly compensation for employees at company-owned restaurants would be $15. While the salary hikes are only in effect at McDonald’s owned and operated shops, the business pushed franchisees who oversee the 13,000 or so other restaurants to do the same for their roughly 800,000 employees, causing some franchise owners to become enraged. 95 percent of the fast-food chain’s outlets in the United States are franchised. What the CEO of McDonald’s has to say about pay McDonald’s is one among the food brands that has come out of the epidemic with a healthy financial position, similar to Chipotle, which recently increased wages and menu pricing by 4%. It’s also been attempting to send a message of financial support to small-business owners. McDonald’s CEO Chris Kempczinski said in a recent interview at the CNBC Evolve Global Summit that the company’s decision to inject roughly $1 billion of liquidity into its system after the worst of the pandemic had passed — and on top of several years of balance sheet growth in the United States — was part of an effort to shift the franchisee mindset away from worrying about, “Is it likely that I will be able to pay my mortgage or a loan that is due this month? It’s this shift in thinking from being defensive to being much more aggressive.” “There’s no doubt that $7.25 in this day and age is not what you should or ought to be paying to be competitive in the marketplace,” the McDonald’s CEO said, while declining to comment on a rising federal minimum wage. “Wages are going up because the economy is robust.” McDonald’s’ action, according to labor experts, will put pressure on its franchisees. “This will put a lot of pressure on franchisees to do the same thing,” said Laura Padin, a senior staff attorney at the National Employment Law Project, a labor advocacy group. “A $15 minimum wage was considered a ‘pie in the sky’ type of goal when that movement started in 2011 or 2012,” Padin said of “Fight for 15.” Padin claims that the latest McDonald’s announcement is proof of its effectiveness. “The fact that businesses are taking this step shows how much the campaign has shifted the narrative around what an acceptable minimum wage should be,” she added. The franchise industry retaliates. The franchise business has made it plain that individual restaurant operators should determine wage floors and ceilings. “Franchisees are best positioned to make wage decisions in their local communities,” said Matt Hauer, the International Franchise Association’s senior vice president of government relations. He drew attention to the price disparities between high-priced metropolitan zip codes and more rural areas. He claims that the current focus on wage levels is the result of a “union-driven campaign” to persuade the public that the franchise business model is in fact a corporate one in order to accomplish specific organizational or political ends. According to him, the goal is to “transform a corporation like McDonald’s, Dunkin Donuts, or Hilton Hotels into one company rather than a collection of many little businesses doing business under a similar name.” On July 7, 2021, a “Now Hiring” sign is displayed at the drive-thru of a McDonald’s restaurant in San Rafael, California. Getty Images/Justin Sullivan Franchisees are caught in the crosshairs of a war with massive competitors on a broader low-wage labor landscape, according to the McDonald’s corporate stance. “What’s happening, I believe, is that you’re witnessing how a strong economy helps to boost employee wages. And I believe that many of the salary increases are taking place as a result of corporations like McDonald’s having to fight for the best talent “Kempczinski stated the following. “With Walmart, Amazon, Target, and others all heading to $15, that’s a talent pool with whom we’re competing.” What it’s like to work at McDonald’s A distinction between McDonald’s corporate and franchisee can feel semantic among workers pushing for greater compensation. “We don’t care if we work in a franchise or a corporate store,” Cristian Cardona, a 21-year-old who started working at a McDonald’s restaurant in Orlando three years ago, says. “We’re all in the McDonald’s uniform, and we’re all entitled to a decent pay.” Cardona’s first job paid $9.25 an hour, just a $1 more than Florida’s minimum wage at the time. After a year, he became a manager and was promoted to $11, before being promoted to $13 by McDonald’s lately. “I know McDonald’s corporate can find out how to give every single worker a living wage of at least $15 if they can control how franchises create their Big Macs and how they promote,” he stated. The adoption of greater salaries was ultimately a financial decision for Locke, the franchise operator in Ohio, rather than a moral one. During a recent phone conversation, he added, “I’ll be honest with you.” “We might not have taken the step if there wasn’t such a severe labor shortage.” We were nothing more than a virtual hamster in a hamster wheel, going nowhere. Hiring, keeping, and training exceptional employees is the most difficult aspect. McDonald’s franchisee Tom Locke Locke had reduced his menu options at the start of the year, which helped his profits, but he was still dealing with personnel difficulties. Around 250 staff would leave each month, and the same amount would require training. Over 100 percent turnover is prevalent in the restaurant industry. “We were just like a virtual hamster on a hamster wheel, going nowhere,” he explains. “Hiring, keeping, and developing exceptional people is the most difficult aspect.” However, since his wage raise, which was announced separately from McDonald’s the following month, retention has increased dramatically. He raised prices slightly to reflect the higher costs, but he believes customers “anticipated” it after his company publicly announced the higher compensation for its employees. “It’s a long-term view of the business versus a very short-term view,” Locke explained. “I believe it is a far superior business strategy.” That’s a strategy that echoes the McDonald’s CEO’s perspective and demonstrates agreement rather than friction between McDonald’s corporate and independent owners. “We’re going to be open and honest… We are definitely going to be making long-term decisions, so let’s not get too caught up in the here and now “CNBC spoke with Kempczinski./n
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