McDonald's Corporation HR and Labor Issues Analysis

Introduction

McDonald's is one of the most recognizable U.S. organizations worldwide. The twin golden arches are recognized virtually everywhere. It is a publicly traded company that has consistently been able to show profits, and stakeholders of the company have constant anticipation of continued growth. The company operates approximately 30,000 restaurants worldwide in 119 different countries through a network of offices around the world (Barboza, 2001). Approximately 418,000 employees work at the various locations worldwide. Consistency has been the benchmark of McDonald's in the corporate world (McDonald's, 2004b). It operates restaurants using a combination of company-run restaurants and franchise-operated restaurants. Teamwork, honesty, dedication, and cheerfulness are especially important in a service organization.

This report identifies the current labor issues facing the company and offers theoretical recommendations to improve the situation at various locations around the world.

McDonald's has a high turnover rate among its employees, but the company is not greatly concerned, as the training and orientation required for new workers is not extensive. It is estimated that the cost of turnover at McDonald's is approximately $2,000 per employee (Murray, 2003).

Existing Conditions in McDonald's Corporation

Human resource management is becoming a strategic planning medium for many organizations. At McDonald's, "the corporate ethos and management system are rigidly imposed, detailed operating manuals followed to the letter and an extensive field organization checks on each store to enforce standards. Every foreign operator attends Hamburger University and international sessions with other members of 'McDonald's Family'" (TICL, 1987). The HR department at McDonald's, especially at the corporate level, is becoming a strategic partner for the organization, serving as a purveyor of the most important asset a company controls — the human asset. The human element cost is the most variable for McDonald's Corporation worldwide, and serious analysis is consistently conducted to ensure that this element is aggressively monitored.

Shareholders and management are constantly looking for ways to improve the bottom line. Technology, the Internet, and globalization have drastically changed the way most organizations operate. McDonald's has also been reshuffling its HR personnel and hiring new faces to manage human resources at different locations around the world (McDonald's-Press, 2003). With these changes, McDonald's hopes the HR department can undertake more innovative and involved methods of handling the challenges the organization faces.

McDonald's believes that the company's "employees are the best advertisement" they "have for the tremendous potential" they "offer" (McDonald's, 2004d). McDonald's HR managers note that many American and European teenagers get their first job at McDonald's. The company, which experiences high levels of turnover, has the process of new employee induction down to a science. New employees at the restaurant service level are trained to follow a fixed number of steps to achieve their goals and serve customers in a timely and efficient manner. At the corporate level, however, McDonald's jobs can provide the challenge and opportunity that any comparable corporate position can offer.

While McDonald's prides itself on being an equal opportunity employer — and company history and records indicate this is largely true — it is more likely to hire younger workers (ages 16–22) or older retired workers (above 65) at its various restaurants (IDS, 2001). Most line employees generally start at the minimum wage mandated by local and state governments. For example, in the UK in 2000, the basic rate for most employees was between £3.75 and £5.55. While McDonald's allowed workers to move up the pay scale relatively quickly, the number of employees who stayed with the organization long enough to become eligible for pay raises remained a persistent challenge.

At its core, McDonald's Corporation is not managed in a traditional "command and control" fashion but rather as a "form of market." Under McDonald's franchising agreement policy, personnel management is divided into discrete and independent operations governed by the initial contracts signed by the franchisee (Phillips, 2001).

The workplace is changing broadly, but this change has not substantially affected the lower tier of the McDonald's workforce. More than physical or technological resources, changing the mindset and the human factor will ultimately represent the new competitive edge for McDonald's. Communicating the company's goals and mission effectively to all employees is considered important at McDonald's. Reviewing employee grievances and complaints is also essential. Motivating low-tier employees is not a top priority for management; however, managers and decision makers are nurtured and treated with a high degree of respect by the corporation. It is believed that the more knowledge and information the HR department and respective departments can provide managers and supervisors, the better and more efficiently the worker will perform his or her responsibilities and become an asset for the organization.

McDonald's epitomizes the concept that America is the land of opportunity — a place where an ordinary person can succeed through hard work, intelligence, and dedication. In recent times, however, there has been a growing feeling of resentment among lower-tier workers who feel trapped within a low-wage, low-prospect structure. New workers were often taught a single skill used repetitively in mass production — the so-called "hamburger assembly-line setup" (Curry, 2003).

Every organization strives to create an environment of mutual respect, encouragement, and teamwork — an environment that rewards commitment and performance and is responsive to the needs of employees and their families. The HR department, recognizing that a happy and satisfied employee is also a productive employee, plays a key role in identifying the factors that affect workers within the organization.

Evaluating worker output with respect to time is also a key task of the HR department. Finding fair and unbiased methods of evaluation — while remaining sensitive to the cultural and legal context of each region — is an important responsibility of the HR manager. Employees should be made aware that employee loyalty is more critical to the welfare of the company than any new technology, because people are more important than machines. This perspective, however, is not consistently reflected in how the HR department deals with line and rank employees at McDonald's.

Key HRM Issues Identified

Individuals work to earn money, and every worker expects to be fairly compensated. Satisfying compensation reduces turnover in the company (HRGUIDE.com, 2003). In a strong economy, workers may obtain higher compensation due to an abundance of job opportunities; in a slow economy, that luxury may not be available. Many companies take compensation further by offering bonuses, commissions, stock options, profit sharing, and gain sharing in addition to base salaries. McDonald's does offer educational incentives and programs for its younger workers, as well as competitive benefits packages compared to other food retailers in similar industries worldwide. HR management also provides decision support through regular review and analysis of data — including salary, staffing trends, and absenteeism — to evaluate the true costs of employees both in the U.S. and globally.

Some of the key HRM issues identified for McDonald's Corporation are as follows:

Low motivation among employees. Many employees, especially long-term workers in the lower tier of the workforce, see little hope of advancement in their work lives. As a result, motivation is very low and the desire to work to their full potential is nearly non-existent. For example, many single mothers working at McDonald's at the service level live below the poverty line and, despite working 40 hours a week, may be unable to meet their basic needs on the wages they earn.

High turnover rate within the lower tier of the workforce. McDonald's has a policy of hiring young workers between the ages of 16 and 22 for its service operations. Many workers in this age group use a McDonald's job as a means to earn extra spending money and often do not consider the long-term impact of the low wages. They also move on due to school demands, the fulfillment of their immediate financial need, or simply because they no longer need the income.

Balancing worker compensation and restaurant profitability. Every McDonald's restaurant is actively managed by the numbers. If a location does not consistently generate revenue, local management may be changed or a franchise transferred. As a consequence, supervisors and managers are constantly looking for ways to control costs. Labor cost is one of the only variables completely within their control, and they often resort to manipulating this variable to achieve their profit margins.

Training disparities between lower-tier workers and management. Every McDonald's worker receives training — in McDonald's way of doing things. However, the training differs drastically between low-tier workers and managers and supervisors at headquarters. While many managers rise through the ranks and are selected for their abilities and skills, the lower-level worker is often treated as "just a means to an end." This attitude has affected worker morale and, consequently, productivity.

Conclusion

All HR policies are generally the result of testing a number of plans and strategies, and every plan may have imperfections. It is important that management be wary of making employees skeptical by constantly changing HR policies and agendas. Effective human resource management requires consistency and trust-building over time. Management will need to make thoughtful adjustments if it wishes to implement the new policy throughout the organization. Ongoing monitoring and fine-tuning of the policy can help ensure its success at all levels of the corporation.