The Impact of Linking Performance and Pay Strategies

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The McDonald’s Corporation, founded in April of 1955, is consistently at the forefront of the greater fast-food community’s involvement in maintaining fair pay for its employees. However, in order to augment employee pay and continue to provide incentive for said employees to offer the best service possible, McDonald’s boasts a highly structured “pay for performance program.”

The compensation programs at McDonald’s had been relatively stable and progressive in nature dating back to the early 1980s. Following the great recession of 2008-2009, however, their ability to maintain competitive wages in corporate stores, and the abilities of franchise owners and operators to maintain a sufficient workforce for the restaurants, was diminished. In the face of falling corporate profits, rising minimum wages, a minor stock market crash and the potential of diminishing returns on shares of McDonald’s stock, McDonald’s corporate offices began a search for a solution to their short term problems. One of the issues plaguing the accumulation of greater corporate profit shares was the sheer amount of McDonald’s employees who were, at the time, employed as full-time workers. This entitled said employees to full-time benefits, such as employer-provided health insurance, dental and vision options, and a 401k program. In order to curb the amount of money being spent on these programs, McDonald’s instituted a period franchise restructuring, wherein full-time employees had their hours potentially scaled-down, in favor of hiring more part-time work to fill in the gaps. It had been previously calculated that this would result in a net profit for McDonald’s corporation, as the money spent on the hiring, training, and pay of part-time workers, with a minimum wage of $7.00, would be far less than that of paying for benefits for the multitude of full-time workers currently under their employ. An additional part of the solution for greater profits was to install a performance incentives program for employees, much in the same way as the company offered performance incentives to their executives (“Executive Compensation”). The McDonald’s performance incentives program is split into three distinct categories: Short term incentives, long term incentives and recognition programs (“Pay and Rewards”). Short term incentives are the variable, at-risk portion of cash compensation an employee can earn each year. The rewards are generally based upon annual performance. These rewards are typically available to all employees. Long term financial incentives, consist of the offerings of stock options within the company, usually only offered to those in management positions, or those on track to receive some type of promotion within the company. Recognition programs are designed to reward employees who are to be recognized for exemplary service. Typical examples are usually awards given to the top percentages of sales performers. Eligible employees for these types of programs are generally employed by the McDonald’s corporate offices.

In light of the recent recession, the executive compensation programs employed by McDonald’s Corporation drastically reduced total executive pay. According to a McDonald’s Corporation Executive Compensation Report from the first quarter of the fiscal year 2012, executive base salaries were consistently increased by nearly 20% from 2009 to 2011, with executive bonuses and stock options seeing drastic reductions. The total overall value of the compensation for executives was far lower in 2011 than 2009, as a much larger majority of the executive’s pay was predicated upon company performance; seeing as how McDonald’s corporate profits saw a dip during the recession (as most companies did), it stands to reason their executives were paid less as well.

The compensation packages provided by McDonald’s Corporation are some of the most lucrative compensatory packages in the corporate world, rivaled by only that of their immediate peers in the food industry and the largest of silicon valley tech firms. Despite the diminishing nature of overall executive pay during the years between 2009 and 2011, it can still be reasonably inferred that McDonald’s continually strengthening profit margins forecast their decision to link executive pay more fully to said profits as a serious advantage over their competition within the industry.

Works Cited

"Executive Compensation." The McDonald's Corporation. n.d. http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Investors/

"Pay & Rewards :: AboutMcDonalds.com." Pay & Rewards :: AboutMcDonalds.com. n.d. http://www.aboutmcdonalds.com/mcd/corporate_careers/benefits/highlights_of_what_we_offer/pay_and_rewards.html.