Compensation Plan Outline
Running head: COMPENSATION PRACTICE
COMPENSATION PRACTICES
Compensation Practices
Introduction
Employees are an important aspect in the development of any organization. The most common way of motivating the employees is to have a proper compensation strategy that would push them into achieving the objectives of the organization. Major organizations with proper compensation strategies always attract and retain the best and most skilled employees within an industry (Mejia & Werner, 2008). This paper seeks to focus on the compensation strategy by McDonald's group of restaurants that operate in the United States and across the globe. They have a large group of staff across the world and this call for an effective compensation strategy to attract and maintain these employees in a bid to ensure uniformity and expansion of their stores.
Compensation Strategies and Practices
The groups of the restaurant are wholly owned and some are owned through the franchise. The stores including the franchise conform to a specific code of strategies that apply to all employees irrespective of their area of operation rank within the organizational structures. The group of restaurants is free of discrimination and employees are treated equally when it comes to their compensation. The organization picks on skilled personnel to enable them to stay competitive in the marketplace. The variation in the compensation would differ from one geographical location to another but most are paid on the number of hours they put on work. The company has other incentives in their compensation structures like the share of the profits, dental, medical benefits, vacation, and insurance. Additionally, the company has divided the compensation into short term and long term incentives. The short-term incentives are flexible and vary depending on the extra efforts placed by the employees within the period it covers (McDonalds, n.d). The long-term incentives are given to the employees so as to establish the relationship between the performance of the company and that of the employees. The president of the company awards the excellence award to the employee along with other benefits like cars and promotion depending on the effort and the contribution that the employee has given to the restaurant.
McDonald's has other indirect compensation methods that motivate their employees to put in more effort to the company. The company allows the employees to invest in their future by assisting them to take life assurance and saving plans on their share of the profits that the company allocates them (McDonalds, n.d). Qualifying employees get a share of between zero and four percent of the pay the company receives from their efforts.
Challenges faced by McDonald's in compensation
McDonald group of restaurants invest a lot in the compensation of their employees. In spite of these efforts, the company still experiences a high turnover of employees. The process of replacing the employees takes time and is an expensive process. This affects the performance of the store irrespective of the contribution of the employee to the company.
A large company like the McDonalds operates in different parts of the world and also has some of the branches as a franchise. There are possibilities that there are branches that may be poorly managed and as such may create a bad reputation for the entire company. Top management enjoys all the profits and also has to suffer the consequences of loss of reputation when some of their branches do not compensate their employees well.
The difference in rules and regulation in the many countries that McDonald's operates in also pose a challenge in their policies of compensation. Different governments may create different legislations in how they expect the employees of their nations to be compensated (Aswathappa, n.d). The group of the restaurant has to conform to the needs of the government in the company which creates a sense of bias towards other employees in different nations. It is important to create a compensation policy that would be able to create uniformity in the compensation of employees in all nations but this effort is affected by the government policies in different nations.
Impact of the Compensation Practices to the Company and its Stakeholders
The stakeholders of a company consist of the shareholders, management, government, and employees. At McDonald's the company is in need of creating the compensation policies that would affect the top management because it will ensure there is a sense of continuity in the management of the company. The company identifies and rewards the top performers in the company as earlier discussed in its compensation strategies.
Identifying and recognizing employees is the most effective way to please the employees as a stakeholder. The policy on profit sharing ratio facilitates such. The medical benefits that are given to the employees create more safety for the employees. Top managers in the company also get some benefits depending on the number of employees that work under them and the performance of those employees. The compensation practices of the employees thus affect the stakeholders in a positive way that would make them stay within the company to ensure continuity.
However, the strategies put in place may also have a negative impact on both the company and the stakeholders especially the employees. Most of the employees at McDonald's deal with customers and when the company does not address their compensation plan, then it would translate to how they deal with the customers. The high rate of turnover affects the experience that the customers get when they are served with the employees.
The owners of the business are also important stakeholders whom the compensation policies would affect. The financial reports would help them understand the effects compensation policies are having on the financial position of the business. They are negatively affected because they have to pay large amounts of money to keep the top management. This reduces the number of profits that would have been obtained by the shareholders (Eisenhonfer & Barry, 2006). The company justifies the need to pay the top management since they need the top management to maintain the performance of the company at the top level among the competitors.
Effect of Labor Unions, Laws, and market on the Compensation Practices
McDonald's has to be attentive to the trends of the market trends so that they can offer compensation in a manner that corresponds to the trends in the marketplace. They have therefore set an office to study and evaluate the compensation strategies of the direct competitors and recommend strategies to counter the market trends. The strategies implemented are aimed at making sure that the employees of the company feel good working for the company compared to how their fellow employees in the same rank as them in other companies. Care should be taken such that these compensations remain at the acceptable level of the company and customers remain satisfied.
Different institutions determine their own rule of engagement with employees. Different governments have different policies for their employees. It is the responsibility of the labor unions to ensure that these laws are enforced so that the employees get a good working environment and working conditions (Hitt et al., 2013). When there are disagreements, then the labor unions come in to mediate between the company and the employees. In such circumstances, the position of the organization always holds more weight than that of the labor union. The negotiation would lead to an amicable solution to an impasse. On the whole, the company recognizes that the market forces play a role in the design of their compensation policies. The labor unions also have a role to play in bringing agreement between the employers (McDonald's) and its employees whenever there is a disagreement.
When the government creates a change in the policy with which companies need to restructure their wages, companies get affected. They have to create changes that go in line with the new changes required by the government. The implementation of such policies would be applied by both the main chain stores of the McDonalds as well as those of the franchise. Market trends have a check effect on the employers because it helps in guiding the rates an employer should offer to avoid loss of employees. Unions, wage rates, and the government have an effect on the compensation policy of the restaurants.
The effectiveness of traditional bases of pay
McDonald sets its objects and expects that all the employees should work towards attaining these objectives. The company will, therefore, compensate depending on how one performs is duties towards achieving the objectives of the company. This motivates the employees towards meeting the goals of the institution. One of the central objectives of McDonald's is customer satisfaction. This traditional approach is aimed at bringing in the employees to the company primarily to achieve the objectives of the company. This will boost the morale of the employees and generally improve how they handle the customers.
The traditional way of remuneration is such that the employees are compensated according to the rank the employee has in the chain of the restaurants. This form is meant to make the employees be effective in their operation to climb the ladder in the organization to get better compensation. It is an easier way of identifying the best and most talented employees in the organization. It also helps to retain the top management employees because they attract the best pay in the market. Additionally, the traditional way of compensating employees also come with a way in which the employees are motivated because of the privileges they enjoy in working for the organization.
Conclusion
The compensation plan of the McDonald's is aimed at attracting highly skilled employees at retaining the best in the industry. This is evident in the grass growth in the number of employees they have had across their branches in different parts of the world. The company has recognized that the best management of the human resources in the organization would assist in attaining the objectives of the company easily. The company also recognizes that retaining the top management is the best practice to ensure stability because they better understand the company and set policies for practices. Therefore, their compensation policy favors the top employees in the organization. It, therefore, focuses on retaining the senior management staff for a better understanding of the organization and coherency. Better compensation strategies are crucial in attracting and managing of employees.
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Eisenhofer, J. W., & Barry, M. J. (2006). Shareholder activism handbook. New York, NY: Aspen Publishers.
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Hitt, M. A., Hoskisson, R. E., & Ireland, R. D. (2013). Strategic management: Competitiveness & globalization : cases. Mason, OH: South-Western, Cengage Learning.
McDonalds. (n.d.). Our People and Communities | McDonald's. Retrieved July 28, 2018, from https://corporate.mcdonalds.com/corpmcd/scale-for-good/our-people-and-communities.html