Friday, August 1, 2014

McDonald’s and the Screwing of the American Worker

Protesters outside of McDonald's Oak Brook, Ill. HQ,
20 May 2014. (© Fast Food Forward)
McDonald’s is facing more problems … and I’m not referring to their relatively disappointing revenue performance. Or their ill-considered sponsorship of VH-1’s absurd time-slot filler Dating Naked.

No, the new problem is that, on Tuesday, the National Labor Relations Board ruled that the Golden Arches could be named as “joint employer” in a number of workers’-rights complaints against franchise-owned stores. AP’s Candace Choi tells us that the franchisees aren’t happy about it either. “If franchisors are joint employers with their franchisees, these thousands of small business owners would lose control of the operations and equity they worked so hard to build,” said a statement released by the International Franchise Association. And that’s no small source of worry, because franchisees have little control over their operations and equity to begin with.

For those of you without any QSR experience, let me give you my perspective on it: In one way, buying a franchise is like buying a house —the only thing you really own is the promissory note you signed for the loan. On the other hand, there are significant differences: In your house, you can have the décor, the furniture, the food and the clothes you like. When you’re a franchisee, you’re not really your own boss; the major difference between you and a regional manager is that you have assets at risk.

General managers (the ones who run individual stores) see it clearly. Choi’s story mentions the frequent visits corporate reps make “to check up on how franchisees are running restaurants, including by standing outside the drive-thru to time how quickly cars go through. Said longtime employee Richard Eiker, ‘Managers go crazy when corporate comes in for these inspections.’”

They do; I know.

As I said in a previous post, there is no such thing as a “starter job”. Occasionally you’ll see postings that are labeled “entry-level”, but that’s just HR’s version of marketing fluff; all it means is that you’re coming in at the bottom of the pay pyramid. Jobs are designed to fulfill business needs, not to accommodate a workforce demographic.

Data gathered by the Bureau of Labor Standards shows that the vast majority of minimum-wage workers are over the age of 20, and the majority of those over the age of 25, and the majority of all of them are women. I know from my own experience that QSR managers prefer to hire adults rather than teens, because teens are generally less dependable, and come with more time and legal restrictions on their use.

The problem is not the minimum wage per se. Rather, the problem is the restaurant’s business model. A modestly profitable QSR sees about 92 – 95% of revenues go right back out as expenses, 50 – 60% of which are food and labor costs. Restaurant chains control food costs mostly by buying in massive quantities for bulk discounts and by locking vendors into guaranteed-price contracts; McDonald’s influence on the meat-packing industry has been phenomenal … not to say unhealthy.[*]

Like any retail operation, it doesn’t matter if you have a single storefront or you have your ensign planted all over the globe — every restaurant has to be profitable, or it’s a drain on the ROI of your entire operation. ROI (return on investment) is a standard measure for investors and shareholders: it’s the measure of the money you make over and above what you would have made if you’d invested the same funds in some other instrument. If the investor’s not making more money than she would have on a similar value of Treasury bills or municipal bonds, then it doesn’t matter whether you’re in the black on your profit-and-loss statement … you’re not a good investment.[†]

So how else do you keep your food cheap?

By paying your staff minimum wage (or, if they’re tipped, subminimum wage). By starting them late and releasing them early when business is down. By paying certain benefits only to people who work more than thirty hours a week, and keeping that number of employees down to about half your staff or less. By refusing to pay overtime; I know for a fact that one popular QSR in Albuquerque in 1990 was forcing staff to clock out when they reached forty hours for the week, and then illegally making them go back to work.[‡]

By hiring people who have little choice other than to work — and work hard — for you. So much for the dignity of labor.

I have to laugh whenever someone describes the employment process as one of having abundant choices and negotiating wages. If you have highly-valued skills, are already working, and are being called regularly by headhunters, maybe you have some leverage to get a desirable job, with all the pay and perks you can grab off the table.

Lose or quit your job for any reason, and you become more toxic almost by the week; at the bottom, negotiation consists of just one question: “Do you want the job or not?” And God help you if you’re on UI. The state expects you to take what’s offered when it’s offered, and not wait until something more reasonable comes along.

In any event, business logic dictates that every restaurant be as profitable as if it were the only restaurant in the chain. And it seems reasonable that a single restaurant owner whose home and other assets are tied up in his business should make ten or twelve times minimum wage in after-tax profits.

However, CEOs don’t usually plunk their own funds into the businesses they run; they receive their ownership portions as part of their compensation. Last year, the Chicago Tribune reports, the average CEO-to-worker compensation ratio was more than 1,000:1. McDonald’s chief Don Thompson reportedly earned about $9.5 million in 2013, or about 594:1 over the average fast-food worker.

The Reuters correspondent who wrote the Trib story, Lisa Baertlein, quotes trainer Jessica Davis as saying that Thompson “earn[s] his millions on the backs of working mothers and fathers”. This single quote, more than others, encapsulates not only the indignation of millions of shabbily-paid workers but also the most powerful argument against capitalism as it’s currently practiced: the risk/rewards model of compensation fails to properly recognize the contributions and risks of workers to the success of an enterprise.

Let me make a couple more points before I wrap this up: On a post on The Impractical Catholic, a reader who was scoffing at my assertions said, “I believe that people have the option to refuse employment for slave wages.” My contention here isn’t that they often don’t, but rather that by calling them slave wages we tacitly admit such scandalously poor pay is immoral — unless, of course, we’re prepared to give up the idea that slavery is immoral.

Here’s the other point: If Wal-Mart can be castigated as a “welfare queen” because their poor pay costs taxpayers an average $900,000 per store in government aid to employees, how much more so are restaurant chains like McDonald’s or Darden (Olive Garden, Red Lobster, Longhorn Steakhouse)? Your tax dollars subsidize your kid’s Happy Meals.

In summation, McDonald’s has been an industry leader for about fifty years, and has been influential in the shaping of the QSR business model. As such, by their extreme they make nakedly obvious the fallacy and injustice of the "risk/reward" model.

For all corporate executives talk about how their companies’ success depends on their employees, the effort to hold down labor costs and outsource or offshore high-dollar jobs show that that’s all it is — just talk. We won’t start to see fair pay until the “sweat equity” of labor is finally and properly recognized as a real investment.


[*] For more information, read Fast Food Nation: The Dark Side of the All-American Meal, by Eric Schlosser (New York: Houghton Mifflin Co., 2001). But don’t read it on a full stomach, or while you’re eating. Trust me on this.
[†] Of course, since the majority of stock investors make their money on trades rather than dividends, the rationale is a little shopworn.
[‡] Since this was almost a quarter-century ago, and since many things may have happened there since I left New Mexico, it’s not worthwhile to reveal the restaurant’s name.