MGMT 434 Compensation Group Project PDF

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In n Out and McDonald's Compensation Analysis MGMT 434 TU/TH 1:00 P.M. Franz Salvador Carlos Pulido My Ha Mai Maria Nava

Franz Salvador Carlos Pulido My Ha Mai

Maria Nava MGMT 434 TU/TH 1PM

In n Out’s success can be attributed to emphasizing external competitiveness by paying above the market for all levels of employment, and placing emphasis on base salaries for district managers. McDonald’s, on the other hand, appears to pay employees much less in an effort to minimize operational costs in order to keep prices low. As a group we plan on further analysing why In n Out is able to pay the highest wages in the fast food industry and compare its compensation strategy to that of McDonald’s. In-N-Out Burger was established in 1948 by Harry and Esther Snyder. Their goal was to serve “freshest burgers, fries and drinks in a friendly sparking clean atmosphere.” It has been decades since they opened their first location and despite the world around them changing, In-N-Out has managed to stick their core values which is what they have grown to be known for. Today we can always rely on In-N-Out to be “fresh, made to order and with the highest quality ingredients.” In-N-Outs’ differentiation strategy is what makes them successful in their respective marketplace. They set themselves apart by providing fresh food in a friendly atmosphere. At a time when fast food chains expanded their menus to cater to a wider market, In-N-Out Burger kept a lean menu offering only a few items consisting of a few variations of their burgers, fries, soft drinks, and shakes. Competitors such as McDonald’s and Burger King offered the same menu items in addition to wide variety of other items. The lack of a vast menu and focus on a few great tasting items was rare but proved to be effective. Their secret menu of consisting of variations of their advertised menu items built a cult following as well. Animal style fries, 4x4 burgers, and Neapolitan shakes are some of the secret menu items just to name a few Aside from the fresh food, the experience of eating at In-N-Out is significantly different from McDonald’s. Though both claim to make customer service their main priority, the friendly atmosphere at In-N-Out far surpasses most if not all fast food chains. Workers appear

to always be in a cheerful mood while preparing food. The cashiers are always friendly. The overall experience is pleasant for the most part even though lines and wait times can be longer than McDonald’s. McDonald’s business strategy is providing food at the cheapest prices as quickly as possible. In addition to being a cost leader, McDonald’s appears to have integrated a differentiation strategy as well offering menu items such as McCafe products to differentiate themselves in the marketplace. In-N-Out Burgers compensation strategy is in line with their business strategy. They compensate their employees far above market. This strategy ties into the experience you receive going to In-N-Out. By compensating their employees above market, employees are willing to work hard at the strategic objective of creating a “friendly” atmosphere. Vice President of In-N-Out Carl Van Fleet points out that treating associates leads to less turnover. By reducing turnover employees are able to “mastering their positions.” This directly impacts the quality of the job being done by associates and their morale, thus leading to an atmosphere of workers that are happy to be there. They also perform their job well since they feel they are being properly compensated. Pay increases are available as they gain more knowledge and experience. This makes workers eager to learn and perform well if they feel they can move up in the company. In N Out’s compensation is internally aligned with company goals. In N Out promotes employees after becoming efficient in their current job functions. As employees are promoted, their pay is increased. Each an employee moves up in job level, the level of responsibility in executing job functions that are tied to their business strategy, which ultimately is providing fresh, high quality food. For instance, if you evaluate the job levels, it is apparent that as each employee moves up, so does the responsibility of preparing food. The highest level before supervision and management duties are introduced is the cook, which sends a message to

employees that the food is the most important facet of the company. Associates do not start preparing food until Level 3 and this involves only fries. Cooks are the highest position before moving on to supervisor and management duties. In N Out implements a job based system paying employees for the job duties performed. In N Out is a hierarchal organization that encourages employees to obtain new skills through training and move up within the company. The potential to make a significant amount of income and build a career is clearly communicated by their compensation strategy. In terms of external competitiveness. In-N-Out pays above market level for all jobs. They also pay exceptionally high for District Manager’s compared to the market. This sends a message to potential workers pursuing employment in the fast food industry that they value their workers. In return, they have a workforce that is more willing to contribute to the friendly atmosphere they want to create at their food establishments. In reviewing McDonald’s compensation strategy, lower level employees are paid less. Food preparation is streamlined and simple to follow. This allows them to be a cost leader by paying less for labor. Pay is higher for managers to implement time saving processes and ensure worker efficiency is maximized. Managers play a vital role in ensuring workers are efficient in deliver food quickly. Lower level employees appear to be disposable. There is also no quality measurement on executing processes and food prep procedures. Managing the training and performance of their employees is most important which is why managers are compensated more. One important note to point out is that McDonald’s has a 65% - 95% turnover rate. In the Mcdonald's performance management system the employees receive a performance review based on competencies defines as important for their roles. This review occurs twice a year and is an opportunity to have their performance measured, set objectives and discuss the training and development needs of the employee. The organization’s pay and

rewards program follows a “pay for performance” philosophy; the better your results, the greater pay opportunities. For In-N-Outs’ performance management system, they like to keep things simple and streamlined which causes fewer mistakes. In-N-Out provides a team oriented atmosphere through setting goals and communication. Flexible objectives are given to the employees to follow so they can easily adjust whenever there is a change in the program objectives and work requirements. Top priorities consist on customer experience which includes image, cleanliness and courtesy. When it comes to emphasizing these performance based pays, Mcdonald's does quite a few things. First they offer incentive pay, which provides employees the opportunity to earn competitive total compensation when performance meets and exceeds goals. They also have long term incentives which are granted to eligible employees to both reward and retain key employees who have shown sustained performance and can impact long-term value creation at McDonald’s. Recognition programs are designed to reward and recognize strong performers which gives employees a boost in morale and gives them more motivation to continue to strive at what they are doing.

For In-N-Out there is actually very little emphasis on performance based pay. They implement a job-based system paying employees for the job duties performed and they use levels 1-8 which are the steps they have to take to becoming a manager. The higher the level they reach, the higher the pay.

When asked whether or not these performance management and performance based pay make sense given their strategy and other compensation policies we believe yes and no for both. At McDonald's, the focus on employee’s performance improve efficiency to lower cost is a fit for them. Although the long term incentives is a misfit because it results in a higher

turnover cost. McDonald’s wants its employees to perform the basic requirements to keep the organization running which makes their review process a fit for the company. As for In-N-Out, there team oriented style allows them to maintain a good company culture that will keep their reputation. They want to differentiate themselves from typical fast food restaurant reputations but by using levels of promotion is a possible misfit because employees may not want to work as a team because they are more focused on trying to rank higher for themselves.

REFERENCES In-N-Out Burger Salaries. (n.d.). Retrieved November 27, 2017, from https://www.glassdoor.com/Salary/In-N-Out-Burger-Salaries-E14276.htm1 In-N-Out Burger Inc. (n.d.). Retrieved November 27, 2017, from http://www.payscale.com/research/US/Employer=In-N-Out_Burger_Inc./Hourly_Rate

In-N-Out: A Fast Food Cult. (n.d.). Retrieved November 27, 2017, from https://rctom.hbs.org/submission/in-n-out-a-fast-food-cult/ Compensation Management at Mcdonald. (n.d.). Retrieved November 27, 2017, from https://www.scribd.com/doc/49241499/Compensation-Management-at-Mcdonald In-N-Out Burger carves niche in the fast-food market. (2003, July 26). Retrieved November 27, 2017, from https://www.qsrweb.com/news/in-n-out-burger-carves-niche-in-the-fast-food-market/ Gregory, L. (2017, February 05). McDonald's Generic Strategy & Intensive Growth Strategies. Retrieved November 27, 2017, from http://panmore.com/mcdonalds-generic-strategy-intensivegrowth-strategies Associate Development. (n.d.). Retrieved November 27, 2017, from http://www.in-nout.com/employment/restaurant/Associate_Development.aspx What makes McDonald’s? (n.d.). Retrieved November 27, 2017, from http://www.mcdonalds.co.uk/ukhome/whatmakesmcdonalds/questions/running-thebusiness/employees/i-would-like-to-know-about-the-performance-management-system-andperformance-appraisal-of-mcdonalds.html Your Health and Protection. (n.d.). Retrieved November 27, 2017, from http://www.whatishumanresource.com/mcdonalds-benefits-for-staff

(http://panmore.com/mcdonalds-generic-strategy-intensive-growth-strategies)

Thesis Statement In n Out’s success can be attributed to emphasizing external competitiveness by paying above the market for all levels of employment, and placing emphasis on base salaries for district managers. Chick-fil-A, on the other hand, has a more egalitarian pay structure and focuses more on pay for performance. Even though, both companies have similar business backgrounds, being family owned, their pay models differentiate. As a group we plan on further analysing why In n Out is able to pay the highest wages in the fast food industry and compare its compensation strategy to that of Chick-fil-a. In-N-Out Job Title

Mc Donalds Wage/ Salary

Job Title

Wage/ Salary

Crew Member

$11.75 /hr

Crew Member

$8.56 / hr

Cook

$13.86 /hr

Cook

$8.25 /hr

Shift Leader (level 6 -highest level)

$14.47 /hr

Shift Leader

$10.43 /hr

Assistant Manager

$48,054 /yr

Assistant Manager

$32,000 /yr

Store Manager

$84,927 /yr

Store Manager

$45,000 /yr

District Manager

$151,000 /yr

District Manager (Director of

$68,000 /yr

Management)

References https://www.glassdoor.com/Salary/In-N-Out-Burger-Salaries-E14276.htm

http://www.payscale.com/research/US/Employer=In-N-Out_Burger_Inc./Hourly_Rate

http://www.in-n-out.com/employment/restaurant.aspx

https://www.kcet.org/food/why-does-in-n-out-pay-so-well

Random Notes http://www.in-n-out.com/employment/restaurant/Associate_Development.aspx

In n Out: http://www.squadle.com/blog/in-and-out-best-place-to-work http://www.businessinsider.com/in-and-out-employee-pay-2013-2

https://blog.entelo.com/what-in-n-out-can-teach-recruiters-about-teams-built-to-last https://www.qsrweb.com/news/in-n-out-burger-carves-niche-in-the-fast-food-market/ http://abovethelaw.com/2016/12/being-an-in-n-out-manager-might-be-better-than-being-alawyer-if-you-can-get-the-job/ http://www.ocregister.com/2006/03/31/behind-the-scenes-at-in-n-out/ http://www.beckersasc.com/asc-turnarounds-ideas-to-improve-performance/six-ways-in-n-outburger-is-excelling-in-business-and-five-applications-for-healthcare-today.html

Associate Levels of Development Level 1 (Entry Level) ● ● ● Level 2 ● ● ● Level 3

Backroom Counter Handout Clean-Up/Janitorial* Counter/Walk-Up Orders Drive-Thru Window Dining Room Service

● French Fries or Speaker/Drive-Thru Orders Level 4 ● French Fries and Speaker/Drive-Thru Orders Level 5 ● Salad Table Level 6 ●

Cook (must have passed all previous levels)

Thesis Statement In-n-Out's compensation strategy focuses on culture. This becomes apparent when evaluating employee compensation against competitors, specifically Chic fil A TO DO Double check and list sources Find 5 job titles for each company Feel free to edit or change thesis statement Next meeting Start on Case Study 1

Case Study Questions Case Study 1: Case Study Background and Compensation Strategy 1. A brief introduction to the organization In-N-Out Burger is an American regional chain of fast food restaurants with locations primarily in the American Southwest and Pacific coast. It was founded in Baldwin Park, California in 1948 by Harry Snyder and his wife Esther Snyder. The chain is currently headquartered in Irvine, California and has slowly expanded outside Southern California into the rest of California, as well as into Arizona, Nevada, Utah, Texas, and Oregon. In-N-Out Burger has resisted franchising its operations or going public; one reason is the prospect of quality or customer consistency being compromised by excessively rapid business growth. The company's business

practices have been noted for employee-centered personnel policies. The In-N-Out restaurant chain has developed a highly loyal customer base, and has been rated as one of the top fast food restaurants in several customer satisfaction surveys. McDonald's is an American hamburger and fast food restaurant chain. It was founded in 1940 as a barbecue restaurant operated by Richard and Maurice McDonald, in San Bernardino, California. Today, McDonald's is one of the world's largest restaurant chains, serving approximately 69 million customers daily in over 100 countries across approximately 36,900 outlets as of 2016. A McDonald's restaurant is operated by either a franchisee, an affiliate, or the corporation itself. The McDonald's Corporation revenues come from the rent, royalties, and fees paid by the franchisees, as well as sales in company-operated restaurants. According to a BBC report published in 2012, McDonald's is the world's second largest private employer (behind Walmart with 1.9 million employees), 1.5 million of whom work for franchises. 2.

What is the organization’s business strategy? In-n-Out: Quality & Customer service McDonald’s: Low Cost & Fast service https://www.qsrweb.com/news/in-n-out-burger-carves-niche-in-the-fast-food-market/ a.

On what basis does the organization compete in the marketplace? In-N-Out: This organization competes in the marketplace through broad differentiation. McDonald's: This organization competes in the marketplace through cost leadership

McDonald’s primary generic strategy is cost leadership. In Porter’s model, this generic strategy involves minimizing costs to offer products at low prices. As a low-cost provider, McDonald’s offers products that are relatively cheaper compared to competitors like Arby’s. However, the company also uses broad differentiation as a secondary or supporting generic strategy. This secondary generic strategy involves developing the business and its products to make them distinct from competitors. For example, through McCafé products, McDonald’s applies the broad differentiation generic strategy. Vertical integration is a strategic objective linked to McDonald’s cost-leadership generic strategy. For example, McDonald’s owns facilities that produce standardized mixtures of ingredients. Also, cost minimization is a financial strategic objective based on the cost leadership generic strategy. In addition, product innovation is related to McDonald’s broad differentiation generic strategy. http://panmore.com/mcdonalds-generic-strategy-intensive-growth-strategies 3. What is the organization’s compensation strategy and does this fit well with its business strategy? Compare and contrast the two companies in terms of their effectiveness in linking business and compensation strategies. (This is the main question for this case). (the four square principle) a. b.

Explain in some detail why there is a good (or bad) fit here. How do the organizations’ strategies compare to one another?

Case Study 2: Internal Alignment and External Competitiveness

1. What is each organization’s position on internal alignment vs. external competitiveness? a. Does the organization emphasize one over the other? McDonald's: Internal Alignment: Lower rank employees are paid as low as $17,805 per year which in comparison to district managers, the highest position on our job comparisons, earning a salary of $68,000 per year. This is over a $50,000 annual pay difference. This is a 116.99% percentage difference in pay. According to their compensation executive summary article, Mcdonald’s seek to align metrics under their pay package with their main objective- long-term sustainable growth. Operating income is therefore a key focus for the company. External Competitiveness: Based on the high percentage difference between wages of the low and high level employees it is evident McDonald’s main focus is on their External Competitiveness. According to Mcdonald’s their executive compensation program supports their long-term business plan, the Plan to Win. The key objectives of their executive compensation program is to motivate their executives to increase profitability and shareholder returns, to pay compensation that varies based on performance and to compete for and retain managerial talent. In n Out: Internal alignment: store managers are paid exceptionally higher External competitiveness: pay above market for all job

● ●

Entry-level slicers and dicers start at $9 an hour. Store managers make about $100,000 to $150,000 a year, and average 14 years’ experience. In-N-Out also offers first-class trips to Hawaii and Europe for managers who meet yearly goals, a bonus program inspired by Esther Snyder, who loves to travel, said vice president of planning Carl Van Fleet. By comparison, the typical fast-food manager with 10 or more years of experience earns $72,000 a year, including bonuses, according to PayScale. b. Is this a flat or hierarchical organization i.Is it a job or person based system? In-n-Out: Job based system Mcdonalds: Job based system ii.What do pay levels and differentials look like at each company? Is their approach to pay levels and differentials effective? Why or why not? In N Out’s compensation is internally aligned with company goals. In N Out promotes employees after becoming efficient in their current job functions. As employees are promoted, their pay is increased. ○ Each an employee moves up in job level, the level of responsibility in executing job functions that are tied to their business strategy, which ultimately is providing fresh, high quality food. For instance, if you evaluate the job levels, it is apparent that as each employee moves up, so does the responsibility of preparing ...