Last April 1, in what some people thought was an April Fools’ Day joke, McDonald’s Corp. announced that it was raising wages and improving benefits for workers at its 1,500 company-owned restaurants in the United States. The idea was to reduce employee turnover and improve service.
No joke. It worked.
“It has done what we expected it to do – 90-day turnover rates are down, our (customer) survey scores are up, we have more staff in restaurants,” Mike Andres, head of U.S. operations for McDonald’s, told a UBS bank conference on Wednesday. “So far we’re pleased with it. It was a significant investment, obviously, but it’s working well.”
Results of the McDonald’s experiment, along with similar results from a pay raise at Wal-Mart stores, may shock those who claim that increasing the pay of low-wage workers would raise prices to the point of driving away customers. In fact, better service and cleaner stores actually improve the customer experience. It might cost a little more in the short run, but in the long run, it’s good for business.
Before last April, McDonald’s sales had been in a flat stall for nearly two years. In the first quarter of 2015, profits were off $400 million, matching the drop for all of 2014. The shine had come off the Golden Arches.
In March, Steve Easterbrook, the company’s new chief executive, began taking drastic measures. He closed 350 restaurants, simplified the menu, announced that the company would begin serving breakfast items all day and refocused customer service.
Key to that was reducing employee turnover, which had been as high as 130 percent a year. Easterbrook decided to try something drastic: Pay and treat people better.
Easterbrook announced that McDonald’s would pay at least $1 more than the local minimum wage. In restaurants under corporate control, as opposed to franchised operations, the minimum hit $9.90 an hour in mid-2015 and will exceed $10 this year.
That’s far from the $15 an hour that organizers for fast-food workers have demanded, but it’s a step in the right direction.