Everyone's going nuts about a Huffington Post story that McDonald's could double wages for all of its employees, including its very well-paid CEO, and pay for this increase by raising the price of a Big Mac by only 68 cents.
Those who would like McDonald's to pay its employees enough to live on love this idea.
And what's not to love?
Finally, McDonald's full-time restaurant employees would not have to suffer the ignominy and hardship of being poor in addition to having to work at McDonald's. Finally, McDonald's restaurants would be staffed by folks who felt proud and lucky to work there. Finally, America's "McJobs" problem, in which middle-class manufacturing jobs are being replaced by low-paying retail service jobs, would be getting addressed at the source. And, finally, America's strapped consumers, some of whom are McDonald's employees, would have more money to spend — and that money might accelerate revenue growth for not just McDonald's (employees eat there, too), but many other companies.
Those who have bought into the "profit maximization" obsession that has taken over American business culture over the past 30 years, however, hate this idea.
McDonald's shouldn't pay its employees a penny more than it absolutely has to, these folks say. It's not McDonald's fault that those employees have no skills and aren't worth more than $7.25 an hour. McDonald's should pay those people as little as possible and deliver as much profit as possible to its shareholders. The only purpose of a company, after all, is to make money for its shareholders. And McDonald's should absolutely not raise the price of its Big Macs by so much as a penny, because then it would sell fewer of them!
Those are the two schools of thought on the McDonald's-doubling-wages talk.
But there is another possibility here — one that, in this profit-obsessed country, no one is even considering.
That possibility is that McDonald's could double its restaurant-worker wages and not increase its prices at all ... but instead just make a little less money. In other words, it could better balance the interests of all three of its stakeholders — shareholders, customers, and employees — instead of shafting employees to deliver as much profit as possible to shareholders.
According to the Kansas City researcher who did the original wages-to-Big Mac study, McDonald's spends about 17% of U.S. revenue on employee salaries and benefits.
If that ratio holds true worldwide, McDonald's would have spent about $4.7 billion on salaries and benefits last year, on revenue of $27 billion. Meanwhile, the company made about $8.5 billion of operating income. (This is for the corporate parent, not the franchises.).
If McDonald's doubled the wages of its restaurant employees (not management, which is presumably very well-compensated), it might add, say, another $3 billion of annual expenses. This would knock its operating profit down to a still healthy $5.5 billion.
Importantly, however, $5.5 billion is still a lot of money. McDonald's would still be very profitable.
Big Macs would still cost the same as they do today (billions and billions would still be served!)
McDonald's managers would still take home their impressive salaries.
And McDonald's restaurant employees would, finally, rise above the poverty line. And their extra spending money would quickly be spent on other products and services, thus helping the whole economy.
By paying these higher wages, McDonald's would also be able to hire the best restaurant workers in the whole economy, thus presumably improving the McDonald's experience for customers and reducing turnover and retraining costs.
So, how about it McDonald's? How about doubling your restaurant employees' wages and just making less money? Your employees will be in great shape. And your shareholders will still do just fine.
UPDATE: Ryan Chittum at CJR dug into McDonald's numbers and estimates that employee costs are about 24% of revenue, not 17%. So if the company doubled wages, its operating income would likely drop a bit more than I ballparked above.
