McDonald's raises wages to battle worker shortage... but there's a catch

(AP Photo/Gene J. Puskar, File)

McDonald’s has taken the leap and is increasing wages to retain workers and encourage others to join the ranks of its employees. The wage increase was announced but the lede was buried. There is a catch. The rise in wages only pertains to company-owned restaurants, not franchises.

This is an important distinction. Only a small fraction of restaurants are company-owned. Most McDonald’s are franchise operations. Just 5% of the 13,900 McDonald’s restaurants in the United States are company-owned. So, 95% of McDonald’s employees will only see pay raises if the franchise owner makes a decision to do so. Look for higher prices on menu items to counter higher wages.

The burger giant said Thursday it would increase wages for more than 36,500 hourly workers by an average of 10% over the next several months. Nonmanagerial workers at the chain’s roughly 660 company-owned restaurants in the U.S. would earn at least $11 to $17 an hour at entry levels after the increases, McDonald’s said. Supervisors would earn an hourly minimum of $15 to $20. Nonmanagerial employees at company-owned stores earlier this year earned an average of nearly $12 an hour, McDonald’s said, and supervisors earned some $16 to $18 an hour.

McDonald’s owns a fraction of its 13,900 U.S. restaurants, around 95% of which are operated by franchisees. Owners have said they are reviewing pay and benefits at their stores. The National Owners Association, a group representing U.S. franchisees, said in an email to its members on Sunday that strong sales should allow operators to raise menu prices if they choose to compensate for higher spending on pay and benefits.

“We need to do whatever it takes to staff our restaurants and then charge for it,” the association said.

McDonald’s is trying to remain competitive in the labor market, And, the company-owned restaurants are trying to keep up with worker demands of a minimum wage of $15 per hour. More inside dining is opening up across the country so McDonald’s wants to hire 10,000 employees in the next three months. The company expects its average wage at company-owned restaurants to be $15 per hour by 2024.

What’s a McDonald’s employee working during a labor shortage to do? Strike for higher wages, apparently. McDonald’s cashiers and cooks are planning a strike on May 19 in 15 cities. That is the day before the annual shareholder meeting.

Striking workers around the country, who are part of the Fight For $15 movement, say McDonald’s has an easy solution to this labor shortage: it can simply raise its minimum wage to $15 an hour at all of their stores. The company’s sales are booming, thanks to demand for faster drive-thru orders. McDonald’s recently announced that it earned $5 billion in profits in 2020, and paid shareholders nearly $4 billion in dividends.

“We know McDonald’s is gathering for its shareholders meeting to discuss what straws we use, what bags we use, how much we get paid,” Terrence Wise, a McDonald’s department manager in Kansas City, Missouri, who has worked in the fast food industry for 22 years told Motherboard.

“The one thing that’s missing is our voice” he continued. “We made them that $5 billion in profit last year. There wouldn’t be shares to divide if we weren’t making burgers and McFlurries. Our message to shareholders on May 19 is you don’t have to wait on legislation. You can pay us $15 an hour now, that should be the floor.”

Strikes by McDonald’s workers aren’t anything new – they have been striking for $15 per hour since 2012. The cities involved this year include Los Angeles, Oakland, Sacramento, Miami, Tampa, Orlando, Chicago, Detroit, Flint, Kansas City, St Louis, Houston, and Milwaukee.

McDonald’s has released statements.

“Our first responsibility is to hardworking restaurant crew, and we respect and appreciate their dedication to serve millions of customers daily,” a statement from McDonald’s USA said. “It’s the responsibility of federal and local government to set minimum wage, and we’re open to dialogue so that any changes meet the needs of thousands of hardworking restaurant employees and the 2,000 McDonald’s independent owner/operators who run small businesses.”

In late April, on an earnings call, McDonald’s CEO Chris Kempczinski and president Joseph Erlinger suggested that a McDonald’s wage increase could be coming soon, in response to a question about labor shortages.

“I think one of the things that we are thinking about…is in our company-owned restaurants, how do we think about what the pay and benefits package need to look like for us to make sure that we’re able to get the people that we need,” Kempczinski said.

“We’re working through what some changes in our company-owned restaurants might look like from a wages and compensation perspective,” Erlinger added.

Other restaurants have announced wage hikes as customers return and more workers are needed to keep up with demand.

McDonald’s isn’t the only company that has announced wage increases this year amid a sudden uptick in demand for restaurant workers. Chipotle announced Monday that it would raise its minimum wage to an average of $15 per hour. Darden Restaurants, which owns Olive Garden, The Capital Grille and Longhorn Steakhouse, announced in March that it would increase wages to at least $10 per hour for about 20% of its workers—but that includes tips. The national minimum wage is $7.25 per hour, although 29 states and the District of Columbia have a higher minimum. The national minimum wage for tipped workers is just $2.13, but is also higher in many states.

Amazon, Costco, and Walmart have all increased wages in response to worker shortages. Amazon, for example, will pay new hires $17 an hour and plans to hire 75,000 new workers. It is also offering $100 bonuses to new hires who are vaccinated.