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MCD McDonalds Corp

282.3605
0.3405 (0.12%)
After Hours
Last Updated: 23:15:24
Delayed by 15 minutes
Share Name Share Symbol Market Type
McDonalds Corp NYSE:MCD NYSE Common Stock
  Price Change % Change Share Price High Price Low Price Open Price Shares Traded Last Trade
  0.3405 0.12% 282.3605 283.3799 281.2525 282.19 3,538,085 23:15:24

McDonald's to Raise Hourly Pay for 90,000 Workers -- 3rd Update

02/04/2015 12:51am

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McDonalds (NYSE:MCD)
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By Annie Gasparro And Eric Morath 

McDonald's Corp. plans to raise wages by more than 10% for workers at U.S. restaurants it operates--fresh evidence of the rising wage pressure in the American labor market.

Starting July 1, McDonald's will pay at least $1 an hour more than the local minimum wage for employees at the roughly 1,500 restaurants it owns in the U.S.

The move follows similar efforts by other major U.S. employers including Wal-Mart Stores Inc., which is raising hourly pay for 500,000 workers to at least $10 next year, and reflects wider public pressures over income inequality as well as intensifying competition for low-skilled workers.

The increase doesn't apply to employees of franchisees, which operate nearly 90% of the 14,350 U.S. McDonald's stores--a fact critics seized on. But it applies to some 90,000 workers at all levels of experience and rank at company-owned restaurants and it will lift the average hourly rate to $9.90 on July 1 and more than $10 by the end of 2016, from $9.01 currently.

McDonald's Chief Executive Steve Easterbrook, who took over on March 1, said the policy is a response to employee surveys and is central to his plans to revive sales after more than two years of declines.

"Motivated teams deliver better customer service," he said in an interview, "and delivering better customer service in our restaurants is clearly going to be a vital part of our turnaround."

Labor groups have grown increasingly vocal in their criticism of wages and conditions at McDonald's and other fast-food chains, but the company said recent protests weren't a factor in its decision.

Average hourly earnings for nonmanager employees at limited-service restaurants like McDonald's rose to $9.54 an hour in January, up 3.5% from a year earlier, according to Labor Department data, well above the 2.2% pace for all private-sector workers.

Historically, stronger pay increases are somewhat unusual at this stage in the business cycle for lower-skilled workers, who typically are the last to see better wage gains.

The increases could reflect some payback after several years of wages barely keeping pace with inflation, or could indicate that skilled-workers who resorted to restaurant jobs in the economic downturn are now seeking better-paying work.

Better pay among lower-skilled workers has the potential to "bubble up" through the economy, said Patrick O'Keefe, an economist at CohnReznick LLP. Raising the starting wage will likely boost wages of others within a given company. Also, more money in workers' pockets should provide a boost to consumer spending and aid overall economic expansion.

"The underlying motivation is a response to market conditions," said Mr. O'Keefe, a former Labor Department official. "The firms that have announced very publicly that they're raising their entry wage are signaling that to attract the quality of labor they're looking for, they have to be more competitive."

McDonald's said the move is its first unilateral, across-the-board pay increase for restaurant workers. Some other restaurant chains have said they are paying more, but haven't provided details. Starbucks Corp., long a champion of health care and other benefits for hourly workers, increased pay for baristas in January, but didn't say by how much.

The federal minimum wage of $7.25 an hour hasn't increased since 2009, although 29 states have set minimums above the federal level, as have cities such as San Francisco, which requires pay of at least $11.05 an hour. Efforts in Congress to increase the pay floor stalled last year. But a growing number of large employers raising wages could set a "de facto" minimum wage that is higher than the federal floor, said University of Michigan economist Donald Grimes.

McDonald's announcement didn't satisfy its strongest critics, who have been calling for much larger increases and demanding the company take responsibility for pay and other policies at its franchisees. "They say they're raising wages, but this is nothing near a living wage--it's just smoke and mirrors," said Bleu Rainer, a 26-year-old who said he works at a franchise-run store in Tampa, Fla.

Fast Food Forward, a group backed by the Service Employees International Union, has helped organize nationwide protests at McDonald's and other chains demanding a $15 hourly minimum and the right to form a union without employer backlash. The next round of protests is scheduled for April 15, according to organizers. "They think this will make us back down, but they're wrong," Mr. Rainer said.

In addition to the wage increase, McDonald's said it will enable workers after a year of employment to accrue up to five days of paid time-off annually.

The company also plans to make subsidies for some education costs available to all 750,000 U.S. workers, including at franchisees.

Even though it doesn't apply to franchised restaurants, the pay raise also could upset franchisees, many of whom feel pressure to match McDonald's in order to remain competitive, said franchisee consultant Richard Adams of Franchise Equity Group. That would mean "the franchisee will have to raise prices, which may or may not cover the increased labor costs," he said.

McDonald's sets many requirements for franchisees, but not worker wages. It is currently fighting complaints by the National Labor Relations Board's general counsel that claim McDonald's has sufficient control over franchisees' operations to make it a joint employer responsible for the rights of franchise employees.

Mr. Easterbrook said the franchisees are "experts...at setting the right pay levels in their local markets." Asked if McDonald's would consider requiring them to enhance pay or benefits in future contracts, he said "absolutely not."

A 47-year-old U.K. native, Mr. Easterbrook has vowed bold changes to transform the Golden Arches into what he calls a "modern, progressive burger chain." Net income last year fell 15% to $4.76 billion, while revenue fell 2% to $27.4 billion, amid growing competition and discontent from some customers over McDonald's food and service.

In addition to the pay increases and time off, McDonald's is instituting a program to allow all U.S. workers--even those at franchised restaurants--to get their high-school diploma free through an online program, which could otherwise cost anywhere from $200 to $1,500, depending on the program. McDonald's is also going to start providing eligible workers at both company-owned and franchised restaurants $700 in tuition assistance for college credits obtained through McDonald's training courses.

In the interview, his first since becoming CEO, Mr. Easterbrook promised more changes. "Don't be surprised to be surprised," he said. "I'm comfortable making the big decisions that are required to get the turnaround going."

Days after Mr. Easterbook took the helm last month, McDonald's announced plans to curtail antibiotic use in its chicken in the U.S., an effort to address growing public-health concern around drug-resistant bacteria. The company next month will start testing sales of its breakfast items throughout the day--something customers have long clamored for but the company has resisted because of logistical limitations in its kitchens.

The broader impact of U.S. wage increases might not be all positive. A Congressional Budget Office report last year found that raising the federal minimum wage to $10.10 an hour would eliminate about 500,000 jobs nationwide, even as it would be expected to increase pay for 16.5 million workers.

Mr. Grimes, the University of Michigan economist, said recent pay increases at big companies could be driven by more by political pressure or fear of unionization than the labor market, and that the moves could cause employers to replace workers with machines, such as self-checkout registers, or pressure managers to limit the number of hours employees work each week.

Write to Annie Gasparro at annie.gasparro@wsj.com and Eric Morath at eric.morath@wsj.com

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