With more than 400,000 managers and senior staff members in 118 countries around the world, the leadership at McDonald’s knew that developing a consistent global compensation strategy was imperative.
For big companies worldwide, finding the perfect balance between global consistency and cultural adaptability has become the Holy Grail for creating a rewards program. The issue has come to a head recently as many companies, after expanding globally over the past several years, are finding themselves with decentralized and inconsistent compensation programs.
In 2003, McDonald’s was one of these employers. Responding to declining market share, the company brought former CEO Jim Cantalupo out of retirement to run the business. He announced a new revitalization program, Plan to Win, which would focus on people development. (Cantalupo died in 2004.)
It was clear that to attract and retain better people, the company had to have a consistent strategy, says Rich Floersch, executive vice president of worldwide human resources, who was brought on in 2003 to help oversee the initiative. But even though it didn’t have any standards in place for aligning pay for performance, the company didn’t want to lose the entrepreneurial spirit that had been a McDonald’s trademark, Floersch says.
The company’s corporate team didn’t just create a new compensation program and then tell its international managers about it, says Lisa Emerson, vice president of corporate compensation. Realizing the importance of having all of its global managers buy into the program, she says that McDonald’s made sure it developed a collaborative approach.
After months of conference calls, in 2004 McDonald’s began launching its new global compensation program. With the system, the corporate headquarters provides each country manager with a menu of business principles to focus on as part of the Plan to Win program. These principles include areas like customer service, marketing or restaurant re-imaging.
Each country manager then picks three to five areas they need to focus on for the success of their local market. For example, if France is introducing a new menu item, it might create business targets around that for the year. Human resources managers in various countries submit their business cases and targets in the second half of the year to senior executives for approval. At the end of the year, the country’s annual incentive pool is based on how the region met its targets as well as on the business unit’s operating income. A portion of individual employees’ annual bonuses is based on that mix, Emerson says. But the program is still a work in progress, and McDonald’s continues to improve it.
The other portion of employees’ annual incentives is based on individual performance. McDonald’s has always had a performance rating system, but last year the company introduced global guidelines that suggest that 20 percent of employees receive the highest ratings, with 70 percent in the middle and 10 percent at the bottom. By providing guidelines rather than forced rankings, McDonald’s hopes to encourage differentiation of performance while allowing for some flexibility for local nuances, Emerson says.
By providing principals and guidance, yet allowing local managers to customize their compensation programs to meet their markets’ demands, McDonald’s has begun seeing a decrease in turnover, Emerson says, though the company won’t provide specific numbers. The global chain also has seen a 5 percent increase in the number of employees who say they believe they are paid fairly and understand their compensation and how it contributes to company goals.
Workforce Management, April 10, 2006, p. 26 -- Subscribe Now!
