QSR

McD takes HR strides to cement worker loyalty

Pools insurance with Sears, GE, IBM to bolster recruiting

By Amy Garber

OAK BROOK, Ill. (March 7) - McDonald's Corp., boosted by sweeping brand revitalization efforts that have elevated its image with consumers, now is working to obliterate being stereotyped as a purveyor of dead-end jobs by implementing a host of human-resources upgrades for its 400,000 employees worldwide.

The world's largest restaurant company — and the reputed second-largest corporate employer behind Wal-Mart — has enhanced its medical insurance offerings and encouraged a greater number of workers to invest in retirement funds through automatic enrollment in McDonald's 401(k) plan.

The company also is more carefully screening potential new hires with an online questionnaire to tap those most adept at teamwork and customer interaction.

"In some cases [medical insurance] can be the No. 1 thing people look at when evaluating companies. . . . We want to be a point of differentiation." — Richard Floersch, executive vice president of Human resources Mcdonald's Corp.

Meanwhile, McDonald's, which already offers medical coverage to its part-time and full-time workforce, is not waiting for Congress to pass legislation that would allow restaurants to purchase lower-cost health insurance as a group through associations, such as the National Restaurant Association. Instead, the fast-food giant recently teamed up with 60 other major corporations, including Sears Roebuck, General Electric and IBM, to buy group medical coverage, which has become an important recruiting tool.

"More people today than ever before are looking at health care as one of the things that they evaluate" in a potential employer, said Richard Floersch, who joined McDonald's in November 2003 as executive vice president of human resources. Previously, he held the top HR job at Kraft Foods International, which he joined in 1998 as senior vice president of human resources.

"In some cases [medical insurance] can be the No. 1 thing people look at when evaluating companies," he said. "If this is one of the top things people look at, we want to be a point of differentiation."

At least for now McDonald's will maintain its current medical insurance for its staff, but the company is considering ways to use the new group plan — called "Affordable Healthcare Solutions" — such as offering it to its retirees. Although McDonald's and other employers in the group won't subsidize the coverage, the goal is to offer lower insurance rates than some uninsured individuals, like retirees, might pay on their own.

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McDonald's was one of several major foodservice corporations that spent $12 million last year to defeat California's Proposition 72, which would have required employers of 50 or more to pay at least 80 percent of health insurance premiums for all employees working 25 or more hours a week. Still, McDonald's medical plan for current employees pays 80 percent of the premiums on insurance for its managers as well as its hourly staff, which accounts for 90 percent of its workforce.

However, the company owns only 9,212 of the chain's more than 31,500 namesake burger units. The majority of McDonald's restaurants are operated by franchisees, who set their own policies when it comes to employee benefits. Floersch estimated that 30 percent to 40 percent of the chain's operators buy into McDonald's corporate umbrella health care plan for hourly workers, and 75 percent of franchisees are part of a co-op that provides management medical coverage.

One franchisee who offers her employees health care coverage under McDonald's plan is Johanne Luth of Bay C.C., a seven-unit operator based in Essexville, Mich. Luth also strives to make sure all of her benefits and compensation programs are competitive.

"We look at all our programs every single year" to evaluate how they can be enhanced, said Luth, who has worked closely with corporate leaders on people-related topics as an officer with the National Leadership Council, the McDonald's-sponsored franchisee group. Luth explained that this year her company revamped its bonus program with quarterly rather than yearly awards based on feedback with managers and crew. "They told us that waiting a whole year for a bonus wasn't very motivating," she said.

At the same time franchisees are overhauling their programs, McDonald's Corp., which last year generated $19 billion in worldwide revenues, has made a "significant increase" in its spending for recruiting, training and benefits, according to Floersch, who declined to provide numbers. As a result of McDonald's focus on people, which is a major component of a revitalization program called "Plan To Win," turnover has decreased steadily since 2003, he said.

Manager turnover at McDonald's ranged from 10 percent and 20 percent in 2004, he said. In comparison, the average manager turnover rate of the foodservice industry was estimated as 33 percent for last year, according to People Report, a Dallas-based human-resources firm, which said turnover may be on the rise again after appearing to bottom out following three years of steady decline.

McDonald's crew turnover rate in 2004 was 90 percent to 100 percent, down from 150 percent a few years ago, according to Floersch.

The industry's average turnover rate for 2004 was about 111 percent, People Report said. "I wouldn't say there is one single thing that we do," which has led to reduced turnover and improved morale, Floersch said, adding that human resources have benefited from the company's holistic turnaround plan. "It's the reimaging, it's the choices that we're offering, it's the investment we are making in our people, it's the contemporizing of the brand," he said. "There is added pride in the restaurants, and that translates to a higher level of commitment and engagement and lower turnover."

McDonald's is trying to encourage more employees to save for retirement through an enhanced 401(k) program, which is available to hourly workers as well as managers.

"Our 401(k) is one of the best in the industry," Floersch asserted. McDonald's 2005 contribution program contributes $3 for every $1 employees put in their account, up to 1 percent of their pay. The company also will match dollar-for-dollar the next 4 percent of pay contributed by employees, who also are eligible for a discretionary profit-sharing match up to 4 percent depending on the company's performance.

In addition, McDonald's encouraged more workers to contribute to 401(k) funds this year by instituting an automatic enrollment for managers, which requires them to opt out of the program if they don't want to contribute. Previously, the managers had to opt in, or enroll themselves. As a result of the change, manager enrollment in 2005 more than doubled to nearly 90 percent, according to Floersch. At the same time, hourly workers' participation also doubled to more than 20 percent.

Beyond programs aimed at existing employees, McDonald's refined its recruiting process to build "a pipeline of quality candidates," according to Floersch, who reports to McDonald's chief executive, Jim Skinner.

Floersch explained that the company created a manager and crew questionnaire to determine if potential job candidates are interested in working on teams and are comfortable interacting with customers. Once the workers are hired, McDonald's uses an upgraded orientation process to help new employees acclimate, which reduces the number of new hires who leave before completing three months on the job. The 90-day turnover rate for crew was 40 percent to 45 percent in 2004, compared with 50 percent in 2001, he said.

"In a quick-service restaurant 90-day turnover is probably the most disruptive thing you can have," Floersch observed.

According to franchisee Luth, a positive crew orientation helps new employees feel "comfortable and excited" to be a part of the restaurant. She also said nearly 75 percent of U.S. franchisees have launched in their restaurants McDonald's computerized training program, called "eLearning," to give employees more relevant preparation to work in the restaurant.

Floersch, stressing that McDonald's is improving its corporate training and employee development, pointed to the 44-percent increase last year in enrollment at Hamburger University, which is McDonald's training center at its Illinois headquarters for franchisees and general managers.

"The opportunities that exist within McDonald's for employees at every level are terrific," Floersch said.