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Performance & Compansation

Performance & Compansation 

   

MCDONALD’S PAKISTAN

Performance and Compensation Management

Practices: The Analysis Report

Dedicated to

Hazrat Umar Farooq (R.A), one of the most successful public managers and leaders

With great respect

Contents in Brief

·         Acknowledgements

1.0 Introduction

2.0 Company Profile

3.0 Classification of Jobholders at McDonald’s 

4.0 Performance Management at McDonald’s

5.0 Management of Compensation and Benefits at McDonald’s

6.0 SWOT Analysis of Performance and Compensation Practices at McDonald’s

7.0 Conclusions and Recommendations

8.0 Appendices

9.0 References

Contents in Detail

·         Acknowledgements 5

Introduction    6

1.1 Purpose     6

1.2 Scope        6

1.3 Sources and methodology            6

1.4 Definitions                        7

            1.4.1 Abbreviations     7

            1.4.2 Description of technical terms    7

2.0 Company Profile     8

3.0 Classification of Jobholders at McDonald’s    9

4.0 Performance Management Practices at McDonald’s    11

4.1 The Appraisal Process at McDonald’s      11

4.1.1 General Steps in Appraisal Process        11

4.1.2 Clarifying and Communicating Expectations and Consequences           12

4.1.3 Supervisor’s Role           12

4.2 Appraisal Methods and Tools recently being used at McDonald’s          13

4.2.1 Appraisals for Operations Staff  13

4.2.2 Appraisals for General and Administrative Staff             15

4.3 Major Problems in Appraising Employees at McDonald’s           16

4.4 Administrative Issues       17

S

4.5 Legal and Ethical Issues   17

5.0 Management of Compensation and Benefits at McDonald’s    18

5.1 Establishing Pay Rates: The Process at McDonald’s       18

5.2 Traditional bases for Pay at McDonald’s                         18

5.2.1 Status of Seniority Pay Practice 18

5.2.2 Status of Merit Pay Practice       18

5.3 Incentive/Variable Pay Plans        19

5.3.1 Incentive Pay      19

5.3.2 Long Term Incentives     19

5.3.3 Recognition Programs   19

5.3.4 Company Car Program             19

5.3.5 Person-Focused Pay      19

5.4 Organization-wide Incentive Plans           21

5.4.1 Profit Sharing and Savings Plan            21

5.4.2 McSave Fund     21       

5.4.3 MCDirect Shares           21

5.4.4 Credit Union      21

5.4.5 Financial Planning Services      21

5.5 Employee Benefits at McDonald’s           22

5.5.1 Pay for Time not Worked           22

5.5.2 Medical  22

5.5.3 Vision Supplement          22

5.5.4 Dental    22

5.5.5 Spending Accounts         22

5.5.6 Short and long-term disability  23

5.5.7 Employee and Dependent Life Insurance          23

5.5.8 Accidental Death and Dismemberment Insurance         23

5.5.9 Travel and Business Travel Accident Insurance            23

5.5.10 Insurance Benefits        24

6.0 SWOT Analysis of Performance and Compensation Management at McDonald’s

7.0 Conclusions and Recommendations  27

8.0 Bibliography    28

9.0 Appendix    29

ACKNOWLEDGMENTS

 

Praise and glory be to Allah who gave us the opportunity to conduct this comprehensive study. Without His help we were nothing. It is a matter of great honour for us that we got an opportunity to gain and apply the knowledge of Performance and Compensation Management to analyze the related practices McDonald’s Pakistan Division and prepared the respective report. We have tried our level best to put all our efforts in applying our knowledge, understanding and information regarding our topic. This study has been accomplished with the support and encouragement of our amiable teacher Ms. Qudsia Iftikhar.  We are thankful to her for providing us necessary guidance. Our special thanks go to the resource persons at McDonald’s including Mr. Mian Tahir Javed, Country HR Manager, and Miss Shumaila, Recruitment and Selection Officer, who provided us necessary information and responded to our questions and quires in a cooperative way. Finally, we acknowledge our debt to all those participants who, in one way or other, helped us accomplish this project.

We—the team members, are also grateful to one another for intra-group cooperation, collaboration and support.

1. Introduction

McDonald’s, like most successful multinationals, incorporates and put into practice the formal performance and compensation management approaches. These approaches contribute to the efforts to gain competitive advantage at McDonald’s. This report takes into consideration these two important human resource functions with special emphasis on related administrative issues at the studied organization.

1.1 Purpose of the Report

Purpose of this report is to present the findings of our analysis of the performance and compensation management practices as deployed by McDonald’s Pakistan. The report is descriptive in nature and primarily elucidates how the performance and compensation functions are carried out at McDonald’s.

1.2 Scope of the Report

Broadly stating, the report encompasses the company profile, performance management at McDonald’s, its management of compensation and benefits, and SWOT analysis of these practices. The report also includes the conclusive remarks and recommendations followed by appendices and references.

1.3 Sources and Methodologies Used

Following sources of information have been used:

q  Personal communication with Country Manager HR McDonald’s

q  McDonald’s’ webportal

q  Company documents

(See bibliography for details)

Following methodologies have been used:

q  For information gathering:

o   Semi-structured interview

o   Record review and navigation

q  For analysis:

o   Structured analysis 

o   Strengths, Weaknesses, Opportunities, Threats (SWOT)

1.4 Definitions

1.4.1 Abbreviations

Abbreviation	Stands for
PDS	Performance Development System
SWOT	Strength, Weaknesses, Opportunities, Threats
TIP	Target Incentive Plan
MBO	Management by Objectives

1.4.2 Technical Terms

McDonalization: McDonalization is a company specific term, by which the management of McDonald’s means: the process of getting the things tailored to the culture and philosophy of McDonald.

Job Profile: Job profile refers to set of documents containing the job description (account of duties, tasks, and responsibilities), job specification (knowledge, skills, abilities, and experience required to perform that particular job) and work standard sheets.

Competencies Profile: Competencies profile refers to the set of proficiencies and capabilities, which a particular employee possesses. For instance, Mr. A’s competencies profile will include his knowledge, skills, abilities and other such characteristics. Mr. B will be having a different competencies profile.  

2. Company Profile

McDonald’s is one of the leading global food service retailers with more than 30,000 local restaurants serving nearly 50 million people in more than 119 countries each day. Similarly, it is one of the world's most well-known and valuable brands and holds a leading share in the globally branded quick service restaurant segment of the informal eating-out market. The restaurant originally was founded by Mr. Ray Kroc.

2.1 Vision

Vision of McDonald’s is: “to leverage the unique talents, strengths and assets of diversity in order to be the world's best quick service restaurant experience.”

2.2 Mission

The stated mission of the McDonald’s is: “to ensure that our employees, owner operators and suppliers reflect and represent the diverse populations McDonald's serves around the world; [to] harness the multi-faced qualities of our diversity - individual and group differences among our people - as a combined, complementary force to run great restaurants; [to] maximize investments in the quality of community life in the diverse markets we serve; [and] expanding the range of opportunities for all our people - employees, owner operators and suppliers - to freely invest human capital, ideas, energies, expertise and time.”

2.3 McDonald’s Pakistan

McDonald’s Pakistan is part of the Lakson Group of Companies Pakistan. It opened its first McDonald’s Restaurant in Pakistan in 1998 in Lahore. A week after, another restaurant of the series was opened in Karachi. At present, McDonald’s has 18 restaurants in 4 major cities of Pakistan. There are 7 restaurants in Karachi, 1 in Hyderabad, 9 in Lahore and 1 in Faisalabad.

3. Classification of Jobholders (Employees) at McDonald’s

Before giving a detailed account of performance and compensation management practices, we deem it necessary to mention the basis on which employees are categorized at McDonald’s. This categorization or classification directly affects several practices of McDonald’s HR department including performance and compensation. The categorization is as below (Mian Tahir Javed, personal communication, December 2005):

At McDonald’s, there are two types of employees:

1. Operations Staff

Operations staff that consists of the 95% employees of McDonald’s is restaurant-based. This staff is further classified into two groups:

1. Managerial (supervisory) employees: Managerial staff covers four key positions including Restaurant Manager, First Assistant Manager, Second Assistant Manager, and Floor Manager. These employees are mostly full time jobholders.

2. Operational (non-supervisory) employees: This category is also called the staff. The staff includes both full time and part time workers.

2. General and Administrative Staff  

General and Administrative staff is not restaurant-based. These employees administer the staff or support issues of the organization. G & A staff counts for the 5% of McDonald’s workforce.

The chart on next page illustrates the employee categorization at McDonald’s.

For each of the two above-mentioned major employee categories i.e., operations, and General and Administrative, there are entirely different sets of performance and compensation management approaches at McDonald’s.

Figure 1

Crew break down structure at McDonald’s

4. Performance Management at McDonald’s

Following sections describe the practices used by McDonald’s to appraise and manage the performance of its employees:

4.1 The Appraisal Process at McDonald’s

4.1.1 General Steps in Appraisal Process

The appraisal process at McDonald’s contains following 3 major steps:

1. Preparing (revising) formal job profiles and competencies profiles.

The process of employee evaluation cannot start at McDonald’s unless and until the job and competencies profiles are finalized.

Job profile refers to set of documents containing the job description (an account of duties, tasks, and responsibilities), job specification (knowledge, skills, abilities, and experience required to perform that particular job) and work standard sheets.

Competencies profile refers to the set of proficiencies and capabilities, which a particular employee possesses. For instance, Mr. A’s competencies profile will include his knowledge, skills, abilities and other such characteristics. Mr. B will be having a different competencies profile.

2. Reviewing the employee performance.

Employee’s actual performance is reviewed against a given set of criteria and/or standards. The evaluation is carried out in a collaborative environment i.e.: the employee and supervisor sit together and discuss the performance results, pinpoint areas for improvement, highlight exceptionally good performance occurrences, and set the criteria or standards for next period.

For the most part, appraisals at McDonald’s reflect the philosophy of MBO with necessary customization.

Formally prepared individual and group performance appraisal forms are used (appraisal forms are discussed in section 4.2 of this report).

3. Giving performance feedback.

Step 2 and 3 are performed almost simultaneously. There is no clear distinction in these 2 stages at McDonald’s. The rationale behind this practice is to cater employee involvement in the process.  

4.1.2 Clarifying and Communicating Expectations and Consequences

To clarify and communicate the expected outcomes and the likely consequences (positive or negative), McDonald’s prepares and uses job profiles and competencies profiles for each job and each employee respectively. The process of clarifying and communicating the expectations is formal but is often supplemented with informal and friendly discussions. Finally, desired performance for next period is communicated to employee in appraisal interview.

4.1.3 Supervisor’s Role

Supervisor’s role in performance appraisal is not autocratic or policing one. Instead, as mentioned earlier, the role played by supervisor at McDonald’s is collaborative. The appraisals are conducted by immediate supervisor and coordinated by HR department. In this regard, McDonald’s HR provides the necessary tools (e.g.: appraisal forms), guidelines to use appraisal tools and any training which is commensurate to carry out the appraisals.    

4.2 Appraisal Methods and Tools recently being used at McDonald’s

There is a large number of appraisal methods and tools that McDonald’s incorporates in employee performance appraisals. For the purpose of clarity and understandability, we discuss these issues into following major categories:

4.2.1 Appraisals for Operations Staff

Operations staff, which accounts for 95% of McDonald’s employees is mostly restaurant based, as stated earlier in the document. This staff consists of managerial staff and non-supervisory employees. Appraisals tools and practices for both of these types of operations employees are discussed as below:  

1. Appraisals for Managerial Employees

For appraising the performance of restaurant-based managerial staff that occupies the positions of Restaurant Manager, First Assistant Manager, Second Assistant Manager, and Floor Manager, following are the key considerations at McDonald’s:

·         Performance is reviewed bi-annually (on 6-month) basis, in June and December.

·         Job profile and competencies profile are maintained for each manager.  

·         Performance evaluation of managers is administered through PDS (Performance Development System), which is designed and updated by McDonald’s Head Office in USA.   

·         Method to be used for each manager’s performance incorporates certain predefined objectives with periodical review and feedback discussion. The evaluation methodology is almost same as MBO with some required alterations.

·         The tool or instrument used to evaluate the performance at McDonald’s is a score card, which enlists objectives to be met and other behavioral characteristics to be rated. Please see the sample score card in appendix.

·         The score card consists of 5 pages. Page 1 is used to document and rate the objectives. Manager and his/her immediate supervisor work together to develop goals, dates for completion, and ways to measure the achievements of objectives. Page 2 and 3 are used for behavioral assessment. Only work related behaviors are used in these sections. On page 4, the scores are written in consolidated form to present a big picture. On page 5, there is space for summary comments on individual’s performance.

·         There are 3 types of objectives that are listed in MBO-like part of the score card. These are:

                                                              i.      Objectives that support team’s business strategies;

                                                            ii.      Objectives that support the development of peers and subordinates; and

                                                          iii.      Objectives that support the individual development

·         Rating scale for objectives achievement consists of :

                                                              i.      4 – Exceptional Results

                                                            ii.      3 – Significant Results

                                                          iii.      2 – Some Improvement Required

                                                          iv.      1 – Unacceptable Results

·         Behavioral assessment portion of the score card addresses 6 key behaviors, which include:

                                                              i.      Setting clear objectives with result accountability

                                                            ii.      Coaching and valuing people

                                                          iii.      Acting in the best interest of the system

                                                          iv.      Communicating effectively

                                                            v.       Embracing changes, creativity, and innovation

                                                          vi.      Having a strategic focus

·         Scale for behavioral assessment is again Likert scale with following attributes:

                                                              i.      4 – Exceptional Demonstration

                                                            ii.      3 – Significant Demonstration

                                                          iii.      2 – Some Improvement Required

                                                          iv.      1 – Unacceptable Demonstration

·         Appraisal forms have to be filled in during supervisor-subordinate meeting. Standards related to cost, sales and quality control levels etc are clearly communicated to the appraisee.

·         Consensus/mutual agreement on objectives is deemed necessary by the management of McDonald’s for establishing and finalizing goals.

2. Appraisals for Non-Supervisory Employees

For the appraisals of non-supervisory staff, all considerations as described in previous subsection (appraisals for managerial employees) hold true in the same way with following exceptions:

1.      Appraisals are not conducted under the PDS system.

2.      Five-page score cards are also not used.

3.      Only full time workers are formally appraised. Part time workers are not appraised in a prescribed form.

Although there are pertinent methods and tools that are used for the evaluation of these employees at McDonald’s, management did not reveal them because of their competitive sensitivity and for some other secrecy and organizational reasons.

4.2.2 Appraisals for General and Administrative Staff

General and Administrative staff is not restaurant-base. Instead, these employees help corporation administer the staff and support issues. G & A staff resides in Lahore and Karachi offices.

Following are some major considerations in evaluating these employees at McDonald’s:

• Performance review is conducted annually, not biannually.
• Score cards are not used. Instead of these cards, objective sheets are used.
• Performance is managed and appraised through PDS (Performance Development System), which is a “McDonalized” system.
• Methods for evaluating these employees are also based on MBO technique.

Major reason for appraising these employees on annual basis is the lower turnover and switchover rate as compared to employees in operations.

4.3 Major Problems in Appraising Employees at McDonald’s

As revealed by the Country HR Manager of McDonald’s, there are a few problems that the corporate sometime have to face regarding performance appraisals and the implied compensation and benefits. These are as below:

1. Sometimes employee’s expectations of his/her work are high. For instance, if an employee considers that he or she would and should be rated as exceptional at the end of period and if actually he or she is not rated so, then it causes de-motivation and frustration. Although, score cards technique has reduced this problem to a great extent, still at some instances, such scenarios occur.
2. The above issue also leads to the employee perception and obsession about equity matters, which again needs to be dealt with great care. In short, managers’ and supervisors’ cerebral load increases with such issues, which can distract the actual goals of the department or team.   

4.4 Administrative Issues

Administrative issues at McDonald’s are dealt with great care, and explicit efforts are considered to ensure the administrative efficiency, effectiveness and security. Following are some of many administrative considerations.

1. Performance evaluation forms are used after the local HR department places it stamp. It is to ensure that only issued forms are used, and that the duplicate or computerized copy in not used. Purpose is to prevent any illegal or unethical action in advance.
2. HR issues the form, coordinates the appraisal process, and receives back the form after concerned persons fill it out.
3. For the appraisal form or score card to be submitted back successfully to HR department, it is mandatory that the form contains employee signatures and comments as well those of the supervisor.
4. For annual or bi-annual review operations managers obtained the same filled form again fro HR department along with new forms (score cards) to be filled with next period’s objectives.
5. Forms or score cards are filed (kept in files) in alphabetic order generated by employee names within a specific categories.
6. Performance Development System documents are legally obtained from Parent Corporation headquarters.

4.5 Legal and Ethical Issues

As legal requirements regarding equal opportunity employment, affirmative action, and discrimination are not very confining in Pakistan, inherent is the flexibility in appraisals and their design for McDonald’s like all other multinationals operating here. Still, McDonald’s uses unbiased and fair appraisal formats. This feature generally emerges due to the sensitivity of workplace related legal issues in USA, where these forms are actually designed and then sent to other countries including Pakistan.

To cope with ethical issues like non-cooperative behavior among employees, stealing, workplace harassment, and annoying habits of employees, McDonald’s places a heavy emphasis on recruitment and selection procedures in order to avoid such problems at the occasions of performance appraisals (in rating employees). Although the managers at McDonald’s do not inflate appraisals unreasonably, sufficient fair efforts are made to help employees a behavior that would lead to positive outcomes and hence to positive appraisals. Such programs include:

• Wrap sessions
• Com [Communication] day
• People’s day (on weekly basis)
• Programs to embed strong corporate culture

5. Management of Compensation and Benefits at McDonald’s

Following sections describe the practices used by McDonald’s to compensate its employees:

5.1 Establishing Pay Rates: The Process at McDonald’s

At McDonald’s, the management performs following steps to determine pay rates:

1. Survey of salaries that prevail in the industry.
2. Preparation of job profiles and competencies profiles.
3. Determining the job worth by identifying its compensable factors.
4. Making jobs’ classifications and groups.
5. Allocating pay rates to the jobs on individual jobs and job groups i.e.: some pays are same for the job group and others might apply to specific jobs in one group.
6. Periodical review of pay rates and modifications (as and when required)

5.2 Traditional bases for Pay at McDonald’s.

At McDonald’s, every employee earns a base pay. As far as sonority pay and merit pay are concerned their status at McDonald’s is as follow:

5.2.1 Status of Seniority Pay Practice

McDonald’s essentially promotes pay-for-performance. So, as such there is no such pay for seniority unless and until tasks and responsibilities are demanding ones. But McDonald’s gives its employees COLA (Cost of Living Allowance) that varies with inflation. In general, the amount of COLA for senior people is more than that for less senior employees. It, however, doesn’t mean that increases in COLA will also be getting higher percentages for senior employees. The increase in COLA in relation to inflation, for each employee, augments the pay with same percentage. For instance, if there is 2 percent increase in inflation this year, every employee will enjoy a 2% increase in salary.

5.2.2 Status of Merit Pay Practice

At McDonald’s, pay-for-performance is not usually used for merit pay increases. Performance based pay is used as incentive/variable pay, which we explain in next few sections.

5.3 Incentive/Variable Pay Plans

Pay and rewards program at McDonald’s follows a "pay for performance" philosophy i.e.: The better employee’s results are, the greater his/her opportunities will be.

 5.3.1 Incentive Pay

 Incentive pay provides the employees with the opportunity to earn competitive total compensation when performance meets and exceeds goals. For corporate, division and region offices, the Target Incentive Plan (TIP) links employee performance with the performance of the business they support. TIP pays a bonus on top of employees' base salaries based on business performance and their individual performance.

5.3.2 Long Term Incentives

Long term incentives are granted to eligible employees to both reward and retain key employees who have shown sustained performance and can impact long-term creation at McDonald's.

5.3.3 Recognition Programs

The recognition programs at McDonald’s are designed to reward and recognize strong performers. For the corporate, division and region offices, these include the Presidents' Award (given to the top 1% of individual performers worldwide) and the Circle of Excellence Award (given to top teams worldwide to recognize their contributions for advancing our vision).

5.3.4 Company Car Program

The company car program provides eligible employees with a company car for both business and personal use. If eligible, employees can choose from a variety of vehicles, depending on their level within the company.

The program covers the cost of insurance, maintenance and repairs. Primarily, the program has been designed for managerial employees. 

5.3.5 Person-Focused Pay

Person-focused pay, which usually includes the competencies-based and skills-based pays, is important to McDonald’s employees. In this regard, employees have to join training programs. Each set of similar training program at McDonald’s is called a station. Based on the number of stations, an employee covers; the employee is given promotion that in turn increases the base-pay. Hence by learning McDonald’s-specific skills and competencies, increase in pay is likely to occur. However, mainly incentives are based on final accomplishments i.e.: performance, regardless how much an employee is adroit or competent.

5.4 Organization-wide Incentive Plans

Taking care of employees current and future financial needs can be challenging. That's why McDonald’s offers the following savings and money management programs:

5.4.1 Profit Sharing and Savings Plan

The Profit Sharing and Savings Plan lets employees save from 1% to 50% of their pay on a tax-deferred basis in the indignities law feature of the plan. McDonald's matches employee contributions with $3 for each $1 of the first 1% of pay they contribute, and $1 for each $1 on the next 4% they contribute. For employees who contribute at least 1% to the plan, McDonald's may make a discretionary profit sharing match of up to 4% of pay to their accounts. Employees are always 100% vested in their contributions and the company matches.

Based on the currency differences, the dollar amounts are converted into rupees in Pakistan and India.

5.4.2 McSave Fund

McSave is a special money market fund for McDonald's employees. Money put into McSave is invested in a separate fund.

5.4.3 MCDirect Shares

MCDirect Shares is a direct stock purchase plan that lets employees further build ownership and reinvest dividends in the company.

5.4.4 Credit Union

All McDonald's employees can take advantage of a full range of services available through the Corporate Credit Union.

5.4.5 Financial Planning Services

This program gives employees access to professional financial planning services through consoling associates. 

5.5 Employee Benefits at McDonald’s

There is a wide range of benefits that McDonald’s offers its employees. To name a few are as below:

5.5.1 Pay for Time not Worked

McDonald’s provides every employee with the paid leaves. In this regard, there is no discrimination made on the basis of grade, designation or job duties etc.

5.5.2 Medical

McDonald’s offers three Preferred Provider Organization (PPO) medical plan options that use the First Health network of providers. The plans have different benefit levels and pay more for in-network covered costs than for out-of-network covered costs. All three of the plans feature a prescription drug program and an unlimited lifetime benefit maximum. In addition, the McDonald's medical plans cover preventive care, including annual physical exams for employees and covered family members, well-baby care, and child immunizations and inoculations. In some areas, HMOs are also available.

5.5.3 Vision Supplement

Employees enrolled in one of the four McDonald's medical plans may elect the vision supplement plan, which provides coverage for eyeglasses and contact lenses, plus a mail-order contact lens replacement program, and discounts on Lasik laser vision correction surgery.

5.5.4 Dental

The dental plan allows employees to see the dentist of their choice and covers a wide range of dental services. Preventive services, including sealants for children, are covered at 90% with no deductible. Basic and major services are covered at 80%, after a deductible. The plan also covers 50% of eligible orthodontia expenses for adults and children after a one-time deductible.

5.5.5 Spending Accounts

The flexible spending accounts let employees set aside pre-tax dollars to pay for certain health care and day care expenses. Employees can set aside an amount in the Healthcare Spending Account for expenses not covered or only partially covered by their medical and dental plans. Also for day care expenses that allow employees or their spouses to work, they can set aside a reasonable amount in the Day Care Spending Account.

5.5.6 Short and long-term disability

Both short and long term disability coverage is provided at no cost to employees. Short term disability provides benefits if an employee cannot work for more than 10 consecutive days; how long benefits continue depends on the nature of the employee's disability and years of service. Long term disability coverage replaces 60% of the employee's monthly base salary while he or she is disabled.

5.5.7 Employee and Dependent Life Insurance

 McDonald's provides basic life insurance of two times the employee's base salary at no cost to the employee. In addition, employees can purchase additional life insurance coverage for themselves (either term or universal life). Basic dependent life insurance for their spouse or domestic partner and/or children is also provided at no cost to the employees. And, if an employee elects optional life insurance for himself/herself, he/she can purchase additional dependent life insurance coverage.

5.5.8 Accidental Death and Dismemberment Insurance

AD&D covers employees if they die or are seriously injured in an accident. McDonald's provides AD&D coverage equal to two times the employee's base salary. If the employee elects additional life insurance coverage, he/she automatically has an equal amount of optional AD&D coverage at no extra cost.

5.5.9 Travel and Business Travel Accident Insurance

McDonald's provides travel accident coverage of two times an employee's base salary at no cost to employees. Travel accident insurance pays benefits in the event of an accident when traveling for either business or personal reasons. McDonald's also provides business travel accident insurance coverage for employees traveling on company business, also at no cost. Depending on the employee's position, this coverage is in addition to travel accident coverage.

5.5.10 Insurance Benefits

Like most multinationals, McDonald’s provides its employees with insurance benefits. For this purpose, McDonald’s usually out-sources this function to a third insurance service providing party.

5.5.11 Retirement Benefits

McDonald’s provide its employees with legally required retirement benefits. In past, these benefits included gratuity and provident fund. Now due to the relaxation from government legislation side-up, only one of these two benefits is mandatory.

6. SWOT Analysis of Performance and Compensation Practices at McDonald’s

 

In order to analyze and evaluate the performance and compensation practices at McDonald’s, we conducted SWOT analysis. Based on the findings of our analysis, we develop following framework to demonstrate the effectiveness of concerned practices at McDonald’s:

Strengths

• McDonald’s offers variable incentives, while its increments are not variables. It helps company adjust the amounts in order to create and equitable wage system. It also reduces the cost per employee that in the case of increments could be exponentials.
• McDonald’s clear, transparent and objective Performance Development System is another strength that promotes the employee involvement more than any other company in the industry.
• McDonald’s incorporates formal researched and tested management literature, theories and concepts into its management practices for performance appraisals and compensation. This feature adds to the standardization, and processes become more systematic.
• McDonald’s possesses strong values that are shared among employees organization-wide. In other words, it has a significantly strong culture that is beneficial in several ways including successful hiring, retention, and employee satisfaction from appraisal and compensation processes and results.
• At McDonald’s employee are given with a wide range of incentives and benefits that makes it possible for the company to retain talented and high-performance employees, and hence to beat the competition. In short, McDonald’s invests heavily in its human resources in several forms including lucid performance management and compensation practices.

Weaknesses

• The HR practices in general and Appraisal and Compensation practices in particular reflect the Yankees Arrogance of Americans, as the basic systems and policies are developed there. “There is no room for improvement. We already are going the right way” said the manager HR during interview.
• There is a need for more immediate feedback because sometimes the appraisal is not according to the employee expectations.

Opportunities

• The quick service fast food trend is not very old in Pakistan. Instead it was introduced during last decade. That’s why there are still many unexplored geographic and customer markets and niches. McDonald’s, due to its reputation, will likely to find talented employees more quickly and easily than its competitors would, when it expands its business into new markets.
• The knowledge-base possessed by McDonald’s about the needs of local job seeker again provides it with a competitive opportunity.

Threats

• New fast food businesses are rapidly entering the industry, and it is likely that these new entrants with strong financial backgrounds would lure and entice talented people by using attractive salary packages.
• Changing governments and political instability in Pakistan also portray several hidden threats to the Appraisal and Compensation practices of McDonald’s.

7.  Conclusions and Recommendations

 

On the basis of our observation and SWOT analysis, we conclude that performance and compensation management practices at McDonald’s are directly contributing in gaining competitive advantage. Moreover, these practices of McDonald’s are viable enough that any other multinational in industry can use them as benchmarking streams. Although there are a few internal weaknesses and external threats, McDonald’s is in the position to continue growing with such practices at least in next several years.

At the end, we recommend the management of McDonald’s to:

1. Study the indigenous culture in detail and set the performance and compensation practices accordingly;
2. Periodically review the indigenous industry’s practices; and
3. Keep special incentives for those who show more tolerance toward ambiguity and change because country’s current situation portrays significant instability, in turn can affect and change human resource management practices including performance management and compensation as well.

8. Bibliography

q  Stephen P. Robbins and Mary Coulter, “SWOT Analysis”, Management, 7^th Ed, p.204. 

q  The McDonald’s Corporation: For details, www.McDonalds.com

q  Raymond A Noe, “NEEDS ASSESSMENT”, Training and Development, 2nd Ed, pp.73-90.