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Tuesday, September 10, 2013

Confronting the Myth that Low Wages Are Necessary for Profits in the Fast Food Business


Why In N Out Burger is far more attractive than McDonalds. 

Editors note:This is the third in a series of reader-supported—i.e. crowdfunded —articles about the powerful National Restaurant Association and the plight of low-wage workers who are being screwed at every turn by industry lobbying tactics and misleading propaganda. An amazing 387 AlterNet readers contributed more than $5,500 to support this ongoing investigative project. Many of the donors are listed at the end of the article. Read part 1&2 of the series here and here.

The more you look at what it means to work in America’s restaurants—especially at the corporate-run chains—the less you will want to eat out.
The ongoing protests by fast-food workers for higher wages and paid sick days underscore the most visible problems. There’s also wage theft. There’s gender and racial harassment. There’s discrimination in pay and promotions. There’s slick public relations efforts that paper over this exploitation, with corporate lobbyists repeatedly telling politicians that they can’t pay wokers more—while other executives tell Wall St. analysts about using their profits for stock-buybacks, expansion plans and shareholder dividends.

The nationwide fast food worker walkouts are highlighting and rejecting a predatory low-wage, low-benefit business model that’s all too common in service sector jobs. Ironically, some of the nation’s top business school professors say the restaurant industry’s scorched employee policies aren’t even the best way to build companies.

“If paying more is considered part of a bigger strategy, then yes, I think companies can afford to pay more,” said Zeynep Ton, a MIT Sloan School of Management professor and author of the forthcoming The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profits. “The only way to pay more (as well as invest in training, offer more stable schedules, etc.) without hurting business is if employees are more productive and more part of the company’s success.” 

But Ton’s prescriptions of investing in workers and empowering them are all-but absent in the restaurant industry, especially at the corporate chains. Instead, millions of the U.S. industry’s 12.2 million employees are all-too-often treated like robots and abused like serfs. And Ton and labor activists say that will not change until the public demands it.

“When we care, companies might start caring as well,” she said.

What follows are profiles of three trend-setting chains illustrating the issues that separate terrible employers from somewhat better ones. The fast food strikers want raises to $15 a hour and paid sick leave, as most are adults with families and not teenagers in first jobs. But they face other issues, too, such as gender and racial discrimination and harassment, segregated workplaces, and few opportunities for advancement.

Racing To The Bottom: McDonald’s.

McDonald’s is across-the-board terrible. They require employees to work at Christmas and Thanksgiving, but don’t pay overtime. They pay as close to minimum wage as possible. Their marketing to kids is predatory and creepy. Some salads have more calories than burgers. They use “pink slime” for chicken entrees. They encourage employees to get food stamps to offset low pay. And they’re everywhere.

This spring, USAToday and 24/7WallSt.com said that McDonald’s—more than any fast-food chain—was one of “eight companies that most owe workers a raise.” McDonald’s can afford to pay the vast majority of its 800,000-plus U.S. employees more, the paper reported, citing the firm’s own financial reports. Its stock was up 6.9 percent over last year, and up 68.2 percent over the past five years.

Most companies don’t make payroll data public, unlike their earnings reports. But there are websites that post jobs, average salaries and employee comments. Glassdoor.com lists hundreds of entries for McDonald’s. Almost all of its wages hover near legal minimums. For cashiers, the hourly average is $7.74. For crew member, it’s $7.70/hour. For a crew trainer, it’s $8.14. For drive through cashier, it’s $7.73. For grill cook, it’s $7.72. For fry cook, it’s $8.20. For swing manager, it’s $9.33. For general manager, its $43,862 a year, or $21.08 hourly. For assistant store manager, it’s $29,574 annually or $14.22/hour.

These are not living wages for adults or families. The federal mimimum wage is $7.25 an hour, although nearly two-thirds of the states have raised it a dollar or more. The striking fast-food workers are seeking $15 an hour, plus paid sick time. As USAToday noted, in late 2012, McDonald’s announced that it planned to return $5.5 billion to shareholders via increased dividends and stock buy-backs. It has paid dividends every year since 1976, the paper noted. Meanwhile, its senior executives have sent memos to franchise owners conveying customer complaints about poor service.

This big picture—chiseling employee wages and funneling profits to investors—is the reason for customer complaints, MIT’s Ton said. But it’s also part of a corporate culture that demeans workers. Writing of last Thanksgiving’s mandatory work and no overtime in the Harvard Business Review, she said, “employees are once again reminded of how little their companies care about their lives and well being.”

McDonalds’s can afford to pay its employees more, but, critically, it chooses not to. And that’s not the only thing that trouble employees. Its website, of course, boasts of careers and benefits. But employee share of paying for benefits is unaffordable, workers said on Glassdoor.com. And then there are other dimensions of restaurent and kitchen work that are abusive—and accepted as part of the work culture.

“Low pay, no insurance, top managers waste time on cell phones and… get involved in personal relationships with subordinates that caused preferential treatment,” a Newton, Mississippi, employee wrote on September 2. There’s little chance for advancement, an ex-assistant manager in Aurora, Colorado, wrote. “Rather hire in than train up.” There’s unreliable schedules. “Franchise stores focuses their hours around labor. Labor must be an overall 19 percent at the end of each month,” an Atlanta employee wrote this month. “So if store labor is 24 percent… be ready to have your hours cut.”

There’s also sexual harassment and a trail of lawsuits from it. The pro-worker advocacy group, Restaurant Opportunities Center United (ROC), issued a report last year about gender inequities—starting with lower pay for women in the same jobs as men—that also discussed sexual harassment. Its review of the previous four years of suits by the federal Equal Employment Opportunity Commission found that “McDonalds was named in 16 percent of the cases, including possibly the most egregious one, where an 18-year-old employee strip-searches and assaulted for several hours by staff and management at the behest of a caller impersonaing a police officer.”

Across the country, polls regularly find that 80 percent of the public supports minimum wage increases. But most people staring at pictures of the fast food protesters, most of who are women, have little idea what it’s like to work in these kitchens. A former McDonald’s cook from Wyoming, Pennsylvania, summed it up this month on Glassdoor.com, using their format of first describing the pros and then the cons.

“I worked at McDonald’s fulltime for more than three years,” he said, then list the pros. “If you already worked in the restaurant business, this job is a cakewalk. High volume, yes, but the work is easy and not very physically demanding… You don’t have to worry about over- or under-cooking food. You don’t have to do tons of prep work. You don’t even need to have a solid grasp of health and safety standards until you move up to management.”

And then the negatives. “If you never worked in a restaurant before, you’ll think this job is terrible. You’re on your feet all day, performing what feels like intense cardio exercise during peak hours. After your shift, you will be coated in a layer of grease and filth, and you will smell like cooking oil… You will make close to the minimum wage the entire time you work there, even when you’re promoted to low-level management.”

Jim Crow Jobs: The Capital Grille

There are more dimensions to poor working conditions than just wages. The restaurant industry is America’s largest employer of people of color and it is rife with segregation. Servers are predominantly white. Kitchens are predominantly people of color. And even though some chains have non-white CEOs, the culture and abuses are not very different from what’s depicted in the new movie, The Butler, profiling a self-educated African-American man who was a longtime butler at the White House.

Capital Grille is the high-price, fine-dining chain run by Darden Restaurants, the world’s largest full-service—meaning sit down—restaurant corporation. Darden also owns Olive Garden, Red Lobster, Longhorn Steakhouse, Bahama Breeze, Eddie V’s, Seasons 52 and Yard House. “We own and operate 2,100 restaurants, employ more than 200,000 people, and serve more than 425 million meals a year,” its website says. “At the Capital Grille, it’s guests enjoying a personalized dining experience reminscent of being in a private club.” It says that more than 80 percent of workers like Darden and their job.

Darden boasts that its values include “sustainability,” from reducing energy to treating employees well. But in late 2011, ROC and Capital Grille employees in five states sued Darden for wage theft and racial discrimination. The lawsuits are ongoing. This spring, ROC issued a report, Darden’s Decision, as part of a campaign to pressure the Florida-based corporation into treating workers better. “If it lived up to these values, Darden could serve as a model for the entire restaurant industry,” ROC said. “Unfortunately, there is a gap between Darden’s stated values and their actual practice.”

The Capital Grille is the chain’s flagship. It has dark wood-paneled dining rooms, a menu emphasizing meat, fish and wine, and formally attired servers. There are 49 grills around the country, with annual sales at each restaurant averaging $7 million, it told investors in June, estimating that sales would grow 4.5 percent this year. It pays a few dollars an hour more than for the same job at Darden’s other chains, according to Glassdoor.com. A host at Olive Garden averaged $8.99/hour, versus $11.38/hour at Capital Grille. An Olive Garden’s server averaged $10.99/hour, versus $12.62/hour at Capital Grille.

As a chain, Darden pays low wages and lacks paid sick days, ROC said, even though its website says “you will receive excellent benefits including health insurance, 401(k), paid vacations and advancement opportunities.” ROC Research Director Teófilo Reyes said that benefits are for the full-time employees—and many don’t get those hours, and, as is the case at McDonald’s, “you do have to pay in. It’s a pretty significant cost.” 

But ROC’s biggest complaints about Capital Grille have to do with intentionally stealing wages from its employees of color, and discriminating against them in promotions. Some “claim that their restaurant hired employees of color in the rush to open and replaced them with white workers once the restaurant was established,” ROC said in its Darden’s Decision report, which, in part, recounted claims from its lawsuits. A Darden company spokesmen has repeatedly called these allegations baseless. 

“We know what happens in the industry.We know that there is segregation,” Reyes said. “The question is, ‘Is it conscious and are restaurants discriminating against individuals?’ You are less likely to be hired into a better-paying job if you are a person of color.”  

Capital Grille employee comments at Glassdoor.com re-enforce ROC’s claims, but they are not quite as edgy. An ex-host from Troy, Michigan, said, you “must have ‘game face’ on 24/7,” and that he faced a “very stuffy work environment, have to use ‘Capital Grille’ vocabulary, [and] I was never offered a raise in the two years employed.” An ex-maitre’d from Palm Beach, Florida, said, “no career advancement… they want you to wear very pricey dresses, but not suits, at your own expense.”

The picture that ROC paints is more severe, particularly with employees of color who are segregated to the kitchens. There are many ways that workers can be treated poorly, ROC said. They can be denied sick days. “I called in sick once because of throat problems,” said Ignacia Villegas, a Capital Grille pantry station employee. “My manager told me, ‘If you don’t come, you already know what could happen. You could get fired.’”

They cannot be paid for all their hours worked—which is wage theft. Franz, a Haitian immigrant and dishwasher from Miami, said that he was routinely being “clocked out” by the sous-chef before he was finished cleaning. Elose Arestil, another Haitian dishwasher, complained about the same thing and was fired. But the vengeful treatment didn’t stop there, she said, because her managers stopped her from receiving unemployment checks. “My boss had told them [state officials] that I had quit when I was actually fired.”

Other ex-employees talked of “haves and have-nots,” ROC said, referring to the chain’s bias against non-white servers. “The Capital Grille’s regional manager told the General Manager that he wanted certain servers gone because they ‘didn’t fit the company image,’ Keith [Jones, an ex-Memphis, Tennessee, server] noted. Upper management wanted to remove black servers and used corporate image as an excuse.”

“Darden positions itself as being so conscientious,” Reyes said. “We find that’s not the truth of the matter.”

Taking The High-Road: In-N-Out Burger

The striking fast food workers have been calling for better working conditions, starting with higher hourly wages and paid sick time. They, and advocates like ROC United, and academics such as MIT business school professor Zeynep Ton, all say that paying more will not just improve job performance, employee morale and customer service, but it will save money in the long run that’s lost when new workers have to be hired and trained.

ROC’s founder and executive director, Saru Jayaraman, singed out one fast-food chain, In-N-Out Burger, which is privately owned and was started by a family with Christian values, as a chain that paid better than most and offered opportunities for advancement. In-n-Out, as its name notes, is a classic hamburger chain whose wrappers and cups cite biblical quotes. Bloomberg reports that the chain has almost 280 units in five western states, $625 million in 2012 sales, and a five-year growth rate of 4.6 percent.

What does it do that McDonald’s and Capital Grille does not? Compared to McDonald’s, they start by paying all workers, including new hires, several dollars above the minimum wage. They have been doing that for years, according to Harvard Business School Professor Youngme Moon, who chairs its MBA program. In a Harvard Business Review article a decade ago, she wrote, “In 2003, new employees were paid $8.25 to $9.25 per hour, almost $1.50 to $2.50 more than California’s minimum wage, and they received benefits that included paid vacations, a 401(k) retirement plan with matching company contributions, and discounted medical, dental, and vision coverage… As a result of this treatment, employee turnover at In-N-Out was low.” 

Today, the chain still pays several dollars above minimun wage. Where Glassdoor.com lists most McDonald’s salaries at below $8 an hour, the lowest-paid jobs at In-N-Out average above $10/hour, with some non-management jobs paying more than $13/hour. Their assistant managers average $51,200 annually, which is $24.61/hour. Employee comments on Glassdoor.com notice this difference. “Great compensation for industry,” said a level 5 ($11.58/hour) employee from Chico, Califonia. “This place starts you off with more than the minimum wage hourly. You get one free meal per shift,” a former associate said, adding. “They are very strict on your conduct. But it’s understandable being they are the only fast-food place that pays well.” Another wrote, “Starting pay is $10.50 in most areas.” An older employee commented, “Good for students, but pay is still low, but better than other food places.”

Compared to Capitol Grille, In-N-Out’s employees did not talk about discrimination or a lack of opportunities for advancement. An associate level 4, averaging $10.78/hour, from Las Vegas said, “Fast-paced, lots of room for growth, once you’re in, you’re pretty much in. Extensive hiring process, but all that means is they are selective in taking the best.” A Davis, Califronia, associate said, “This is a good paying job for the background required… good opportunities for advancement if you work hard.” But one employee from Palmdale, California, complained, “you can never get full-time hours and benefits once you’re hired. Lucky at some store[s] if you get more than 25 hours a week.”

As ROC’s Reyes notes, it’s important to keep In-N-Out’s pay and benefits in perspective, at least compared to what the striking fast-food workers are seeking. “The bar is set pretty low,” he said, referring to the restaurant industry’s pay and benefit standards. “They don’t pay $15 an hour, which is what the fast food workers are looking for.”

Where Can Progressives Eat Anymore?

The closer you look at America’s restaurant industry—especially the fast food and dining chains—the more you’re likely to pause before eating there. The reality of what goes on behind the practiced smiles of servers and kitchen doors does not inspire confidence.

The fast food worker protests are attempts to shame their employers into boosting wages, especially because the National Restaurant Association, the industry’s lobbyists, have a record of stopping or delaying minimum wage increases and paid sick day laws. (Similar walkout are planned for 15 Walmart stores this Thursday). ROC has created a guide for consumers that grades restaurants across the country, including those paying living wages and offering opportunities for a advancement. The guide contains postcards that can be left behind for management to consider and contact the group.

These activists don’t just want the public to pause before eating out; they want the public to gently push restaurant owners and managers to treat their staff better, just as they have demanded fresher ingredients in the menus. MIT’s Ton has reached the same conclusion, although she knows that the management mindset can be very inflexible.

“I imagine that executives are noticing [the fast food protests] but I don’t know if they’ll do anything to change,” she said. “What I really hope is that consumers are noticing. We as customers can choose where to eat and where to shop and we can start choosing businesses that treat their employees better. When we care, companies might start caring.”


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Steven Rosenfeld covers democracy issues for AlterNet and is the author of "Count My Vote: A Citizen's Guide to Voting" (AlterNet Books, 2008).

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