Case Study: Mc Donald's Corporation Designing An Incentive System

2088 words - 8 pages

1. INTRODUCTIONDesigning a compensation plan is one of the most complex tasks for most organizations as it affects job satisfaction, employee turnover, productivity and the overall company effectiveness. If not properly managed, this may lead to high employee turnover, low productivity, among other problems which is especially true for a large service-oriented firm like McDonald's. McDonald's first-line managers deal directly with customers along with the front-line crew and it is crucial to draw up an effective compensation plan that will keep them motivated to work hard.McDonald's has to consider various factors in order to design an optimal compensation plan for the first-line managers. Unless otherwise specified, managers will be taken to mean first-line managers in this report.2. FACTORS TO CONSIDER IN DESIGNING A COMPENSATION PLAN2.1 Financial and Non-Financial IncentivesCompensations can be based on financial and non-financial incentives. Financial incentives include salary and bonus while non-financial incentives include benefits and perquisites such as the use of company cars and club memberships.Financial incentives can motivate managers by satisfying their needs but only to a certain extent. According to Maslow's hierarchy of needs , once a lower level of needs has been satisfied, it will no longer serve as a motivating factor for the managers. As such, satisfying their higher level of needs is required. Therefore, in the context of McDonald's, once the managers are satisfied with their basic needs (pay), the monetary incentives will no longer motivate them. There is a need to provide managers with non-financial incentives such as promotion, increased autonomy and recognition so as to fulfill their esteem needs. Thus, it is necessary for McDonald's to identify the needs of the first-line managers and incorporate suitable financial and non-financial incentives into the compensation package.2.2 Remuneration SystemGenerally, there are two types of pay systems; the fixed-pay system and the performance-based pay system . The former guarantees managers a fixed salary regardless of their performance. This may be a disadvantage as it encourages managers to develop a complacent attitude and hence shirk from their responsibilities. An advantage of having a fixed pay is that managers are guaranteed a stable income.Under the performance-based pay system, which emphasizes incentive bonus, managers' pay varies with their performance. This may be beneficial to the company as it motivates managers to put forth maximum effort in their work. However, it may face objections from managers as it does not provide them with the assurance of a stable income. Therefore, when designing the compensation plan, McDonald's need to weigh the advantages and disadvantages of both systems before deciding which system to use.2.3 Bonus BasisAnother factor McDonald's has to consider is whether to base bonuses at the company level or solely at the business unit level....

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