Compensation Strategy: Starbucks’ vs. McDonald’s

1. Compensation Strategy:
Starbucks’ vs. McDonald’s
McDonald’s
McDonald's is the world's largest chain of hamburger fast food restaurants, serving around 68 million
customersdailyin119 countriesacrossmore than 36,000 outlets.[4][5] Founded in the United States in
1940, the company began as a barbecue restaurant operated by Richard and Maurice McDonald. In
1948, they reorganized their business as a hamburger stand using production line principles.
BusinessmanRayKrocjoinedthe companyasa franchise agentin1955. He subsequently purchased the
chain from the McDonald brothers and oversaw its worldwide growth.[6]
A McDonald's restaurant is operated by either a franchisee, an affiliate, or the corporation itself. The
McDonald's Corporation revenues come from the rent, royalties, and fees paid by the franchisees, as
well as sales in company-operated restaurants. In 2012, the company had annual revenues of $27.5
billion and profits of $5.5 billion.[7] According to a 2012 BBC report, McDonald's is the world's second
largestprivate employer—behindWalmart—with 1.9 million employees, 1.5 million of whom work for
franchises.[8]
McDonald's primarily sells hamburgers, cheeseburgers, chicken, french fries, breakfast items, soft
drinks,milkshakes,anddesserts.Inresponse to changing consumer tastes, the company has expanded
its menu to include salads, fish, wraps, smoothies, fruit,[9][10] and seasoned fries.
History
The business began in 1940, with a restaurant opened by brothers Richard and Maurice McDonald at
1398 North E Street at West 14th Street in San Bernardino, California (at 34.1255°N 117.2946°W). Their
introductionof the "Speedee Service System" in 1948 furthered the principles of the modern fast-food
restaurantthat the White Castle hamburgerchainhadalreadyput into practice more than two decades
earlier. The first McDonalds with the arches opened in Phoenix in March 1953. The original mascot of
McDonald's was a man with a chef's hat on top of a hamburger-shaped head whose name was
"Speedee".By 1967, Speedee was eventually replaced with Ronald McDonald when the company first
filed a U.S. trademark on a clown-shaped man having puffed-out costume legs.

2. On May 4, 1961, McDonald's first filed for a U.S. trademark on the name "McDonald's" with the
description "Drive-In Restaurant Services", which continues to be renewed through the end of
December 2009. On September 13 that same year, the company filed a logo trademark on an
overlapping, double-arched "M" symbol. By September 6, 1962, this M-symbol was temporarily
disfavored, when a trademark was filed for a single arch, shaped over many of the early McDonald's
restaurants in the early years. Although the "Golden Arches" logo appeared in various forms, the
presentversionasaletter"M" didnot appear until November 18, 1968, when the company applied for
a U.S. trademark.
The present corporation dates its founding to the opening of a franchised restaurant by businessman
Ray Kroc inDes Plaines,Illinois on April 15, 1955, the ninth McDonald's restaurant overall; this location
was demolished in 1984 after many remodels. Kroc later purchased the McDonald brothers' equity in
the company and led its worldwide expansion, and the company became listed on the public stock
marketstenyearslater.Kroc was alsonotedforaggressive businesspractices,compellingthe McDonald
brothersto leave the fast-foodindustry.Krocandthe McDonald brothers all feuded over control of the
business, as documented in both Kroc's autobiography and in the McDonald brothers' autobiography.
The San Bernardinorestaurantwasdemolished in 1976 (1971, according to Juan Pollo) and the site was
soldto the Juan Pollorestaurantchain.Thisareanow servesasheadquartersforthe JuanPollochain, as
well as a McDonald's and Route 66 museum.[12] With the expansion of McDonald's into many
international markets, the company has become a symbol of globalization and the spread of the
Americanwayof life.Itsprominence hasalsomade it a frequent topic of public debates about obesity,
corporate ethics and consumer responsibility.
Core Values we live by
 We are dedicatedtoprovidingcustomersunparalleledlevelsof Quality,Service,Cleanliness and
Value.
 We are committed to our people because we know that a diverse team of well-trained
individuals, working together, is the key to our continued success.
 We approach all aspects of our business with honesty and integrity.
 We will always give back to the communities in which we do business.
 We give back to the system that provides our success.
 We celebrate our achievements, yet we always strive to achieve new heights.

3. The principles that guides us
 We are committed to exceeding our customers' expectations in every restaurant every time.
 We believe our success is dependent upon Corporate, Franchisee Partners, and Supplier
Partners.
 We have a passion and a responsibility for enhancing and protecting the McDonald's brand.
 We believe inacollaborative managementapproach,employingamutually respectful business
philosophy.
 We are committed to franchising, maintaining a highly collaborative relationship with our
franchisees and making franchising decisions based on what's best for our customers.
 We will seize every opportunity to innovate and lead the industry on behalf of our customers.
McDonald’s employee Benefits
 health and insurance benefits
 Medical
 Vision supplement plan
 Dental
 Flexible spending accounts
 Short and long term disability
 Employee and dependent life insurance
 Accidental death & dismemberment (AD&D)
 Travel and business travel accident insurance
 compensation, reward and recognition programs
 Base pay
 Incentive pay
 Company car program
 Recognition programs
 Work life balance
 Vacation
 Holidays
 Anniversary Splash

4.  Sabbatical program
 Summer Hours
 Leave of absence
 Alternative Work Approach
 Adoption assistance
 Child care discount
 Educational assistance
 Matching gifts program
 Employee Resource Connection
 Auto and home insurance group discount program
 International Fitness Club Network
 Beyond Work Internet discount program
Starbucks’
The Starbucks Corporationis the largest coffeehouse company in the world. The chain was founded in
Seattle, Washington in 1971; it operates 23,132 locations worldwide, including 12,937 in the United
States, 2,004 in China, 1,416 in Canada, 1,135 in Japan and 849 in the United Kingdom.[1][5]
Starbuckslocationsserve hotandcolddrinks,whole-beancoffee,microground instant coffee known as
VIA, espresso, caffe latte, full-leaf teas, Evolution Fresh juices, Frappuccino beverages, pastries, and
snacks;some offerings(includingtheirPumpkinSpice Latte) are seasonal orspecifictothe localityof the
store. Many stores sell pre-packaged food items, hot and cold sandwiches, and drinkware including
mugsand tumblers;select"StarbucksEvenings"locationsofferbeer,wine,andappetizers.[6] Starbucks-
brand coffee, ice cream and bottled cold coffee drinks are also sold at grocery stores.
Starbucksfirstbecame profitable inSeattle inthe early1980s,[7] and despite initial economic downturn
withitsexpansionintothe MidwestandBritishColumbiainthe late 1980s,[8] the companyexperienced
revitalized prosperity with its entry into California in the early 1990s.[9] The first Starbucks location
outside NorthAmericaopenedinTokyoin1996; overseaspropertiesnow constitute almostone third of
itsstores.[10] The companyhad openedanaverage of two new locations daily between 1987 and 2007.

5. History
The firstStarbucks openedinSeattle,Washington,onMarch 30, 1971, by three partnerswho met while
theywere studentsatthe Universityof SanFrancisco:[12] EnglishteacherJerryBaldwin,history teacher
Zev Siegl, and writer Gordon Bowker. The three were inspired to sell high-quality coffee beans and
equipment by coffee roasting entrepreneur Alfred Peet after he taught them his style of roasting
beans.[13] The company took the name of the chief mate in the book Moby-Dick: Starbuck, after
considering "Cargo House" and "Pequod".[14] Bowker recalls that Terry Heckler, with whom Bowker
owned an advertising agency, thought words beginning with "st" were powerful. The founders
brainstormedalistof wordsbeginningwith"st."Someone pulledoutan old mining map of the Cascade
Range and saw a miningtownnamed"Starbo,"whichimmediatelyput Bowker in mind of the character
"Starbuck." Bowker said, " Moby-Dick didn't have anything to do with Starbucks directly; it was only
coincidental that the sound seemed to make sense."[15]
The Starbucks store at 1912 Pike Place. This is the second location of the original Starbucks, which was
at 2000 Western Avenue from 1971 to 1976.
The first Starbucks cafe was located at 2000 Western Avenue from 1971–1976. This cafe was later
movedto1912 Pike Place Market; never to be relocated again.[16] During this time, the company only
soldroastedwhole coffeebeansanddidnotyetbrew coffee tosell.[17] The only brewed coffee served
inthe store were free samples.Duringtheirfirst year of operation, they purchased green coffee beans
from Peet's, then began buying directly from growers.
Starbucks Culture
 Provide a great work environment and treat each other with respect and dignity.
 Embrace diversity as an essential component of the way they do business.
 Applythe higheststandardsof excellence tothe purchasing, roasting,andfreshdeliveryof their
coffee.
 Develop enthusiastically satisfied customers all of the time.
 Contribute positively to our community and our environment.
 Recognize the profitability is essential to our future success.
Starbucks’ people
 Starbucks is known for its generous compensation package.

6.  Hourly wages are higher than the norm of the fast food industry.
 Efforts paid off in a barista turnover of 60 percent, compared with 140 percent for hourly
workers in the fast food business.
 Starbucks spends more on training than on advertising its product.
Starbucks’ a great place to work
 Medical insurance
 Dental and vision care
 Mental health and chemical dependency coverage
 Short and long term disablility
 Life insurance
 Benefits extended to committed domestic partners of starbucks employees
 Stock option plan (bean stock)
 Sick time
 Paid vacations (first year workers get one vacation week and two personal days)
 401(k) retirement savings plan (the company matched 254 percent of each employee’s
contributions up to the first 4 percent of compensation
 Stock purchase plan
 Free pound of coffee each week
 Product discounts (30 percents)
Starbucks’ compensation strategy
 Objectives
 Grow by making employees feel valued.
 Recognize that every dollar earned passes through employees’ hands.
 Use pay,benefits,andopportunities for personal development to help gain employee
loyalty and become difficult to imitate.
 Alignment
 De-emphasize differences.
 Use egalitarian pay structures, cross-train employees to handle many jobs, and call
employees partners.
 Competitiveness

7.  Pay just slightly above other fast-food employers.
 Provide health insurance and stock options for all employees (including part-timers).
 Give everyone a free pound of coffee every week.
 Contributions
 Emphasize team performance and shareholder returns.
 For new managers in Beijing and Prague, provide training opportunities in the U.S.
 Management:
 As members of the Starbuck’s “family,” our employees realize what is best for them.
 Partners can and do get involved.
Starbucks’ values and principles
 to build a company with soul.
 control the quality of its products and build a culture common to all stores.
 Management wants employees to contribute to the process of making Starbucks a better
company.
 The company’s employee benefits program was predicated on the belief that better benefits
attract good people and keep them longer.

9. Competitive Advantage of McDonald’s
McDonald’s rode the baby-boomer trend in the 1960s, the swelling ranks of teenagers and the rising
female labor force participation, supplying a fast and inexpensive menu. In the 1970s and the 1980s,
McDonald’s rode the globalization trend by transferring the American Way of Life to many countries
around the world. At the same time, McDonald’s adapted to the social context of each county by
franchising to locals.
In the 1990s and early 2000s, McDonald’s transformed its corporate image by launching the “Fast and
Convenient” campaign that involved the radical adjustment of the company’s product portfolio to
emerging food industry trends—the refurbishment of McDonald’s restaurants to achieve a banded,
updated, and more natural dining environment.
The “fast” and “convenient”elementsof the McDonald’sconceptwere supplemented by the “healthy”
and “more natural” element, by adding salads, fruits, and carrot sticks to the menu.
In nowadays,McDonald’scontinuestobroadenitsproductportfoliobyoffering high quality coffee and
healthy drinks (either through its traditional restaurants or the Cafés), competing head to head with
Starbucks and local cafeterias—benefiting from local trends like austerity in Europe.
McDonald’s further benefited from a sound franchise business model—a form of collective
entrepreneurshipthatallowsitsfranchisee-members,managementand shareholders to share the risks
and rewards from the discovery and exploitation of new business opportunities.
McDonald’s model has become the norm for other franchise organizations, as discussed in previous
pieces here.
Competitive Advantage of Starbucks’
Starbucks rode the baby boomer trend in the 1990s, the swelling ranks of mid-age professionals that
createdthe needfora “third place,”an “affordable luxury”where people couldshare andenjoyacup of
coffee with friends and colleagues, away from work and home. The chain has inserted itself into the
Americanurbanlandscape more quicklyandcraftilythananyretail company in history, and has forever
changed the way Western companies market themselves to consumers, with a four-fold strategy:
1. Right market segmentation. The company has stayed with the upper-scale of the coffee market,
competing on comfort rather than convenience, which is the case with its closest competitors,
McDonald’s and Dunkin Donuts.
2. Execution.The companycontinuestofocus on its original product bundle that includes good coffee,
quality service, and a nice environment to hang around.

10. 3. A superb leadership. Company founder Howard Schultz, who continues to come up with innovative
products to expand the company’s product portfolio, leads Starbucks.
4. Chinaexpansion.Asisthe case withthe Japanese,Chinese people live as extended families in small
houses. This means that there is a strong demand for Starbucks as a “third place.” Last year, Starbucks
opened 500 new stores in China, bringing the total to 1500.
Conclusion
Both the companies offer to date the latest and close enough to their competition in order to attract
employees and retain them benefiting both the company and the employee. With almost little to no
difference bothcompaniesofferalotof compensation benefits and it is then up to the employee as to
whichofferismore attractive or have the advantage to them in their lives and can choose that option.