McDonald's pushes back: "business model can't sustain $20/hr"
The California fast-food bill will raise the minimum wage for many California workers at fast-food chains to $20 an hour starting April 1.
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possibly, just possibly, if CEOs weren't pathologically greedy then you'd be able to pay your workers what they are worth and wouldn't have this 'it's too expensive' worry to keep you from doing the right thing
McDonald’s strong sales recovery and a healthy stock price performance earned its chief executive
Chris Kempczinski received a pay package of just over $20 million in 2021, according to new SEC documents filed on Monday.
That was nearly double the $10.8 million he was paid during the pandemic-plagued 2020. It was also the largest pay package received by a McDonald’s CEO since 2017, when Kempczinski’s predecessor Steve Easterbrook received $21.8 million.
I have a bigger issue with the billions they spend every year in stock buybacks. Last year, it was $4B. That's an additional 20k per employee.
That sounds nice and all, but if he gave up his 20m/yr and gave it to employees.. everyone would get an extra $100 per year.
There are some parts I agree with this, because if we did calculate the profits and gave all the profits generated for 2022, we would end up only being able to give the average worker a raise to $16.20 an hour divided over 1.35 million employees.
But that is part of the problem. McDonalds has become too heavy for American workers to save it. It is over franchised.
McDonald competes using the "Walmart strategy" Where they under price the competition until no one can compete and are forced to close.
But times have changed.
This business model doesn't work when workers have options for good paying jobs.
$15 1,350,000 = $20,250,000 per hour for all employees per hour.
McDonald made in profits 14 billion in 2023
Assuming McDonalds took that 14 billion and gave it all to the employees.
(14,000,000,000 / 365)/24 = 1.6 million per hour divided over 1,350,000 million employees give or take.
Add that to the original
$20,250,000 + 1,600,000 = 21,850,000 / 1,350,000 = $16.18 per hour.
Note: this does not include stock buybacks as those are not ready for 2023, but I imagine around 2 billion extra we could dig out of those expenses. Also I do not know the overall executive pay. I can tell you the CEO's pay, and even the average, but I have no Idea what that total number is.
In all, I have tried to keep the math consistent, Please criticize the math, as I still feel like I have done something wrong.
I didn't want this conclusion. But if it is true. The Food industry is going to need to raise it's prices and stop overpaying it's CEOs. Or small Family owned businesses that don't have those constraints will outpace them in the next few years.
Edit: If you want more context and made it this far, check out healththetank's post below, it adds a little bit more understanding on what I got wrong.
14,000,000,000 / 365)/24 = 1.6 million per hour divided over 1,350,000 million employees give or take.
You're paying employees 24hrs a day, 365 days a year. They should be paid, assuming standard full time (which most of them are not), 40hrs per week, 52 weeks per year or 2,080 hours.
14,000,000,000/2080 = 6,730,769 per hour over 1.35 million staff = a raise of $5 per hour, putting the new hourly rate at $20/hr. Not way higher, but worth noting.
Additionally, as I mentioned above, the assumption of 40hrs per week for all staff is highly unlikely to be accurate. I looked, but wasn't able to find any hard data, just anecdotal stuff. Most staff I know in fast food places work ~30hrs per week, if they're 'full time', so the number is likely higher than I've shown.
Therefor it is entirely possible, even without touching the CEO pay, to pay $20 per hour to all staff.
Thank you so much!
There is also the assumption that everyone would be paid $20 when in fact they would probably fall in a range of $16 - $18 with the extremely rare $19-$20
I knew the math wasn't adding up somewhere, otherwise the new UPS contracts would bust the company.
I agree with your points, I was speaking in reference to the 20m/yr CEO salary. Over 200k employees, that only comes out to $100 per person. As you've demonstrated, it takes a lot more than just paying CEOs less.
How did $4bn become $20mn in your head?
When I read it off of the person's post I replied to. Can you show me where you saw 4bn in EpicMuch's comment? Or did you just feel like lashing out over something you barely read? How did you think your comment would be useful?
Yeah people don’t get the ceo pay isn’t the issue. It sounds grand but when you divide it out, it’s little per employee.
The answer is they have to charge more for the product. It’ll hurt sales but that’s what they have to do.
McDonald’s has become expensive. It’s around 12 a meal now.
It’s not just CEO pay. CEO pay is certainly a symptom of the upward transfer of wealth, and it’s quite harmful in its own ways, but simply dividing the pay of a CEO among N employees isn’t going to change much at most companies.
As far as charging more per product goes, that becomes a question of what the per unit labor costs are. An old (2015) report from Perdue estimated that doubling the minimum wage of $7.25 and offering health insurance would raise prices at a place like McDonald’s about 4.5% and tripling it would raise prices 22%. These are generally fairly complex formulas and incorporate factors like federal offsets for health insurance.
The Big Mac is the universal product for a lot of these things. The ingredients for a big mac cost less than $1. The estimate I saw from McD was $0.77. That’s the raw material cost. The other costs are things like rent, electricity, advertising, labor, and so on. What we would need is an accurate estimate of the labor component of the big mac price and multiply it by 1.33 or whatever the labor increase is and see what the new total cost is. If labor is 10% of the cost, then on a $10 big mac the labor is $1. Increasing the paid wage from $15 to $20 would raise the price of a big mac to $10.33.
But even that is overestimating the impact, because the actual big mac sandwich is one of the lower profit margin items. Fries and sodas have massive profit margins, so the total impact of a wage increase per order would be even lower because the cost would be spread over high margin items as well.
Current supply chain problems (and price gouging) has shifted cost of goods even further away from labor as a component.
So overall, without them actually opening the books on their cost of goods, I’m going to guess that the drama they’re enacting over their business model is BS, just like it was whe the minimum wage was raised to $15 in CA.
That does not change the fact that nobody deserves to be paid what CEOs are being paid. That’s the point.
Do you want others telling you what should be paid? The board decides the pay. If you don’t like it. Vote against it.
