McDonald’s Worst Corporate Strategy

Just 8 months ago, McDonald’s shareholders awarded Don Thompson with nearly $8 million in incentive pay for his performance as CEO—that’s compensation in addition to a base salary and benefits that topped $1.5 million. But when the company announced his resignation yesterday after less than 3 years on the job, stocks rallied. It’s as if paying executive officers millions of dollars in annual compensation by lowering the bar for performance and benchmarking pay to a rising tide isn’t serving shareholders at all.

That’s what I argued last year around the time the ink dried on Thompson’s paycheck in the article Fast Food Failure: How CEO-to-Worker Pay Disparity Undermines the Industry and the Overall Economy. Fast food CEOs benefit from working in the most unequal industry in the US economy, but they’re the only ones who do.

At the time Thompson’s performance pay was approved, McDonald’s was lagging behind competitors and underperforming compared to its S&P 500 peers. Franchise owners were frustrated with the decisions being passed down from the top, customers were losing interest in the menu, and workers were marching outside of corporate HQ to protest their working conditions.

In the months since, the biggest developments for the company have been an NLRB council decision that the company can be held jointly liable with franchise owners for wage theft violations and last week’s emergent civil rights lawsuit. That, and a hilariously distasteful attempt at updating the ‘I’m lovin’ it’ slogan that the company put behind them as delicately as the Mighty Wing.

While no single executive can be blamed for all this damage to brand perception and performance, many of the problems can be directly linked to the egregious pay inequality between CEOs like Thompson, and the rest of the work force who are responsible for the day-to-day operations of the firm. In fast food in particular, CEOs earn more than 1,000 times the pay of the typical front-line worker, a fact that has accompanied increasing legal, regulatory, and operating risks for shareholders at McDonald’s and other leading companies in the fast food sector.

The stock market surge following Thompson’s exit shows that shareholders are still only dealing with the symptoms of poor performance, even though they have the capacity to deal with the inequality lying at the heart of the threat to their bottom line. It isn’t just about making changes at the top, although reigning in CEO pay is one good place to start. Outside of the C-suite, fast food workers are the lowest paid in the economy with wages that have barely budged in more than a decade.

And as the most unequal sectors in the economy continue to provide the greatest numbers of new jobs, investors, fast food workers, and scorned CEOs are not the only people forced to cope with the fallout.