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OM in the News: Paying Employees to Stay, Not to Go

July 26, 2014
This new In-N-Out Burger in Encinitas, CA, pays well above the state's $9 minimum wage, and the federal $7.25 minimum

This new In-N-Out Burger in Encinitas, CA, pays well above the state’s $9 minimum wage, and the federal $7.25 minimum

In-N-Out Burger, the chain based in California, pays all its employees at least $10.50 an hour, while Shake Shack, the trendy, lines-out-the-door burger emporium, has minimum pay of $9.50. Moo Cluck Moo, a fledgling company with two hamburger joints in Michigan, starts everyone at $15. “The No. 1 reason we pay our team well above the minimum wage is because we believe that if we take care of the team, they will take care of our customers,” said the CEO of Shake Shack.

The nation’s fast-food restaurants, which employ many of the country’s low-wage workers, are at the center of the debate over low pay and raising the federal minimum wage — fueled by protests demanding that fast-food chains establish a $15 wage floor, writes The New York Times (July 5, 2014). McDonald’s was pilloried last year for a hotline that advised employees how to seek food stamps and public assistance for heating and medical expenses.

Fast-food industry officials have long contended that raising the minimum wage would result in fewer jobs and higher prices. Complaining of low profit margins that generally accompany inexpensive menu items, most fast-food restaurants try to keep wages down — the median hourly wage for fast-food workers nationwide is $8.83, compared with $11.50 at Boloco and $10.70 at Shake Shack. In 2002, when the minimum wage was $5.15 an hour, Boloco raised its minimum pay to $8. It also began subsidizing commuting costs, providing English classes to immigrant employees and contributing up to 4% of an employee’s pay toward a 401(k). A major benefit of paying $15, said the owner of Moo Cluck Moo, is “we don’t have any turnover. We don’t have to train people constantly.”

Classroom discussion questions:

1. Why are these wages an operations issue?

2. How does this article relate to the human resource strategy we discuss in Chapter 10 on page 398?

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Supply Chain Management Research

Andreas Wieland’s supply chain management blog for academics and managers

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