Unlike McDonald's and Yum! Brands, Chipotle Mexican Grill Doesn't Rob its Employees

Wage theft is just another shameful chapter of the fast food story, a chapter from which Chipotle will excluded.

Leah Niu
Leah Niu
Apr 19, 2014 at 11:10AM
Consumer Goods

Analysts can throw numbers and figures at you all day long without giving you a clear sense of how a company is run, what it values, and the sustainability of its operations. In order to take a long view and understand the story behind Chipotle Mexican Grill (NYSE:CMG), Yum! Brands (NYSE:YUM), and McDonald's (NYSE:MCD) let's look at how each company treats its employees so we can get a clear sense of what these companies value.

There's no business like food business
A company's approach to employee engagement can tell us a lot about its core values and how it prioritizes its key stakeholders. If a company is proactive and operates in a sustainable manner, that is, it earnestly analyzes and mitigates the economic, environmental, and social risks it faces, it likely has a great deal of reverence for its shareholders, supply chain, and employees. If a company chooses to ignore these stakeholders and their concerns, it may have to take a defensive approach in order to retroactively engage with its scope of influence. Thus, it will lose out on the opportunity to build loyal relationships, which is a risky tactic indeed.

Source: Chipotle Website

Proactive engagement
Chipotle takes a clear stance when it comes to storefront expansion; it owns and operates all of its stores. In doing so, the burrito maker can focus on cultivating a "culture of top performers" by emphasizing the importance of hiring and empowering folks who have a passion for the Chipotle philosophy. A focus on maintaining high standards for its operations allows Chipotle the ability to embrace its employees' unique personalities and strengths in order to develop the full potential of each storefront.

By owning and operating each of its stores, Chipotle is able to build up a quality management base from the inside out. The burrito maker believes in the importance of empowering its employees, as it sees the value in promoting folks who are just as committed to the company as the company is to them.

In order to implement this value, Chipotle has relied on internal promotions to staff about 85% of its salaried management and about 96% of its hourly management. The company encourages a culture based on advancement through teamwork. In doing so, it provides its employees with a clear career trajectory and thus promotes loyalty and reduces turnover.

When a company takes a proactive approach to ensuring that its employees are happy and making sure that they have the option to advance their professional potential, this fosters a secure and sustainable workforce and thus mitigates risk.

Defense Mechanism
Both Yum! and McDonald's, on the other hand, take retroactive approaches to engaging with their vital groups of employee stakeholders. By opting to franchise out the majority of their operations, these fast-food moguls keep their workforces at arm's length. In doing so, both companies have been vulnerable to a number of risks such as employee dissatisfaction and high turnover.

Source: McDonald's Website

The traditional franchise model leaves little room for employee advancement, as professional growth is generally limited to store-specific management positions. With no real potential to evolve beyond the storefront, this has discouraged employee loyalty to companies like Yum! and McDonald's.

On top of limited growth opportunities, employees of franchised companies have been susceptible to wage theft. Being denied legally required breaks, doing work while off the clock, and not being paid for overtime worked are a few examples of this abhorrent practice. In fact, McDonald's franchise employers are currently being sued for exploiting corporate-provided computer systems in order to manipulate workers' hours. Practices like this run rampant in the traditional fast-food franchise model, as about 89% of fast-food workers have reported being victims of wage theft.

Source: Hart Research

Long story short
Chipotle takes a hands-on, transparent, and proactive approach to engaging with its employee stakeholders, and thus reduces its employee dissatisfaction and turnover risk.

Yum! and McDonald's both take hands-off, opaque, and retroactive approaches to dealing with their respective workforces. Thus, this opens up both companies to lawsuits and the media firestorm that likely follows.

The questions shareholders should be asking are: "Which story do I believe in? Which companies' values will fit well in my portfolio for the long term?"