Financial incentives can motivate managers by satisfying their needs but only to a retain extent. According to Mason’s hierarchy of needs , once a lower level of needs has been satisfied, It will no longer serve as a motivating factor for the managers. As such, satisfying their higher level of needs Is required. Therefore, in the context of McDonald’s, once the managers are satisfied with their basic needs (pay), the monetary Incentives will no longer nouveau them. There Is a need to provide managers with non-financial incentives such as promotion, increased autonomy and recognition so as to fulfill their esteem needs.
Thus, it is necessary for McDonald’s to identify the needs of the first-line managers and incorporate suitable financial and non-fallopian incentives into the compensation package. 2. 2 Remuneration System Generally, there are two types of pay systems; the fixed-pay system and the performance-based pay system . The former guarantees managers a fixed salary regardless of their performance. This may be a disadvantage as It encourages managers to develop a complacent attitude and hence shirk from their responsibilities.
An advantage of having a fixed pay is that managers are guaranteed Under the performance-based pay system, which emphasizes incentive bonus, managers’ pay varies with their performance. This may be beneficial to the company as it motivates managers to put forth maximum effort in their work. However, it may face objections from managers as it does not provide them with the assurance of a stable income. Therefore, when designing the compensation plan, McDonald’s need to weigh the advantages and disadvantages of both systems before deciding which system to use. 2. Bonus Basis Another factor McDonald’s has to consider is whether to base bonuses at the company level or solely at the business unit level. Awarding bonuses at the corporate bevel induces collaboration and teamwork among different units and hence promotes the interests of McDonald’s collectively. However, there are factors in the corporate level such as shifts in management philosophy and competitive pressures that are beyond the control of managers at the business unit level. Managers may not be happy that their bonuses are being based on factors they cannot control.
On the other hand, where managers’ bonuses are based at the business level, bonuses are tied to the store performance. It will strengthen the link between rewards and performance thus motivating managers to strive harder towards attaining their unit goals. The disadvantage is the lack of teamwork among the store. 2. 4 Performance Measures In designing the compensation plan, appropriate performance measures should be used in the compensation plan to evaluate manager’s performance. When selecting the performance measures to be used, McDonald’s needs to ensure that these measures align managerial behaviors to the company’s goals.
For instance, McDonald’s should use measures that are congruent with organizational goals such as the application of quality, service, cleanliness and value (SC&V). Furthermore, here is a need to use more than one measure with different weights to give a fair evaluation of manager’s performance. A benefit of using multiple performance measures is that it reduces managers’ bonuses dependency on uncontrollable factors such as changes in market demand. McDonald’s has to consider the degree of subjectivity of the various performance measures.
The higher the subjectivity in the performance measure, the harder it is to measure managers’ performance accurately. Managers may feel that their performance are not fairly evaluated and thus will not be motivated to work for the incentives. Another factor that McDonald’s needs to consider when drawing up managerial compensation plan is to ensure that targets set are achievable. Targets that are set too high may be considered as unattainable by managers, making them unmotivated to work towards the targets. If the targets are set too low, it will cause managers to adopt an indolent attitude as the targets are easily achievable.
Thus the targets should be set within an attainable range. McDonald’s can consider using internal and external benchmarks such as master budget, company’s past performance and industrial standards to determine a seasonable target for each performance measure. 2. 6 Design Care should be taken to ensure that managers understand the compensation plan design. Time will be wasted trying to explain complicated plans to the managers. In addition, they will not be motivated to work hard if they do not fully understand the plan.
