The McDonalds’ Factor

By Peter DeHaan, Ph.D

Peter DeHaan, Publisher and Editor of Connections MagazineI’ve never met anyone who felt they were over paid. Occasionally someone will privately admit to being adequately compensated, but most people are quick to assert that their pay is not reflective of the work they do or their value to their organization. This is especially true with call center agents. I have experienced this repeatedly, both in running call centers and as a consultant. In either instance they view me as someone who can improve their pay rates, elevating paychecks to an appropriate and commensurate level. What is perplexing is that it never matters what the pay rate is, the consistent belief among agents is that their pay is too low.

But what is an appropriate rate of pay for call center agents? While employee compensation is an economic means by which they support themselves, in North America money is also an esteem issue by which workers measure their importance and value to their company, society, and family. Although I strenuously object to money as being a measure of ones’ true worth, instead favoring things like character and integrity, the money-focused, materialistic society in which we exist continues to warp our staffs’ priorities and skew their perspectives.

If agent compensation were an issue onto itself, there would be little need to worry about it; merely pay agents what they ask. Obviously it is not that simple. Agent compensation is a trade off. Pay too little and turnover shoots up, training costs increase, and morale decreases. The ensuing turmoil causes quality to suffer, callers to complain, and clients to defect. However, paying too much causes the outflow of money to exceed the inflow of cash. No business can stay in business if it continually loses money. The question is do you seek to maintain ongoing employment for agents at the possible risk of sub-standard pay or do you increase pay at the risk of losing those same jobs when the company closes its doors because it is no longer competitive?

Compensation is the single greatest expense that a call center faces. It accounts for anywhere from 40% to 85% of a call center’s total expenses, with the actual level being a factor of call center size and its economies of scale. Some managers attempt to back into appropriate pay rates. They apply an arbitrary labor percentage to their total revenue. Then they allocate the resulting dollars to the schedule that has been projected for their target service level. The resulting calculation is a scientifically derived hourly rate for their call center agents – and it is usually wrong.

Like most call center managers, directors, and owners, it has always been my aim to pay an appropriate level of compensation to call center agents. Not too much as to jeopardize the future viability of the business, but not so low as to deprive staff of what they can and should be earning. Again, that brings us back to the question of what is the appropriate rate? Fortunately the answer is close to home and easy to determine; it resides in your local fast-food restaurants. I call it the McDonalds’ factor.

I understand that when McDonalds looks for a location for a new restaurant they invest a great deal of time, effort, and money to determine the ideal spot, which will result in optimal patronage and generate maximum revenue and profitability. They look at roads and traffic patterns and consider where people live and work. They contemplate area growth trends and economic developments. They also analyze the demographics of the neighborhoods under consideration to establish the propensity of their target market to consider McDonalds as an appropriate eating venue. Once the best possible location has been ascertained, then they set about establishing a restaurant.

Conversely, the story goes, when Burger King wishes to open a new restaurant, they merely look to see where McDonalds is and build close by. Whether this explanation is factual, an intriguing explanation of why both restaurants always seem to be near each other, or merely an amusing anecdote, it does offer an important lesson: don’t duplicate effort if someone else has already done the work. What am I saying? Should you move your call center next to McDonalds? No, but you can look to them to determine what your starting pay should be for your agents.

In explaining why McDonalds, Burger King, and other successful fast-food businesses can serve as a benchmark for starting labor rates, I don’t want to appear disparaging towards their employees or the job they do. Fast-food eateries are often a teenagers’ first foray into the workforce, providing both a point of entry and a reference for their ongoing employment and future success. (You may recall past McDonalds commercials, which addressed this very point, highlighting successes achieved by former employees.)  Plus, it is possible to build a satisfying fast-food career and earn a nice living for those wishing to advance within the organization. Furthermore, some employees at fast-food restaurants are excellent workers, happily providing outstanding service with pleasantness and efficiency. However, often recollections of fast-food establishments center on those employees who do not perform at that high level and the ensuing frustrations that their actions and attitudes can cause.

Quite simply, if you hire call center agents at a fast-food wage, you get a fast-food mentality and a fast-food performance. Yes, you will find the occasional star employee, but how long do you expect to retain him or her? What you will find is people with little or no work history, who view the job as temporary, have little concept of customer service, and fail to comprehend the necessity of being to work on time, much less the courtesy of giving two-weeks notice before quitting. With the average agent training time exceeding the average employee tenure at a fast-food restaurant, you can’t afford to hire someone who may quit before they are trained. Yet when you compete with fast-food restaurants for entry-level employees, this is very likely the outcome you will achieve.

Now, some managers may emphatically assert that they can’t afford to match what the local fast-food restaurant offers. Yes you can – in fact, you must – though you may need to raise your rates first in order to do so.

So, we have established the need to pay more than fast-food restaurants, but how much more? I have found that even paying a quarter an hour more can make a difference. Fifty cents to a dollar more will have a much larger and more profound effect – if you do it right. What you must avoid, when raising your starting wage, is to merely make it easier to find the same caliber of people; you need to raise your standards and expectations too. When you are paying more, it is reasonable to expect more in return.

In working with one client, the staff kept complaining that “people at McDonalds earn more than we do.” After the fifth such complaint, I wanted to discover the truth. I invested an hour and visited the seven fast-food restaurants within walking distance of the call center. The staff’s perception was in fact wrong, but the misinformation had gone unchallenged and been repeated often enough that the falsehood had become accepted and believed. Correcting the misconception was the first step in countering low employee morale and quelling worker dissatisfaction. The second step was to implement a small adjustment to the starting wage to make a better distinction between the two jobs.

At another client’s location, agents had a much higher starting wage, but they too complained of being under compensated. Again, I did my quick little survey and found their starting wage to be three dollars higher than the fast-food benchmark. No adjustment was needed. Fortunately, accompanying this higher starting wage were tighter pre-employment screening and elevated expectations. The caliber of the staff was noticeably greater than what I typically see in call centers. In addition to watching them process calls, I also saw them in action at a staff meeting. The most surprising thing was that all but one actually attended! At the meeting, they conducted themselves professionally and made positive contributions that were supportive and relevant. Some gave reports on assignments while others updated coworkers about committee work. True, the call center manager had a huge part in making this happen, but she could not have been successful had the organization’s starting pay and hiring practices not provided her with quality people.

Therefore, to determine the appropriate hourly rate for your call center agents you have four options:

  1. Continue what you are doing (which probably isn’t working),
  2. Pay someone thousands of dollars to do a “proper” wage study,
  3. Refer to local wage surveys (which seldom list data for call center agents), or
  4. Spend an hour visiting the local fast-food restaurants.

Applying the McDonalds’ factor has never let me down and, I suspect, it won’t let you down either.

Peter DeHaan PhD is the publisher and editor-in-chief of Connections Magazine and a passionate wordsmith. Connect with him on his personal blogs, social media sites, and newsletter, all accessible from peterdehaan.com.

[From Connection MagazineDecember 2003]

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