McDonald's Just Took a Page From Abraham Lincoln's Playbook

By Markets Fool.com

McDonald's has been in turmoil recently, as new CEO Steve Easterbrook seeks to quickly rejuvenate the fast-food giant. Some of the more important moves announced include increasing pay and benefits for front-line workers and refranchising additional restaurants.

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New McDonald's CEO Steve Easterbrook is making lots of changes. Photo: The Motley Fool

In pursuing these initiatives, Easterbrook just took a page out of Abraham Lincoln's playbook. Unfortunately, he didn't pick one of Honest Abe's finest moments to emulate.

Raising (some) employee wages
McDonald's has long been a flashpoint in the broader debate about the U.S. minimum wage. It has been one of the biggest targets of unions, activists, and workers pushing for a living wage of at least $15/hour for all employees.

Last month, McDonald's announced that it would increase the minimum wage in all company-operated restaurants to $1/hour above the local minimum wage. By the end of next year, the average hourly wage at company-operated restaurants will be more than $10/hour. Employees will also accrue up to 5 days of paid vacation each year, and will receive new education benefits.

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This move didn't mollify McDonald's critics. Indeed, many panned the move as a PR stunt, saying that $10/hour was still too little to live on. Moreover, they noted that 90% of McDonald's restaurants in the U.S. are franchised, meaning that more than half a million McDonald's workers would not be eligible for the raises or paid time off.

Enter the refranchising plan
The latest round of changes unveiled at McDonald's will only add more fuel to these critics' complaints. This week, the company announced plans to refranchise 3,500 company-owned restaurants across the world by 2018. That would raise the global percentage of franchised restaurants to 90%, up from 81% today.

McDonald's has not provided a market-by-market breakdown of its refranchising plans. But with the U.S. being its biggest market by far, it's virtually inevitable that a significant number of domestic restaurants will be sold off to franchisees.

As a result, more McDonald's workers in the U.S. will come under the purview of franchisees, most of whom have vehemently opposed the company's pay raise initiative. In short, with one hand Easterbrook is providing pay raises to struggling McDonald's employees, but with the other he is taking them away by selling off company-owned restaurants.

Deja vu
Easterbrook's latest move is reminiscent of Abraham Lincoln's strategy with the Emancipation Proclamation. While the Emancipation Proclamation is often thought of as having freed the slaves, it only freed the slaves in the rebelling states of the Confederacy.

Meanwhile, slave states that had remained in the Union were unaffected. Furthermore, Lincoln didn't apply the Emancipation Proclamation to territory that the Union had already reconquered. In other words, Lincoln only "freed" the slaves in territories that he didn't control!

At the time, it was mainly a symbolic gesture. Moreover, since Lincoln had grounded the Emancipation Proclamation in his war powers, it was unlikely to survive a court challenge after the war ended. (That's why a constitutional amendment was ultimately required.)

The upcoming pay increase at McDonald's U.S. company-owned restaurants will be nice for the tens of thousands of workers who benefit. But by announcing plans to refranchise more restaurants, McDonald's is likely adding tens of thousands of workers to the already long list of McDonald's franchise employees who won't be getting these raises.

It's nice that McDonald's is taking a stand for higher pay -- even if it's not as high as what most workers and activists want. However, just like the Emancipation Proclamation, it's mainly a symbolic gesture. By moving even more toward a franchise model, McDonald's is ensuring that its pay raises won't have much of an impact.

The article McDonald's Just Took a Page From Abraham Lincoln's Playbook originally appeared on Fool.com.

Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool recommends McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.