Lessons From Restaurant CEOs in the Minimum Wage Discussion

CEOs will continue to deal with questions of income equity because many rank-and-file American workers remain financially insecure and don’t perceive a lot of help from a slow-growing economy. The strictures of the Affordable Care Act—which are forcing CEOs to shove more workers below the 30-hour-a-week threshold that requires the offer of health-insurance coverage—put even more pressure on individuals to make each hour worked as lucrative for them as possible.

Activist pressure on CEOs in retailing and restaurants is especially acute on this issue. Wal-Mart continues to be targeted, for example, even though CEO Doug McMillon recently said that the company now plans to abandon the minimum wage for the less than 1% of its 1.3 million U.S. employees who are still compensated at that level.

And fast-food leaders including McDonald’s and Burger King remain targets for labor agitators, and some of their own employees, who want the chains and the industry to offer a “living wage” starting at as much as $15 an hour, even to their entry-level employees.

Buffalo Wild Wings CEO Sally Smith believes that wage pressures are one of the most significant challenges for her industry, besides the complications posed by complying with the ACA. “We need to have a discussion on the minimum wage and wages in the restaurant industry,” she told CEO Briefing. “And it’s important that it be an informed discussion.”

The fast-casual leader strives in an industry where “margins are pretty slim, with the average company earning about 4% after taxes,” Smith noted. “That has to go into building additional restaurants that provide more employment, refurbishing others, and having some capital to put back into the business. So as wages increase, and there are additional pressures on food costs these days, restaurants actually have to look for more ways to automate” to ease labor costs, she says.

“And in that case,” Smith explained, “you’re going to be looking for more experienced people. I’m afraid maybe you price high-school students out of jobs.”

In fact, she said, when restaurants are pressured to raise minimum wages, it begins to shut off other traditional forms of opportunity in the business. “We may start a cashier out at minimum wage,” Smith said, “but soon they may move into a shift-lead position and be earning significantly more than minimum wage.”

Long-term, the restaurant business is a great employment opportunity for many. People can start out at minimum wage but “with our growth at Buffalo Wild Wings, for instance, we’re always looking for managers. You can rise rapidly through the company to much higher income. A former server is now our vice president of international operations.”

Many CEOs might relate to another point by Smith: that even if they leave the food-serving business at some point, having served as a bus person, or cook, or dishwasher, or valet was an early point of real-life exposure and training for many Americans who went on to have successful careers in other fields—some running businesses. And who knows how many people might be robbed of such opportunities as a result of forcibly high minimum wages?

“Our industry essentially trains America’s workforce,” Smith declared. “Maybe 50% of Americans have had a job in the restaurant industry at some point; often it’s their first job. And I’d like to think that, in the short term, we train people how to show up on time and be dressed appropriately and interact with the public.”