Position By An Investment Analyst - "3 Reasons Why McDonalds Would Be Smart To Pay $15 An Hour...Objectively Critique/evaluate probity of this article...

[Selene]

I found this an interesting article to critique...meaning to positively evaluate the argument the author is making, whether it has 0 value, or, 100% value and it's weaknesses/strengths in terms of working in reality.

http://www.dailyfinance.com/2013/09/18/mcdonalds-smart-reasons-pay-15-an-hour/

1. If Anyone Can Pay More, It Would Be McDonald's

Economists estimate that McDonald's would take an $8 billion hit annually if its employment costs rose to at least $15 an hour in wages.

That's a lot of money, but McDonald's does have some of the highest profit margins in the industry. Mickey D's has clocked in with net margins of 19.85 percent over the past four quarters. Put another way, nearly $0.20 off of every dollar in sales makes it to the chain's bottom line after taxes. That's nearly double Burger King's (BKW) net margins of 10.53 percent.

The popular argument is that McDonald's can afford to pay more. It's not an entirely fair shot. After all, these are the net margins of the parent company.

2. McDonald's Would Crush the Competition

Let's give this a capitalist's attempt at game theory.

McDonald's takes the lead by becoming the first national chain to embrace $15 as the starting line for employees. Right off the bat, there's goodwill with consumers. This is important, because comparable-store sales at the typical McDonald's store have been struggling for nearly a year. The plan to get consumers to pay up for higher-priced McCafe beverages, chicken sandwiches on artisan bread, and exotic salads has run into a few speed bumps because diners crave more of the cheaper Dollar Menu items.

and...

3. It's Going to Happen Eventually

California's legislature OKed increases in its minimum wage last week. The current rate of $8 an hour in the state will go up to $9 an hour next summer and up to $10 come 2016.

Sure, that's just California. However, it's not as if every state is tethered to the $7.25 an hour federally mandated minimum. Washington is already at $9.19 an hour, and 10 states bump their minimums higher every year to keep up with inflation.

All of these gyrations will test chains hugging the bare minimums as pay rates inch higher over the years. Just think how McDonald's would be all set for several years at $15 an hour. As the competition sweats out the compromise between food quality and menu prices with every uptick, McDonald's can just keep going along as if nothing's happening.

A...

[Frediano]

He's identified a huge opportunity to move in on McDonalds and clean up, by going into the business and offering his employees $15/hr.

All that is left to ponder is, why isn't he moving in on this sure thing? The world is overflowing with capital looking for sure things.

You mean he's not? He's just talking about it? Is that what an investment 'advisor' does? Talk about sure things without putting his own skin in the game?

[Frediano]

McDonalds is practically an extended social service. What this article is saying is, "Let's push the bottom rung of the nation right off the ladder, and replace the labor at McDonalds with the next desperate rung."

What some think is going to happen is, the bottom desperate rung is going to get a much needed raise and some relief-- we pat ourselves on the back for our compassion for suggesting that others pay them more. What will happen instead is, the bottom desperate rung will suddenly be competing with folks who used to think $7hr was too little to pursue, but who now marginally think $15hr is worth it. If employers are forced, as a minimum, to hire $15/hr labor, then that is who is going to get the jobs...and the former lowest rung on the ladder gets thrown to the curb.

This is Penguin armed constructivist folly at its finest. (Constructivist: something called "S"ociety is built by treating individuials as Tinker Toys to be arranged by clueless paternalistic elites.)

[Frediano]

"Capitalism" has been redefined in modern times to be equal to "the financial industry."

"Capitalists" are today folks like the 'investment analyst" author of this article.

Value proxies are not value. The fundamental relationship between value proxies and value in our economies has been totally gamed-- not only by 'the financial industry', but by government itself. We are at the value-less bottom of every hill, staring at the 0s piling up behind our value-less-value proxies. We have lazied our way into a cul de sac.

"Investment analysts" are helping to lead us to a world where $100B in capital is thrown at a Facebook to employ 3400 webmonkeys.

[merjet]

The author writes for The Motley Fool. Pretty foolish idea. McDonald's net income the latest 4 quarters was $5.5 billion. Yet he wants McDonald's to pay $8 billion more in wages? What does he believe would happen to the price of McDonald's stock if McDonald's did what he wants?

What do you think he would say if we advised him to donate 145% of his income every year to good causes of our choosing?

Edit: More than 75% of McDonald's restaurants are franchises. The franchisees set pay rates.

[syrakusos]

Edit: More than 75% of McDonald's restaurants are franchises. The franchisees set pay rates.

Right... and ...

Many of them are Black or Hispanic and 300 of those are millionaires.

McDonald's exemplifies the role of small businesses in Americans' upward mobility. The company is largely a confederation of small businesses: 85 percent of its U.S. restaurants -- average annual sales, $2.2 million -- are owned by franchisees. McDonald's has made more millionaires, and especially black and Hispanic millionaires, than any other economic entity ever, anywhere.

George Will here (citing common statistics).

Premise granted here:

Also, the corporation has helped create hundreds of black millionaires. In 2007, the National Black McDonald’s Operators Association had a membership of more than 300 African American owners who operated 1,300 restaurants with collective sales of $2.7 billion. The group was co-founded by Roland Jones, among the first black McDonald’s executives. He joined the company in the mid-1960s. In November, Jones told the Los Angeles Times: “McDonald’s has made more African American millionaires than everyone else. … We are into the second and third generation now of owners.” -

Madame Noire online here while warning about obesity.

Basically, the Motley Fool writer, Rick Munnariz just tosses out stuff to read. Read his Motley Fool bio here. He does not need to be right: he only needs to be interesting for a day.

[Francisco Ferrer]

He's identified a huge opportunity to move in on McDonalds and clean up, by going into the business and offering his employees $15/hr.

All that is left to ponder is, why isn't he moving in on this sure thing? The world is overflowing with capital looking for sure things.

You mean he's not? He's just talking about it? Is that what an investment 'advisor' does? Talk about sure things without putting his own skin in the game?

Brilliant!

[Selene]

He's identified a huge opportunity to move in on McDonalds and clean up, by going into the business and offering his employees $15/hr.

All that is left to ponder is, why isn't he moving in on this sure thing? The world is overflowing with capital looking for sure things.

You mean he's not? He's just talking about it? Is that what an investment 'advisor' does? Talk about sure things without putting his own skin in the game?

Brilliant!

Yep.

[dldelancey]

I haven't read the article, but some thoughts about the points you quoted:

1. Just because you can doesn't mean you should. Even my 9-year-old knows that. "Because I can" does not an argument make.

2. The assumption is that the cost of labor would significantly increase but the prices of the goods would stay the same? Again, I'm pretty sure my 3rd grader could identify the financial naivety in that assumption. That dollar menu the consumers so love would no longer exist. Whatever goodwill the wage increase garnered would be short-lived.

3. This author is suggesting that an employer start his lowest level employees at a significantly higher wage than the competition and then let those employees languish at that wage for, what, like, ever? That totally removes the employer's ability to reward over-achieving employees. Which means he's never going to have over-achieving employees. And what of salary equity at higher levels? An increase in minimum wage would require adjustments up the ladder, would it not? After all, if the assistant night manager is already making $15.01 an hour, what is her incentive to continue in the position that requires more of her effort when she can simply do less and make just as much money?

Seriously? I'm going to die eventually. That doesn't mean I should hasten the event.

[Selene]

Precisely.

I thought this would generate excellent critiques.

[Backlighting]

With regard to minimum wage I needn't go any farther than to say, what is agreed to between employer & employee is their own dam business.

[Frediano]

Edit: More than 75% of McDonald's restaurants are franchises. The franchisees set pay rates.

Right... and ...

Many of them are Black or Hispanic and 300 of those are millionaires.

McDonald's exemplifies the role of small businesses in Americans' upward mobility. The company is largely a confederation of small businesses: 85 percent of its U.S. restaurants -- average annual sales, $2.2 million -- are owned by franchisees. McDonald's has made more millionaires, and especially black and Hispanic millionaires, than any other economic entity ever, anywhere.

George Will here (citing common statistics).

Premise granted here:

Also, the corporation has helped create hundreds of black millionaires. In 2007, the National Black McDonald’s Operators Association had a membership of more than 300 African American owners who operated 1,300 restaurants with collective sales of $2.7 billion. The group was co-founded by Roland Jones, among the first black McDonald’s executives. He joined the company in the mid-1960s. In November, Jones told the Los Angeles Times: “McDonald’s has made more African American millionaires than everyone else. … We are into the second and third generation now of owners.” -

Madame Noire online here while warning about obesity.

Basically, the Motley Fool writer, Rick Munnariz just tosses out stuff to read. Read his Motley Fool bio here. He does not need to be right: he only needs to be interesting for a day.

Basically, the University of Miami has a fine football team.

Mike, need a : after the http in his bio link.