Threading the Needle with Competitive Wage Compensation Plans

Franchise owners looking to build a competitive wage structure can take a page from the Goldilocks fable, where the goal is to not pay too much or too little. The objective is to find balance and build a wage scale that’s “just right.”

That’s easier said than done, especially in an ultra-competitive business environment where every dollar matters.

A case in point: According to a recent survey by SCORE, a small business data provider https://www.score.org/resource/infographic-small-business-jobs-report-part-2-help-needed-recovery, 60.5% of employers cite increased wages as the top change they’ve made to attract/retain new employees.

That’s why brand name franchise-based businesses like McDonalds, Chipotle and Chick-fil-A are boosting their minimum wages to $15 per hour and beyond in an effort to better compete on the issue of competitive wages.

“For franchise operators, a big problem right now is getting good talent in the door,” said Emily Parrish Miller, a Franchise partner at HORNE in Mobile, Alabama. “If you don’t have a competitive wage structure that attracts good workers, it’s difficult to keep pace with a competitor who does have a competitive wage structure.”

Wages are a big issue for franchisees at a time when jobs are hard to fill, and reliable talent is hard to come by.

A June 2021 study from the National Coalition of Associations of 7-Eleven Franchisees (NCASEF) https://ncasef.com/14170-14170/ “finds an overwhelming majority have raised their wages beyond what is mandated by their state or local minimum wage, but still face chronic understaffing.”

That scenario leads to adverse business conditions franchise owners may not have seen coming.

“This survey proves what our franchisee members have been telling us for a long time. They can’t find enough people to work, and they are working too many hours themselves,” said Jay Singh, chairman of NCASEF, an independent organization representing the interests of U.S. 7-Eleven franchises.

“What’s most telling is that only 13% of franchisees who responded said overnight operations were financially profitable to them as franchise owners,” he said. “That’s because the economic environment we find ourselves in has changed, but the royalty structure for 7-Eleven franchisees hasn’t.”

Building a competitive wage structure that works – for everyone.

 The good news? A robust wage model can turn the tide and get good talent in the door – if, that is, franchise owners get creative and get some help.

“A franchise owner should look at wage compensation from a “what works” perspective,” said Lauren Hanat, a Franchise partner at HORNE in Gulfport, Mississippi. “Embracing strategies, market and pricing reviews, employee bonuses and third-party partners, for example, can get strong employees in the door.”

What else works when putting together a competitive employee wage structure? Here are several ideas for franchise owners.

Get some payroll perspective. A little research can go a long way when it comes to wage and compensation strategies.

Check around and see what similar franchise businesses are paying their new and existing employees. Leverage digital compensation platforms like PayScale to gain clarity on industry employee payment structures. While much information on the site is free, franchise owners can pay to drill down deeper and get more thorough information on wage and salary data.

“Additionally, many franchises and third-party providers have huge databases that franchise owners can analyze to obtain good wage compensation data,” Hanat said.

Get creative with “extra” payment options. Franchise owners should use all the tools at their disposal to get and keep good employee talent.

“For example, recruiting bonuses and employee retention bonuses (after six months or more) can attract solid employees on the job,” Miller said.

Make compliance a special focus. Franchise owners can’t afford to overlook compliance and regulatory risks when building a trusted wage compensation program.

“Employee labor laws are increasingly complex, and that issue isn’t going away for franchise owners,” Miller said. “You’ll need to fully understand key issues like minimum wage obligations, the method and frequency of payroll payments, and record-keeping regulations, among other issues.”

Tax issues certainly factor into that equation. One way to get in front of wages and tax impact issues is to examine the IRS’s “Understanding Employment Taxes” web page, which can be found at https://www.irs.gov/businesses/small-businesses-self-employed/understanding-employment-taxes.

Know in advance what you can afford to pay employees. Once you’ve established a broad-based employee wage compensation structure, start calculating what you can afford to pay staffers relative to your franchise’s profit margin and your operational costs.

“Examine your wage compensation structure from a market standpoint,” Hanat advised. “For example, ask yourself how much you have to raise the price of a chicken sandwich or premium pizza to hire good people and still make a strong return-on-investment from your business.”

Work with a trusted third-party services provider. Partnering with a seasoned third-party franchise partner can help you build a wage compensation model that meets the unique needs of your business. These partners include human resources, marketing and sales, just to name a few.

A company like HORNE, for example, can apply firsthand industry experience to help franchise owners streamline operations and fuel brand growth and cost efficiencies through financial processes, planning and valuation.

“From onboarding to termination, compensation is one issue that can keep a franchise owner up at night,” Miller said. “By bringing us on board as a partner, you can better manage the wage compensation process, gain access to inside information on wage and benefit structures, and curb (and even eliminate) onerous compliance risks.”

“At HORNE, we know what works and we know what doesn’t work. That’s one of the many benefits you get with a seasoned payroll, accounting and operational third-party provider,” Miller added.

The takeaway on building competitive wage structures

 It’s not easy to construct a competitive wage structure for a franchise business that checks all the boxes and strikes the right balance between happy, productive employees and a good return on investment.

That said, building a total compensation plan is a necessity for any franchise owner.

By getting in front of the issue, using the best data, and partnering with a trusted payroll and accounting specialist, franchise owners can establish a reliable, fair, equitable and productive long-term compensation plan that helps grow their business over the long haul.

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