A push to hike the minimum wage to $15 an hour is reportedly gaining traction in Seattle, where City Council and mayoral candidates are weighing the issue. The state of Washington already has the nation's highest hourly minimum wage of $9.19.
Last month, while various wage protests were taking place around the country, Breakout spoke with Denny's (DENN) CEO John Miller about the matter. As head of a national restaurant chain, he understands the economics of employee pay as well as anyone in the country. He also understands that making sure his servers, cooks and crew members are happy and productive is critical to any business.
That doesn’t mean Denny’s pays workers a king’s ransom. Miller says they are well above market average pay at his company’s nearly 1,700 locations. According to Glassdoor.com Denny’s line-cooks are pulling in $11.32 per hour on average, with hostesses making $8.32.
Those are admittedly extremely low rates but Miller makes no apologies. For one thing the level of employee turnover in the service industry is extremely high, skewing the average pay numbers towards the starting wage. Most workers hired by the casual food industry don't hang around long enough to get a raise, but the ones who do can advance quickly.
What Miller and Denny’s franchisees are really offering has nothing to do with starting hourly rates. Start-up jobs are all about opportunity. In the case of Denny’s, those opportunities are going to people who might not otherwise get a foothold in a workplace where upward mobility is a realistic goal.
“The benefit of this industry is we’re one of the largest employers of those who don’t have a good start otherwise,” he says. “Many can start in this industry and work their way to management or ownership."
If the pay is low to start in the service industry the chances to advance are much higher than other fields.
“This industry should be the poster child for how it ought to work because we give people a place to start,” Miller states with what seems an obvious point that those on the side of offering career-level pay for start up jobs seem to miss. Most industries don’t have the scale to give so many people a place to start.
To those who scream in protest at the idea of someone going from the bottom rung to penthouse suite simply by working hard, Miller points to Dawn Lafreeda. After starting at Denny’s as a hostess when she was 16 years-old, Lafreeda bought her own franchise by the time she turned 24. Today she’s one of Denny’s biggest franchisees with 70 locations in six states and revenues of over $60 million. She also has 1,800 employees, some of whom she mentors by making them partners.
Is she the exception in a cutthroat industry? Of course. That’s how capitalism is supposed to work. The best and the brightest are rewarded. If they have a semblance of decency they try to help others up the ladder. For the employees who seize that opportunity the rewards are vast. Those unwilling or unable to stand-out in a good way leave Denny’s with invaluable experience dealing with people and a sense of responsibility that comes with honest work.
Not that it’s all sunshine and roses at Denny’s or any other workplace. About 90% of Denny’s locations are franchised and the company gives those owner/partners a lot of latitude in how they manage their staffs.
This hands-off approach can lead to trouble as it did last year when a man named John Metz threatened to cut staff to part-time and charge a 5% “Obama Surcharge” in response to the President’s Affordable Healthcare Act. Metz owns 35 Denny’s and employs 1,200 people.
The company quickly put a freeze on the hikes but Miller says Obamacare and commodity costs are going to lead to higher prices for consumers.
As for the argument that no one can feed a family earning minimum wage, Miller says that’s an issue for the employees and their families to work out for themselves. Denny’s pays slightly better than the free market rate for the work they offer. If that’s not enough for a worker perhaps a job at Denny’s isn’t the right fit.
Ultimately the argument on employee pay comes down to free market economics versus the injection of government between the private sector and its employees. Denny’s is why that model works. The company generally treats its workers well because happy workers lead directly to a better customer experience.
“Continuity of staff and stability means repeat guests and the continuity of stringing together consecutive positive sales quarters,” Miller concludes. “Those employees are a critical part of that and it plays a role. In context you have to run the business.”
The elegance of free market economics can be a beautiful thing.
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