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The Boston Globe

Some fast-food chains find an edge in paying premium wages

Ghana Shyam Khatiwada handed a burrito to a customer at a Boloco in Concord, N.H. Restaurants like Boloco that offer their employees above-average pay say they have lower turnover and better customer service.

Andrea Morales/New York Times

Ghana Shyam Khatiwada handed a burrito to a customer at a Boloco in Concord, N.H. Restaurants like Boloco that offer their employees above-average pay say they have lower turnover and better customer service.

CONCORD, N.H. — Ben Nawn, a sophomore at the University of New Hampshire, says his friends who work at McDonald’s are envious of what he earns working for the Boloco burrito restaurant here.

While they make $7.25 an hour, the federal minimum wage, Nawn receives $9 an hour, which Boston-based Boloco sets as the floor at its chain of 22 restaurants, most of them in New England.

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“That’s pretty high,” said Nawn, who hopes to work in sports broadcasting someday. “Nine dollars is a good base, and the benefits are great.”

Nawn works at one of the handful of restaurant chains that deliberately pay well above the federal minimum wage. In-N-Out Burger, the chain based in California, pays all its employees at least $10.50 an hour, while Shake Shack, the trendy, lines-out-the-door burger emporium, has a minimum pay of $9.50. Moo Cluck Moo, a fledgling company with two hamburger joints in Michigan, starts everyone at $15.

These companies’ founders were intent on paying their workers more than the going rate partly because they wanted to do the right thing, they said, and partly because they thought this would help their companies thrive long-term.

“The number-one reason we pay our team well above the minimum wage is because we believe that if we take care of the team, they will take care of our customers,” said Randy Garutti, chief executive of Shake Shack.

The nation’s fast-food restaurants, which employ many of the country’s low-wage workers, are at the center of the debate over low pay and raising the federal minimum wage — fueled by protests demanding that fast-food chains establish a $15 wage floor.

McDonald’s was pilloried last year for a hotline that advised employees how to seek food stamps and public assistance for heating and medical expenses.

During the lunchtime rush at the Boloco here, four workers showed impressive teamwork in stuffing beef, chicken, salsa and other ingredients rapid-fire into burrito after burrito. Scott Newman, the restaurant’s manager, said that Boloco’s above-average pay enabled him to pick from among many talented job applicants, adding, “When you teach talented individuals, once they get it, they’ll be a rock star for you.”

Complaining of low profit margins that generally accompany inexpensive menu items, most fast-food restaurants try to keep wages down — the median hourly wage for fast-food workers nationwide is $8.83, compared with $11.50 at Boloco and $10.70 at Shake Shack.

When fast-food executives offer above-average compensation, it is good not only for employees, but also for the brand. Starbucks received a public relations lift recently in announcing that it would finance online college educations for thousands of its baristas.

Some competitors assert that these fast-food companies are also influenced by regional economics. They note that many of the companies that pay more are based in high-wage, high-cost-of-living states, like Massachusetts and California, that often have minimum wages well above the federal law. California, where In-N-Out is based, has a $9 statewide minimum wage, while Washington state, home of Seattle-based Starbucks, has the nation’s highest state minimum wage, $9.32 an hour.

According to the MIT Living Wage calculator, the living wage for a single adult in California is $11.20 an hour (and $22.70 for an adult with one child), while in Massachusetts, it is $11.31 for a single adult — $2 or $3 an hour higher than in many less expensive states.

John Pepper, Boloco’s cofounder, said the strategy for his company evolved after it initially adopted a low-wage approach.

“In the company’s early years,” he said, “our goal, like much of the industry, was to pay as little as you can get away with and have people still show up and be reasonably productive.”

But while watching employees mop floors and work late into the night, he realized that for his company to be as great as he hoped, it needed to treat its workers better.

“We were talking about building a culture in which we want our team members to take care of our customers,” Pepper said. “But we asked, ‘What’s in it for them?’ Honestly, very little.”

So in 2002, when the minimum wage was $5.15 an hour, Boloco raised its minimum pay to $8. It also began subsidizing commuting costs, providing English classes to immigrant employees, and contributing up to 4 percent of an employee’s pay toward a 401(k).

“If we really wanted our people to care about our culture and care about our customers, we had to show that we cared about them,” Pepper said. “If we’re talking about building a business that’s successful, but our employees can’t go home and pay their bills, to me that success is a farce.”

When the company raised its minimum pay to $8, “that was an immediate hit to the P&L,” Pepper acknowledged, referring to the company’s profit and loss statement.

He said his privately held company, unlike some fast-food chains, did not sense an urgency to achieve a 20 percent profit margin per restaurant.

Zeynep Ton, a professor at the MIT Sloan School of Management, said many companies did not pay their employees well because they had a short-term focus on maximizing profits.

“It’s not easy to create a business where you pay your employees well and have low prices and generate great profits,” said Ton, author of “The Good Jobs Strategy.” “You have to get a lot of things right. You have to have continuous improvement and an excellent mindset. Achieving excellence is always harder than achieving mediocrity.”

Fast-food industry officials have long contended that raising the minimum wage would result in fewer jobs and higher prices.

Scott DeFife, an executive vice president at the National Restaurant Association, said it was inappropriate to compare restaurants like Boloco and Shake Shack with chains like McDonald’s and Subway.

“The price point and convenience factor are more appropriately compared to casual table restaurants that have wait staff,” DeFife said.

But prices at Boloco and In-N-Out are largely similar to those at Chipotle and McDonald’s. The prices at Shake Shack are higher, but consumers flock to it because it is known for its premium hamburgers.

DeFife noted that restaurants paying higher wages tended to be in places where consumers were willing to pay more for their meals.

In addition to its higher-than-average hourly wage, Shake Shack, which is part of the restaurant impresario Danny Meyer’s Union Square Hospitality Group, offers a 401(k) match and a monthly bonus based on store sales. Those working more than 30 hours a week qualify for health coverage.

Ruben Mojica recently moved to Winter Park, Fla., to run the new Shake Shack there. He started as a line chef at a Shake Shack in Manhattan in 2008, working two other jobs to make ends meet. After two months at Shake Shack, he was earning enough to devote his time to just the one job.

“The company has developed me, given me training and the opportunity to achieve more — and paid me better than any other restaurant chain would,” he said.

Because of the health insurance the company offers, Mojica said, he and his wife were able to start a family much sooner than he had imagined.

At the McDonald’s shareholders meeting in May, Don Thompson, its chief executive, defended the company’s compensation policies, saying many managers there started as hourly workers.

“We continue to believe that we pay fair and competitive wages,” Thompson said. “We provide job opportunities and training for those entering the workforce.”

“We are trying to be a really great employer,” he added.

The founders of the well-paying restaurant chains often point to Costco as a model, saying that it has found a formula to thrive even though it pays its workers well.

Like Costco, they have all sought a way to single themselves out — Boloco emphasizes fresh, healthy food; Shake Shack, high-quality burgers; and In-N-Out, superquick service.

When Harry Moorhouse opened his first Moo Cluck Moo restaurant 15 months ago in Dearborn Heights, Mich., its minimum pay was $12 an hour. Since then, it has raised that to $15 and opened a second restaurant in Canton, Mich., with plans to open a third in October and perhaps additional restaurants in Chicago and California next year.

“Our people work really hard, and $15 impacts their lives in a very positive way,” Moorhouse said. “The whole notion that it’s all kids starting out and they don’t deserve to be paid much, that’s all specious. We’re paying people $15 an hour so they have a living wage, so they really care about you when you come in the store.”

A major benefit of paying $15, he said, is “we don’t have any turnover. We don’t have to train people constantly.” His restaurants serve upscale hamburgers, chicken sandwiches and salads, and a full meal generally costs around $1.25 more than at McDonald’s.

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