KFC Compensation System

1. Introduction

KFC Corporation, based in Louisville, Kentucky, is the world's most popular chicken restaurant chain, specializing in Original Recipe®, Extra Crispy™, Twister® and Colonel's Crispy Strips® chicken with home style sides. Every day, nearly eight million customers are served around the world. KFC's menu includes Original Recipe® chicken - made with the same great taste Colonel Harland Sanders created more than a halfcentury ago. Customers around the globe also enjoy more than 300 other products -- from a Chunky Chicken Pot Pie in the United States to a salmon sandwich in Japan. KFC has more than 11,000 restaurants in more than 80 countries and territories around the world. And in quite a few U.S. cities, KFC is teaming up with sister restaurants, A&W, AllAmerican Food™, Long John Silver's, Taco Bell and Pizza Hut, selling produ cts from the popular chains in one convenient location. KFC is part of Yum! Brands, Inc., which is the world's largest restaurant system with over 32,500 KFC, A&W All- American Food™, Taco Bell, Long John Silver's and Pizza Hut restaurants in more than 100 countries and territories. Young Canadian named Bob Lapointe started the fast food revolution in Australia in 1968 when he opened the first KFC (formerly Kentucky Fried Chicken) restaurant at Guildford in Sydney's western suburbs. The first KFC restaurant was built on this site and opened on 27th April 1968, with a staff of 25.

KFC in Pakistan (KFC & PAKISTAN… GWORING TOGETHER) Cupola is a Dubai based multinational company involved in several business including, oil gas exploration, plastic cards, retail markets and food franchising. Cupola holds the master franchise rights to operate KFC in Pakistan. Food Fun & Festivity, this is what KFC is all about leading the market since it inception, KFC provides the ultimate chicken meals for a chicken loving nation. Be it colonel sanders secret original receipt chicken or the hot & spicy version, every bite brings a YUM on our face. At KFC we proudly say, “We Do Chicken Right” Perfecting its secret recipe of 11 herbs and spices in 1939, KFC has come a long way. With over 10,000 in the world, KFC has maintained its title for the last 60 yeas, of being the chicken experts. Opening the first KFC outlet in Ghulsan  –  e  –  Iqbal, Karachi in 1997, and KFC wore the title of being the market leader in its industry. Serving delicious and hygienic food in a relaxing environment made KFC everyone’s favorite. Since then KFC has been constantly introducing new products and opening new restaurants for its customers. Presently KFC is branched out in nine major cities of Pakistan (Karachi, Lahore, Rawalpindi, Faisalabad, Multan, Peshawar, Sialkot, Hyderabad, Islamabad, Jhelum, Gujwanwala, Sukkur & Muree) with more then 45 outlets nation-wide. Apart from fulfilling our commitment of serving delicious, fresh and hygienic food and at the same time providing our customers with the ultimate entertainment; KFC also plays part in the economic development of our country. Presently KFC has provided employment of  over 1200 Pakistanis, which adds up to 6000 individuals directly dependent on KFC Pakistan. The Government of Pakistan received over Rs. 10 million per months from KFC Pakistan has direct taxes. 95% of all food and packaging materials used in KFC

Pakistan are procured locally, which sums up to a purchase of over Rs.35 million per month. Each new outlet developed by KFC Pakistan costs approximately Rs.40 million, which is a huge amount for our construction industry.

2. Strategic Analysis: 2.1. Global Culture KFC promotes the following culture in their organization.   

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KFC believe in diversity in the workplace. KFC promotes differences in ethnic cultures, and values KFC always developed team-oriented environment for their employees so that each employee can help each other themselves. KFC always focuses on teaching everybody something new due to competitor market. KFC promotes unity in the workplace that helps them to treat each employee equally. KFC focuses on building relationships and creating diversity and commitment within the company and amongst employees and customers

2.2. Culture in Pakistan KFC absorbed the Pakistan cultural elements of showing respect, recognition, understanding, assimilation and amalgamation, while maintaining the substance of the Western culture of efficiency, freedom, democracy, equality and humanity. This intercultural management mode, with American business culture at the core, supplemented by Pakistan traditional culture, provides reference for international enterprises which need to adjust, enrich and reconstruct their corporate culture to enhance local market flexibility. On the objective side, there must be similarities in environment in order for the two cultures to connect and synchronize. KFC embody an accommodation of the fast tempo of modern life: a product of development and a market economy. Their resultant speed and efficiency are only meaningful in countries with a market economy. Pakistan’s rapid economic development offered the environmental conditions corresponding to fast food culture. Services offered by fast food chains express their full respect for freedom, an American value, as well as the psychological statement of Pakistan open-mindedness that yearns to understand and experience the Western lifestyle. Two cultures proactively crashed, connected, and assimilated. KFC use the localization strategy to re-express American business culture, with profound traditional Pakistan cultural emblems, catering to local customs on the basis of standardized management. KFC is treated their Employees as Internal Customers and their customers as External Customers. Because their treatment with employees are more like the treatment that they do with their customers.

2.3. Vision: KFC Vision for Pakistan is:

“Think Globally Act Locally” Their Objective is to increase profit through consistency in quality of food and services that they are providing to their customers. They believe on the following equation: “Food + Experience + Value = Decision to Return back” This equation means that when they provide good quality food with experience that their each employee have and with value of their food then it returns the customers satisfaction which results in return back of them. Experience in further calculated using following equation: “Experience=Ambience + Services” When their Services and Ambience combined, it results in Experience. Excellent Service and Ambience results in Excellent Experience.

2.4. Porter’s Analysis Entry: For the current Pakistan market for fast food, it is not difficult for a fast-food restaurant to enter the market. However, it would be extremely difficult to take over KFC’s dominancy in Pakistan or even make a significant amount of profit. While there are enough people in urban Pakistan for any restaurant to survive, KFC holds the first-mover advantage that gives them free reputation. Customers, especially children who are used to going to KFC as a treat or reward from their  parents or grandparents, are not going to want to go to other restaurants they’ve never heard of. The brand name is already established. Also, there is already a large variety in the numerous western-style dining places in Pakistan , such as McDonald’s, Pizza Hut, and Subway, and any new fast-food entrants would just  be presenting something very similar to what’s already there. While small neighborhood restaurants generally have low barriers to entry, these are the barriers to entry for similar restaurant businesses to enter the fast-food chain market. Buyer/Supplier Bargaining Power: The customers of KFC, especially as individual buyers, have almost no bargaining power because if only one customer threatens to no longer eat at KFC, the store is not going to lower its price because the cost of losing one customer is not very great. The suppliers, like the buyers, have very little bargaining power. In terms of food, KFC, upon its move into Pakistan, urged many of its U.S. suppliers to also extend branches into Pakistan. KFC also began helping local suppliers by giving them technological support to improve their products. This is a brilliant strategy because the supplies that KFC would otherwise need to import from the U.S. Can now be obtained domestically, and if the U.S. Suppliers decide to raise their prices; KFC can easily switch to the local suppliers. With this strategy, KFC created competition among its suppliers, lowering the supplier bargaining power. In terms of human resources, labor cost is extremely low because the supply of non-skilled workers great exceeds the demand for them. With so little buyer and supplier bargaining powers, KFC is able to have a very tight control over its prices and expenditures. Substitutes and Complements:

As mentioned above, there are a few major competitors in the fast-food industry in Pakistan for KFC, namely McDonald’s, Pizza Hut, and Subway. The substitute products, in this case, would be burgers, pizza, and sandwiches. Though they are competitors, their primary products differ greatly from each other, in that they sell, chicken, burgers and fries, pizzas, and sandwiches, respectively. Traditional Pakistan dining, home-cooked meals, and grocer y stores with ready-to-eat foods are also substitutes, as families could choose any one of these over fast food for a meal. Even foods from street vendors count as substitute goods. While other fast-foods serve as substitute to KFC, they can also serve as complements for fast-foods as a whole. If the general price of fast foods go up, KFC’s price rises as well, and the same can b e said of the quantity sold of these products, which make them complements to each other. Rivalry: Unlike what one would expect KFC has little rivalry with similar fast-food chains in Pakistan. The primary reason is that their core products are different, as in they sell different kinds of fast-foods with very different tastes and styles. For example, if KFC raised its price for chicken by a small amount, Chinese chicken lovers who may not be as accepting to pizzas (many Pakistan people strongly dislike the taste of cheese) are not going to switch to Pizza Hut just because the price for KFC increased. In addition to that, these restaurants have such different target customers that the fluctuation of price for one restaurant is not going to affect the others. The drastic difference in price assures no price competition between these restaurants. SUBSITUTES - Pizza Hut - Mcdonalds - Subway - Other Resturants

Bargaining Power of Suppliers - K & N’s - Low - Good Relations

RIVALRY

- Low rivalry - Different Products - Market Leader

New Entrants - AFC - HFC - Local Fast Food Chains

Bargaining Power of Buyers

- Low - Strong Bonds

3. Existing Compensation System: 3.1.Organizational Structure: Head Office Hierarchy:

CEO

Head of North Region

Audit

G.M. Administration

G.M. Quality Assurance

Assistan Regional Manager

G.M. Operations

Business Development

Information Technology

G.M. Marketing

G.M. HRD

Manager HRD

Assistant Manager Training

Assistant Manager HR

Senior Executive

Senior Executive

Executive

Executive HR

“Chief Executive officer” is the head of KFC. Chief Executive officer has two regional heads. One is “South Regional Head” and other is “North Regional Head”. Each regional head has one “Assistant Regional Manger” and each regional head is responsible for the operations of Audit, Business Development and Information Technology departments. Assistant Regional Manger has “Five General Managers”, which are responsible for  working of five different departments of KFC named as GM Administration, GM Quality Assurance, GM Operations, GM Marketing, and GM Human Resource Development. GM of each department has one “Manager”. Manager HRD has two Assistant Mangers, one is “Assistant Manager Training” and other is “Assistant Manger HR”. Assistant

Manger Training and Assistant Manger HR both has one “Senior Executive” and senior  executive of Assistant Manager Training has one “Executive” while senior executive of  Assistant Manager HR has one “Executive HR”. Outlet Hierarchy: Branch Head

Shift Incharge (Night)

Shift Incharge (Morning)

Sub Incharge

Sub Incharge

Team-1

Team-2

Team-3

Each outlet of KFC is running by “Branch Head” who is responsible for day to day operations and management of that outlet. Brach head has two “Shift incharge”, one is for  Morning and other is for Night shifts. Each Shift incharge has two “Sub Incharge” or  assistant shift incharge. Each sub incharge has three different teams; one is for Kitchen related work, second is for front line operations and third is for maintain the clearness in outlet. Each team consists of multiple team members that are called “Internal Customers”.

3.2.List of Jobs: KFC Pakistan has 13 different types of job family. These job families are listed below:    

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Chief Executive officer Regional Heads (Head of South Region and Head of North Region) Assistant Regional Manager General Managers (GM Administration, GM Quality Assurance, GM Operations, GM Marketing, and GM Human Resource Development) Managers Assistant Managers Senior Executive Executive

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Branch Head Shift incharge Sub Incharge Teams Team members

3.3. Group of Jobs:

KFC Pakistan has three different types of job groups. Each group is described below: Top level Management: Top level Management is responsible for strategic analysis and decision making. Top level management includes Chief Executive officer, Regional Heads, Assistant Regional Manger, and General Managers Middle level management: Middle Level management is responsible for implementation of rules and policies. They are connection between head office and outlets. Middle level management includes Managers, Assistant Manager, Senior Executive, Executive, and Branch Head Front Line Staff: Front line staff is responsible for day to day working in each outlet of KFC. Front line staff includes Shift Incharge, Sub Incharge, Teams, and Team Members

3.4. Job Analyses / Job Description

3.5. Job Evaluation: Evaluation Technique: KFC is using simple ranking evaluation technique to evaluate their employees. They rank  each employee on the bases on single criteria i.e. complexity of job. More complex the  job, more will be the rank of that employee. After ranking each employee, they conduct the market survey to know the current market worth and value of each employee according to same job complexity criteria.

3.6. Compensation system: Human Resource Development Department:

Human Resource Development department in KFC Pakistan consists of 15 employees. Hierarchies of these 15 employees are given at the end of this document. Human Resource Development department responsible for Selection & Recruitment, implementation of HR policies, motivate employees, carry out best compensation system for employees, develop salary and benefit system for employees. Function of Human Resource Development Slogan: Human Resource department in KFC Pakistan has the slogan “We won’t make you wing it” CHAMPS: The acronym CHAMPS, which stands for “cleanliness,” “hospitality,” “accuracy,” “maintenance,” “product quality,” and “speed,” are the goals that KFC aims to accomplish. KFC’s employees, both management and storefront, must undergo strict. Training Methods: HRM department conduct training of their employees very often. They conduct the Quizzes to evaluate their employees based on their past performance. They used on-theJob Competency based training methods to train their new and existing employees about latest technologies, methods and market trends. They also maintained a Workbook that holds all the past performance of each employee in KFC. Front line employees got onthe-job training while top management got off-the-job training. KFC encouraged employees to work together as a team and share their problems, thoughts and ideas with each other and with their managers. KFC tries their best to utilize the employee working effort as mush as they can so they committed to making sure that their people grew to their highest potential. KFC does their best to make the job interesting and exciting for worker by creating many interesting events for employees. Training and pass inspections in order to actually work for the restaurants, and the management level holds impromptu employee activities to facilitate store-to-store communication and relations, and where they could learn from each other, therefore improving overall quality. Feed Back System: Feed back system at KFC is working excellent because they conduct many customer feed back survey on different outlets. And each employee at KFC is compensating on the bases of these feed back system. Pay System: They called their serving employee as CREW and they got their salaries on hourly base and their management level employees got their salary on annually bases. They did not

have any pay limits and pay grades. Pay increase as their experience in KFC increase and according to age. Management salaries are reviewed every year and they get paid per shift (8 hours). They are using Market match pay policy in which they are paying their employees exactly according to market pay line. 60000 50000    )  .    s 40000    R    (    y 30000    r    a    l    a 20000    S

10000 0 Family 1

Family 2

Family 3

Family 4

Family 5

Family 6

Job Family KFC - MCDONALD

AFC

PIZZA HUT

Incentive System: For crew KFC have recognition programs running in their stores but they are not entitled for any incentives. But with management, their salary is incentive based on some of our target areas. If they meet those targets they are entitled for incentives. Their incentives are calculated on quarterly basis. Competitive Strategy: KFC is using Deferential strategy in which they want to keep KFC on top of their competitors. So often they try to do some thing different from their competitors. Factors influence the Compensation system: Power Distance – not so Individualism:  – much Collectivism:  – not so Masculinity: – no effect Feminity: – no effect Reward Program: The rewards employee gets in KFC are based on their performance. Salary is based on age, the older they get the higher they got paid. They pay reward to their employees not for their knowledge and skills but for their competencies. When ever any employee improves or acquires new knowledge KFC gives reward to that employee not too much. Employee Contribution: Employees at KFC have average contribution in the KFC Strategic planning, in which top management welcome all the suggestions and ideas from their lower level employees. Vertical Skills Program:

KFC very much believes in vertical skills development programs and they tries to give extra knowledge to their employees about higher level task and work. KFC encouraged that their employees do some managerial type of task to themselves so that employees at KFC feels freedom while working their.

Job Security: KFC always try to give higher job security to their employees then their any competitors. They do not compare values of job with other competitors to build an internal consistent compensation system. Because they believe that the compensation system that they are using is more better then other compensation system that used in market. Performance Evaluation system: Evaluation of each employee in KFC is based on his/her past performance, not one their actual job description. What every task or work employee done in past, he/she will evaluate on that past work, completely neglecting the task that he/she is bound to do in their job. To collect data for evaluation KFC using Questionnaires and direct interviews to their employees. Worker Requirements: Skills and Experience are the worker requirements that KFC do very well, while Education requirements are on average and License, Permits and Special Abilities are not fulfilled by KFC. Compensable factors: All four compensable factors i.e.; Skills, Efforts, Responsibility & Working Condition are treated greatly while developing compensation system. Sales Compensation Plan: They are using Salary plus bonus sales compensation plan for management and only Salary for Team Members. Sales Objective: Their aim is to increase Sales every year (Increase sales volume in specified time period).

4. Ideal Compensation System: Ideal compensation system should have these five core job dimensions in it, i.e. Skill Varity, Task Identity, Task Significance, Autonomy and Feed back. And all four compensable factors i.e. Skills, Efforts, Responsibility and working condition should be compensate according to employee performance. There should be internally consistent compensation system, market competitive compensation system and pay structure that recognize the individual contribution. Below the features that must present in ideal compensation system. Function of HR Department: HR Department should promote worker safety and health. Maintain their family income. Assists the families in crisis. Provide assistance in case of Disability and Unemployment. Help the organization in Strategic decisions, Strategic Management and in Strategic planning. HR should responsible for Recruitment, Selection, Performance appraisal, Training, Career Development, Labor Management relations, Employment termination, and insuring legal compliance. Competitive Strategy: The organization should promote lowest cost strategy in which company focused on lowest cost producer and seller of goods or services and focus on quantity of output. The organization should also promote differential strategy in which company focus on offering unique good or services involving risk. Pay Structure: For permanent employees and middle and top level management salary should be paid annually and for lower level employees and workers salary should hourly paid. COLA’s (Cost of Living Adjustments), Skill based pay, Merit pay, Incentive pay, pay for knowledge and seniority pay should be adjusted in base pay. Merit Pay Plan: Pay should be increase on the base of past performance. Different rewards given to employee for excellent efforts and results. Motiviate the employees for future performance. Retained the value employees inside the organization. Merit pay plan should based on Objective and Subjective indicators of job performance. Performance of  each employee should be review periodically. Realistic and attainable standards should maintained. Increase in pay should reflect the better performance. Incentive Plan: Individual: Each individual employee in organization should receive some incentive based on following key performance indicators. Quality of work output Quantity of work output Monthly sales Work safety record    

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Work attendance

Individual incentive plane should promote equitable distribution of compensation. And its helps to retain best employees in organization. Group: Each group of employees in organization should receive some incentive based on the following key performance indicators. Customer Satisfaction Labor cost saving Material cost saving Reduction in accidents Services cost savings     

Top Management: Top Management or Executive should receive some incentive based on the following key performance indicators. Overall Organization Growth Size of the organization Profitability of organization Capital market Liquidity Leverage      

5. Comparision: Positive Points: KFC is using seniority base pay system in which they try to retain more experienced staff with them. Salary plus bonus sales compensation plan for management is a good positive point of current KFC compensation system. KFC gives higher job security to their employees. Employees are involved in KFC Strategic planning. 

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Negative Points: KFC is not including COLA’s (Cost of Living Adjustments) in their staff salary. KFC is not paying their employees for their knowledge, they only paying their employees for their Skill and experience. KFC is not emphases on their employee’s education programs. Team members are only compensating by their Salary. No extra incentive given to them for increasing in sales.  

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6. Conclusions:

The overall Compensation system of KFC is working very well and its look better then market compensation system. They are paying their employees according to market pay line but their incentive and rewards are higher then market. They believe on the both quality and quantity of output / Services of their employees. Frequent training gives the higher competitive advantage to KFC.

7. Suggestion for Improvement: Feed back System: Feed back system at KFC is not working very well according to latest techniques used now days in market. They should improve their feed back system. One way to improve is given blow. There must be some spy employees in KFC that analyze the employee’s performance. No one should know about these spy employees. These spy employees visit each KFC outlets and place some normal order and behave like a normal KFC customer. They notice the time consumed for completion of their order and behavior of employee with customers. They also check out the management role and how much restaurant looks neat and clean. Different points assigned to each indicator and on the base of these indicators that KFC outlet compensate with bonus to their team leader and individual team member. Evaluation Technique: Currently KFC Pakistan is using the mix of both Simple Ranking Job Evaluation Technique and Market survey Job evaluation technique. Although the mix of these two techniques is good but they can further improve their evaluation methods by using point method to evaluate the job of each employee.