Following the path blazed by workers in the retail sector, hospitality staff have entered the murky world of pay disputes. Multinational corporations with “deep pockets” have been accused of not treating their workers fairly by TUC general secretary Frances O'Grady, who joined protesters from McDonalds, UberEats and JD Wetherspoon (JDW), among others, in a day of industrial action in early October. They are demanding that their basic pay be increased to £10 an hour.
But higher salaries could have a dramatic impact on the profitability of the companies paying them. Tim Martin, founder and chief executive of Wetherspoons, puts it plainly: boosting staff salaries to £10 alongside the bonus and share structure currently in place, “would eliminate the majority of our profits”.
Wetherspoons has already been struggling with the impact of the £7.83-an-hour national living wage. In the year to July, the group paid £501m in wages and salaries, equivalent to a third of group sales, which left operating margins flat at 7.8 per cent. It isn’t facing the challenges alone. In fact, flat margins are likely to be the envy of management at Greene King (GNK) and Fuller, Smith & Turner (FSTA), which both reported a contraction in operating margins in their most recent annual results. Greene King’s chief executive has described 2017 as a year of “unprecedented cost inflation”, while Fuller’s boss Simon Emeny said that he “cannot remember a time when we have faced such an array of additional cost pressures”.
The problems have been inflated by the fact that the eating-out market has become incredibly competitive. Hospitality bosses have been faced with the challenge of finding cost savings where possible, without sacrificing the customers’ experience. In the first six months of its financial year Restaurant Group (RTN) reported that adjusted operating profit fell by more than a fifth to £20.9m, with the adjusted operating margin falling from 7.9 per cent to 6.4 per cent.
While the industrial action has done well to gain media attention, it’s unclear what type of change it will spur, or indeed whether those changes will actually be beneficial to staff. Mr Martin points out that some companies, like J Sainsbury (SBRY), have abolished employee perks and benefits in favour of a higher headline pay rate. He doesn’t believe there’s a “huge moral argument” in favour of swapping money from shares and bonuses into the headline rate.
Wetherspoons is a rare example of a company that offers its workers free shares, and 11,000 of the 40,000 staff are currently shareholders. Considering the 76 per cent increase in the group’s share price in the past five years, they haven’t done too badly (nor has Mr Martin, who retains a 31 per cent stake). Added to the bonus structure, total salaries “come out not too different to the £10 an hour”, according to Mr Martin.
Those pursuing industrial action may be further frustrated that management’s pay far outstrips the wages for workers. During 2017 the average chief executive’s pay for a FTSE 100 company increased by 11 per cent to £3.93m, compared with a 2 per cent increase for the average UK worker. UK companies will soon be required to disclose the ratio of the chief executive’s salary versus the average employee’s wage.
Compared with other FTSE 100 bosses, Mr Martin's salary is relatively conservative. Last year, he was paid £324,000 with a bonus of around £18,000. These figures haven’t changed much since the data began in 2016. The most extreme case of conservative executive pay is retail boss Mike Ashley, who takes home no salary or bonus. This is despite a near-40 per cent gross group margin at Sports Direct (SPD) – an enviable figure for a retailer.
