Tuesday, February 23, 2010

McDonald's Receipts Address Agency Problem

In a previous post, I recounted some of the basics of the principal-agent problem. Today, I encountered a novel method of alleviating the problem in an unexpected place: my McDonald's receipt. To recap the problem in the most general terms: When a principal (or owner) employs an agent, the agent's incentives will not always align with the principal's. Employers use numerous methods to alleviate this problem, ranging from performance bonuses to employee monitoring and discipline.

Well, McDonald's has an owner, Ronald McDonald. Just kidding, it's publicly traded (MCD) which just means it has lots of owners. Without going into the ugly details of corporate governance, McDonald's has a whole hierarchy of management most of whom will never set foot in any one given McDonald's restaurant. So how do they monitor the performance of the individual stores? Well, lots of ways I'm sure (most notably through dollars). But they also employ their own customers to monitor actual employees.

So what was on the McDonald's receipt? Well, the usual McNuggets, dollar totals, time, address, etc. But there was also the name of the Restaurant Manager along with the email address of his supervisor. This isn't terribly different from the old standard: comment cards. And businesses have long used "hotlines" to take phone calls. I thought it was a novel approach to the old ways of soliciting customer feedback that recognizes more modern (and convenient) methods of communication though.

This way, management can keep apprised of problems just by checking their email (again, it's one tool of many). Not only will they be able to react to problems, but it serves a proactive purpose as well. Employees will know that customers can easily fire an email up the command chain and will hopefully adjust their behavior accordingly.