An In-N-Out Pay Strategy: Costa Vida’s Decision to Boost Pay

For many businesses in today’s belt-tightening economy,decisions on pay need to be strategic to ensure that employees aretreated fairly and to ensure that businesses can remain viable.This requires knowing what your competitors pay their employees andknowing your own salary budget. But knowing what your competitorsare paying can be both valuable and painful.

As a primary stakeholder and former CEO of Costa Vida, afast-growing chain of fresh Mexican restaurants, Nathan Gardnerknew he was competing against some restaurant chains withcompetitive compensation systems. Costa Vida is a fresh Mexicangrill featuring Baja-inspired foods that are made from scratchdaily. Following a trip to Cabo San Lucas on the Baja Coast inMexico, Costa Vida founders JD and Sarah Gardner were inspired witha vision: Bring the freshly made local cuisine with the vibrantlifestyle to the United States. They started their first restaurantin 2001, and after just 13 years, Costa Vida has more than 50franchises in Arizona, California, Colorado, Florida, Idaho,Illinois, Nevada, New Mexico, Missouri, Oklahoma, Oregon, Texas,Washington, Wyoming, and Utah, and as of 2017, 3 locations inCanada. One of the main challenges Costa Vida faces is the fiercecompetition for customers as well as employees. “You’d be surprisedhow much of a difference having good employees in all areas of thebusiness makes,” commented Nathan.

“For the fast-casual food industry,” remarked Nathan, “you aredependent upon your people. If you don’t treat your people well,they won’t treat your customers well. If your customers aren’ttreated well, you have no business.” For months, Nathan agonizedover how he could develop a competitive compensation plan thatmatched the objectives of the organization, but that fell in linewith the tight budget of each individually owned franchise unit. Hestated, “We, of course, leave the final compensation decision tothe franchise owner, but we do all we can to educate and persuadeour franchisees to be competitive and fair. In the long run, thisis how they can maintain a superior level of customersatisfaction.”

Nathan pointed out that a strong benchmark for them has beenIn-N-Out Burger. In-N-Out started in California and is known forits great compensation package. They start out all their new“associates” (aka employees) at a minimum of $10 an hour. They alsooffer flexible schedules to accommodate school and otheractivities, paid vacation, free meals, and a 401k retirement plan.For full-time associates they provide medical, dental, vision,life, and travel insurance coverage. Their reason for paying sohigh is based on a strategy that lower turnover and more committedworkers will lead to better service. “What In-N-Out does for theiremployees is truly amazing,” commented Nathan. “We often seeemployees moving from one fast-food chain to another, but we rarelysee employees coming from In-N-Out.”

Nathan had a tough challenge ahead in trying to convince hisfranchise owners and managers to think more strategically abouttheir pay systems. He needed to help them realize that paying wagesand offering other compensation benefits that were better thantheir competitors may mean lower profit margins up front, but thatthe returns would be greater in the long run. He also needed tooffer evidence to show that this was not just about being fair, butit was about being strategic. The restaurant business is a fast andfierce industry and companies come and go all the time. What was itgoing to take for Costa Vida to stay for the long haul?

Questions

1/ Issues in the case (tasks from the case + other issues)? Listthem in points.

2/ Concepts/frameworks that will be used to analyze issues inthe case?

3/ Analysis of the case analysis of the issues (Tasks from thecase)

4/ Recommendations