Papa John’s profits are up 25 percent—that’s why CEO John Schnatter’s threat to cut workers’ hours and raise the price of pizza by up to 14 cents to offset the company’s cost of Obamacare resulted in a widespread boycott of the pizza chain.
“I got in a bunch of trouble for this,” Schnatter said. “That’s what you do, is you pass on costs. Unfortunately, I don’t think people know what they’re going to pay for this.” The Affordable Care Act dictates that companies with 50-plus full-time employees must provide healthcare coverage to those workers. That means some companies will need to cut back on employee hours to avoid added healthcare costs, according to Schnatter.
Earnings Increased But You Can’t Afford to Offer Healthcare?
In the summer, Schnatter said he would have to raise the cost of pizza by 11 to 14 cents per pie because of healthcare reform, yet the company recently reported a 25 percent jump in earnings and is proudly touting that it will give away 2 million free pizzas during the NFL season.
Never mind that CNN refuted that figure, pointing out that many of Papa John’s employees already are part-timers who are not guaranteed company-sponsored healthcare coverage. The company’s own 2011 annual report states that “most restaurant team members [of which there are 14,400] work part-time and are paid on an hourly basis,” suggesting that only the approximately 2,100 full-time employees—who presumably already have coverage—would be impacted. Moreover, many of the chain’s restaurants are owned by franchisees who may not have 50 full-time employees and thus are not responsible for providing coverage.
But even if Schnatter’s estimated cost increases were accurate, this is a company whose adjusted earnings per share for the third quarter of 2012 surpassed the numbers from a year ago by 25 percent. Moreover, Papa John’s third-quarter total revenue jumped 6.5 percent year over year to $325.5 million and domestic company-owned restaurant revenue improved 11.3 percent to $143.4 million. Per its annual report, the company’s 2011 revenue was $1.22 billion.
Consistency in Messaging & Accountable Leadership
Schnatter’s comments recall this memo from David Siegel of Westgate Resorts, the CEO who is building the largest private residence in the U.S. In October, Siegel suggested that his employees vote for Mitt Romney because “if any new taxes are levied on me, or my company, as our current President plans, I will have no choice but to reduce the size of this company. Rather than grow this company I will be forced to cut back. This means fewer jobs, less benefits and certainly less opportunity for everyone.”
Siegel seems to have changed his tune post-election. He told Bloomberg Businessweek that not only had he not laid off any employees, but he “gave everybody in the company a raise this week—the average was 5 percent. I wanted to help them handle the additional burdens the government will put on them.”
The big difference between Schnatter and Siegel and CEOs who have inclusive workplaces is that the latter’s messages don’t vary and they stay true to values.
Schnatter likes to portray himself as a generous fellow who uses the profits he makes selling pizza to help others. After he made his recent comments in Naples, Fla., he told the audience that he was headed to a telethon to raise money for Hurricane Sandy victims, and his company pledged to donate $1 from every pizza sold last Wednesday to the American Red Cross.
But by using his political views to raise prices and slash employee benefits, he hurts his company’s image. In fact, online tweets are now calling for a boycott of Papa John’s.
To understand the importance of clarity of values—and communicating that consistently—see Ask the White Guy: Decision Making, Clarity of Values & What to Do When It Goes Horribly Wrong.