<PAGE>
 
                                                                    EXHIBIT 10.2
                               KOO KOO ROO, INC.
                        EXECUTIVE EMPLOYMENT AGREEMENT
                                     WITH
                               WILLIAM M. MCKAY

                                        
          THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is entered into as
of March 24, 1998 by and between Koo Koo Roo, Inc., a Delaware corporation
("Company"), and William M. McKay ("Employee"), with reference to the following
facts:

                                R E C I T A L S
                                ---------------

     A.   Company is in the restaurant business and operates Koo Koo Roo
California Kitchens, Hamburger Hamlets and Arrosto Coffee stores.

     B.   Company and Employee desire to assure the Company of the services of
Employee and to set forth the rights and duties of the parties.

          NOW, THEREFORE, in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

                              A G R E E M E N T S
                              -------------------

          1.   EMPLOYMENT.
               ---------- 

               (a)  Company hereby agrees to employ Employee, and Employee
hereby accepts and agrees to employment by the Company, on the terms and
conditions set forth herein.

               (b)  Employee shall serve in the capacity of Chief Financial
Officer of the Company. Employee shall perform such services and duties with the
Company as are usually associated with the position of a Chief Financial
Officer. Employee shall report directly to the Chief Executive Officer of the
Company. Employee further agrees that, except during vacation periods or in
accordance with Company's personnel policies covering executive leaves and
reasonable periods of illness or other incapacitation, Employee shall devote his
full time and services to the business and interests of the Company.
Notwithstanding the foregoing, Employee shall also be permitted to serve on the
boards of directors of other business corporations and may participate in
charitable, cultural, professional, civic and business association activities.
Employee shall perform the duties of his office and those assigned to him by the
Company's Chief Executive Officer with fidelity, to the best of his ability, and
in the best interests of the Company.

                                      -1-
<PAGE>
 
          2.   Term of Employment.
               ------------------ 

               Employee's term of employment by the Company pursuant to this
Agreement shall commence as of March 24, 1998 (the "Effective Date") and shall
continue thereafter for a period of one (1) year unless otherwise terminated
pursuant to the provisions of Section 6 below (the "Employment Term"). This
Agreement shall automatically renew each year unless Company notifies Employee
in writing not less than 90 days prior to its expiration date that Company shall
not renew this Agreement.

          3.   Compensation & Duties.
               ----------------------

               (a)  During the Employment Term, the Company shall pay Employee a
base salary at the annual rate equal to $175,000.00. Said base salary shall be
payable in cash in equal installments on a semi-monthly basis, or in accordance
with such other salary payment schedule as the Company may adopt for its
employees generally.

               (b)  During the Employment Term, Employee shall be entitled to
the following benefits provided by the Company: (1) medical and dental
insurance, providing coverage on terms no less beneficial than those afforded
other senior executives of the Company from time to time; (2) participation in
any pension, profit sharing or similar retirement plans as may be implemented by
the Company on terms no less beneficial than those afforded other senior
executives of the Company from time to time; (3) a suitable office and
furnishings; and (4) such other benefits as the Company may provide from time to
time on terms no less beneficial than those afforded other senior executives of
the Company.

               (c)  Company shall add Employee to its Director and Officer
insurance and indemnification policies. Additionally, Company hereby indemnifies
and holds harmless Employee from any losses, damages, claims, and causes of
action arising out of the actions or inactions of the Board of Directors and/or
the officers of the Company for any period before March 24, 1998.

               (d)  On March 24, 1998, the Company shall grant to Employee
options to purchase 250,000 shares of the Company's common stock as follows:

<TABLE> 
<CAPTION> 
     Option           Price per        Vesting          Period to Exercise
     Shares            Options           Date          After Vesting Period
     ------           ---------        -------         --------------------
     <S>              <C>           <C>                 <C> 
     250,000            $1.56        Three Years           Ten (10) Years
</TABLE> 
 
          With regard to the foregoing options, all options shall immediately
vest upon any Change of Control (as hereinafter defined), termination without
cause or termination for good cause.

          4.   Employee Expenses.
               ----------------- 

                                      -2-
<PAGE>
 
               Subject to such policies as may be maintained in effect from time
to time by the Company, Employee shall be entitled to reimbursement of amounts
expended for the benefit of the Company, including professional dues and
expenses, during the Employment Term, upon presentation of acceptable reports of
such expenses.

          5.   Confidential Information.
               ------------------------ 

               Employee specifically agrees that he will not at any time,
whether during or subsequent to the Employment Term, in any fashion, form, or
manner, unless specifically consented to in writing by Company, either directly
or indirectly use or divulge, disclose or communicate to any person, firm or
corporation, any confidential information of any kind, nature, or description
concerning any matters affecting or relating to the business of Company, except
in the ordinary course of the Company's business. All equipment, notebooks,
documents, memoranda, reports, recipes, formulas, files, samples, books,
correspondence, lists, other written and graphic records, and the like,
affecting or relating to the business of Company, which Employee shall prepare,
use, construct, observe, posses, or control shall be and remain the Company's
sole property. The foregoing confidentiality obligation shall not apply to
information (i) Employee deems necessary to disclose pursuant to any
governmental, judicial or regulatory investigation, proceeding or order; (ii) as
is in the public domain through no fault of Employee; or (iii) as is obtained by
Employee from a source other than the Company which is not bound by a similar
confidentiality obligation. Employee shall execute the Company's current
Confidentiality Agreements as part of the SEC Compliance document which all new
employees are provided.

          6.   Termination with Cause.
               ---------------------- 

               (a)  The employment of Employee may be terminated at any time for
"cause." For the purpose of this Agreement "cause" shall mean:

                    (1)  Employee's continued willful and habitual neglect of
his duties following written notification of such neglect by Company's Chief
Executive Officer and the failure of Employee to cure such neglect within thirty
(30) days of such notice.

                    (2)  Employee's conviction of a felony or any other conduct
which, by its nature, would materially injure the reputation of Company as
determined by Company's Chief Executive Officer acting in good faith and upon
reasonable grounds.

                    (3)  Employee's incapacity to perform the duties required of
him hereunder as a result of mental or physical illness, which incapacity
continues for a period of ninety (90) days.

                    (4)  Death of the Employee.

               (b)  Termination of Employee's employment shall not be in
limitation of any other right or remedy the Company may have under this
Agreement or in law or equity.

                                      -3-
<PAGE>
 
          7.   Termination without Cause; Termination with Good Reason; Change
               ---------------------------------------------------------------
in Control.
-----------

               (a)  The Company shall pay to Employee all compensation due for
the term of this Agreement, but in no event less than one year's full salary
plus all other additional compensation, including but not limited to medical and
dental benefits for one year, and the stock options granted in this Agreement
shall vest, notwithstanding Employee's termination of employment before March
23, 1999, if such employment is terminated by the Company without "cause" (as
defined above), or if such employment is terminated by Employee for "Good
Reason", or in the event of a change in control. "Good Reason" shall mean any of
the following: (1) a material and adverse change by the Company in the
Employee's assignments, duties or responsibilities; (2) a Change in Control; (3)
a majority of the Board of Directors currently serving on the Board are changed;
(4) a material breach of this Agreement by Company, which breach is not cured
within thirty (30) days written notice to Company; (5) a reduction in Employee's
salary or any benefits; or (6) the relocation of the Company's offices to a
location more than 20 miles from the present corporate offices. "Change in
Control" shall include but not be limited to an occurrence which would be
required to be reported in response to Item 5(f) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, a transaction
involving 20% or more of the assets, voting control or stock of the Company, or
any other event set forth on Exhibit "1", attached hereto and incorporated
herein by this reference. Such vested options shall be exercisable by the
Employee for a period of ten (10) years from the date of grant.

               (b)  Any purported termination of Employee's employment by the
Company or Employee must be communicated by written Notice of Termination to the
other party pursuant to (P) 9 below. Notice of Termination shall mean a notice
that shall indicate the specific termination provision in this Agreement.

               (c)  Date of Termination, Etc.
                    -------------------------

               "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the case of a termination for Cause shall not be less
than thirty (30) days from the date such Notice of Termination is given, and in
the case of a termination for Good Reason shall not be less than fifteen (15)
nor more than sixty (60) days from the date such Notice of Termination is
given). Notwithstanding anything to the contrary contained herein if within
fifteen (15) days after any Notice of Termination is given, the party receiving
such Notice of Termination notifies the other party that a dispute exists
concerning the termination, then the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement of
the parties, or as set forth in paragraph 15; provided, however, that the Date
of Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence.

               (d)  If Employee's employment is terminated by the Company for
Cause, the Company shall pay Employee his full base salary, when due, through
the Date of Termination at

                                      -4-
<PAGE>
 
the rate in effect at the time Notice of Termination is given, plus all other
amounts to which Employee is entitled under any compensation plan of the Company
at the time such payments are due, and the Company shall have no further
obligations to Employee under this Agreement.

          (e)  If Employee's employment by the Company shall be terminated by
Employee for Good Reason or by the Company other than for Cause, then Employee
shall be entitled to the benefits provided below:

               (i)   the Company shall pay to Employee his full base salary,
when due, through the Date of Termination at the rate in effect at the time
Notice of Termination is given, plus all other amounts to which Employee is
entitled under any compensation plan of the Company at the time such payments
are due;

               (ii)  in lieu of any further salary payments to Employee for
periods subsequent to the Date of Termination, the Company shall pay as
severance pay, at the time specified below, a lump sum severance payment
(together with the payments provided herein below, the "Severance Payments")
equal to 100% of Employee's annual salary as in effect as of the Date of
Termination or immediately prior to the Change in Control, whichever is greater;

               (iii) notwithstanding any provisions of the Company's Stock
Option and Incentive Plans, or other similar plans, the vesting period with
respect to your 250,000 options to purchase KKRO common stock at $1.56 per share
shall be vested immediately and you will have 10 years to exercise these
options;

               (iv)  the Company shall pay to Employee all reasonable legal fees
and expenses incurred by Employee as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit provided by
this Agreement (as set forth in (P)14 of this Agreement) or in connection with
any tax audit or proceeding to the extent attributable to the application of
section 4999 of the Code, to any payment or benefit provided hereunder); and

               (v)  for a twelve (12) month period after such termination, the
Company shall arrange to provide Employee with life, disability, dental,
medical, accident and group health insurance benefits substantially similar to
those that you were receiving immediately prior to the Notice of Termination.

               (vi) The payments provided for above (P)7(e)(i) shall be made not
later than the fifth day following the Date of Termination. The payments
provided for in (P)7(e)(ii) shall be made not later than the thirtieth day
following the Date of Termination; provided, however, that if the amounts of
such payments cannot be finally determined on or before such day, the Company
shall pay to Employee on such day an estimate, as determined in good faith by
the Company, of the minimum amount of such payments and shall pay the remainder
of such payments (together with interest at the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but
in no event later than the thirtieth day after the Date of Termination. In the
event that the amount of the estimated payments exceeds the amount 

                                      -5-
<PAGE>
 
subsequently determined to have been due, such excess shall constitute a loan by
the Company to Employee, payable on the fifth day after demand by the Company
(together with interest at the rate provided in section 1274(b)(2)(B) of the
Code).

               (vii) Employee shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise nor shall the amount of any payment or benefit provided for in this
Agreement be reduced by any compensation earned by Employee as the result of
employment by another employer or self-employment, by retirement benefits, by
offset against any amount claimed to be owed by Employee to the Company, or
otherwise.

     7.   Severable Provisions.
          -------------------- 

          The provisions of this Agreement are severable, and if any one or more
provisions may be determined to be judicially unenforceable, in whole or in
part, the remaining provisions shall nevertheless be binding and enforceable.

     8.   Successors; Binding Agreement.
          ----------------------------- 

          (i)  The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Employee to terminate his employment and receive
compensation from the Company in the same amount and on the same terms to which
Employee would be entitled hereunder if Employee terminated his employment for
Good Reason or Change in Control, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. Where the context requires, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.

          (ii) This Agreement shall inure to the benefit of and be enforceable
by Employee and Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Employee should die while any amount would still be payable to Employee
hereunder had Employee continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
Employee's devisee, legatee or other designee or, if there is no such designee,
to Employee's estate.

     9.   Notices.
          --------

          Any notice to be given to the Company under the terms of this
Agreement shall be addressed to the Company at the address of its principal
place of business, and any notice 

                                      -6-
<PAGE>
 
to be given to Employee shall be addressed to him at his home address last shown
on the records of the Company, or at such other address as either party may
hereafter designate in writing to the other. All Notices shall be in writing and
shall be delivered personally, sent by United States certified or registered
mail, return receipt requested, first class postage prepaid, or by private
messenger or courier service. Any such notice shall be deemed to have been
received on the earlier of (i) two (2) business days after it is mailed or (ii)
the date it is actually received.

     10.  Waiver.
          ------ 

          Either party's failure to enforce any provision or provisions of this
Agreement shall not in any way be construed as a waiver of any such provision,
or prevent that party thereafter from enforcing each and every other provision
of this Agreement.

     11.  Title and Headings.
          -------------------

          Titles and headings to sections in this Agreement are for the purpose
of reference only and shall in no way limit, define, or otherwise affect the
provisions of it.

     12.  Governing Law.
          ------------- 

          The parties hereto agree that it is their intention and covenant that
this Agreement and performance under it, and all suits and special proceedings
that may ensue from its breach, be construed in accordance with and under the
laws of the State of California, and that in any action, special proceeding, or
other proceeding that may be brought arising out of, in connection with, or by
reason of this Agreement, the laws of the State of California shall be
applicable and shall govern to the exclusion of the law of any other forum,
without regard to the jurisdiction in which any action or special proceeding may
be instituted.

     13.  Entire Agreement.
          -----------------

          This Agreement, any other written agreement executed concurrently
therewith, and the documents referred to herein, shall be construed together and
constitute the entire agreement between the parties pertaining to the subject
matter hereof.  Any prior agreements are superseded.  There are no warranties,
conditions, or representations (including any that may be implied by statute)
and there are no agreements in connection with such subject matter except as
specifically set forth or referred to in this Agreement.  No reliance is placed
on any warranty, representation, opinion, advice or assertion of fact made by
any party hereto or its directors, officers, employees or agents, to any other
party hereto or its directors, officers, employees or agents, except to the
extent that the same has been reduced to writing and included as a term of this
Agreement.  Accordingly, there shall be no liability, either in tort or in
contract, assessed in relation to any such warranty, representation, opinion,
advice or assertion of fact, except to the aforesaid.  No amendment, change or
variance from this Agreement shall be binding on either party unless executed in
writing by both parties.

                                      -7-
<PAGE>
 
     14.  Arbitration; Dispute Resolution
          -------------------------------


          (a)  Arbitration Procedure. Any disagreement, dispute, controversy or
               ---------------------   
claim arising out of or relating to this Agreement or the interpretation of this
Agreement or any arrangements relating to this Agreement or contemplated in this
Agreement or the breach, termination or invalidity thereof shall be settled by
arbitration in accordance with the Commercial Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA") (except
as otherwise provided in this Agreement) in Los Angeles, California. The
arbitral tribunal shall consist of one arbitrator. In making any decision, the
arbitrator shall apply and follow the substantive law of California without
reference to the conflicts of law provisions thereof. The parties to the
arbitration jointly shall directly appoint such arbitrator within thirty (30)
days of initiation of arbitration. If the parties shall fail to appoint such
arbitrator as provided above, such arbitrator shall be appointed by the AAA as
provided in the Arbitration Rules. Employee and the Company agree that the
arbitral award may be enforced against the parties to the arbitration proceeding
or their assets wherever they may be found and that a judgment upon the arbitral
award may be entered in any court having jurisdiction thereof. The Company shall
pay all fees and expenses of the Arbitrator regardless of the result and shall
provide all witnesses and evidence reasonably required by Employee to present
Employee's case. The Company shall pay to Employee all reasonable arbitration
expenses and legal fees incurred by Employee as a result of a termination of
Employee's employment in seeking to obtain or enforce any right or benefit
provided by this Agreement whether or not you are successful in obtaining or
enforcing such right or benefit). Such payments shall be made within five (5)
days after the Employee's request for payment accompanied with such evidence of
fees and expenses incurred as the Company reasonably may require.

          (b)  Compensation During Dispute.  Company compensation during any
               ---------------------------                                  
disagreement, dispute, controversy or claim arising out of or relating to this
Agreement or the interpretation of this Agreement shall be as follows:


               (i)  If a purported termination by Employee for Good Reason
occurs and such termination is disputed in accordance with this Agreement, the
Company shall continue to pay Employee the full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to,
salary) and continue Employee as a participant in all compensation, benefit and
insurance plans in which Employee was participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in accordance
with (P)15. Amounts paid under this Section 10(ii)(a) are in addition to all
other amounts due under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement. Employee agrees to remain in the
employ of the Company during the resolution of the dispute and to continue to
provide services unless Employee's employment is terminated earlier by death,
disability or retirement, or by action of the Company. If the dispute is
resolved by a determination that Employee did not have Good Reason, this
Agreement, in accordance with its terms, shall continue to apply to the
circumstances of Employee's employment by the Company and any termination
thereof.

               (ii) If there is a termination by the Company followed by a
dispute as to whether Employee is entitled to the payments and other benefits
provided under this

                                      -8-
<PAGE>
 
Agreement, then, during the period of that dispute the Company shall pay
Employee fifty percent (50%) of the amount specified in (P)7(e)(i) and
(P)7(e)(ii) hereof, and the Company shall provide Employee with the other
benefits provided in (e) of this Agreement, if, but only if, Employee agrees in
writing that if the dispute is resolved against Employee, Employee shall
promptly refund to the Company all payments Employee receives under (e)(i) and
(e)(ii) of this Agreement plus interest at the rate provided in Section 1274(d)
of the Code, compounded quarterly. If the dispute is resolved in Employee's
favor, promptly after resolution of the dispute the Company shall pay Employee
the sum that was withheld during the period of the dispute plus interest at the
rate provided in Section 1274(d) of the Code, compounded quarterly.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

     "COMPANY"                          "EMPLOYEE"
     Koo Koo Roo, Inc.,
     a Delaware corporation


     By: /s/ A. William Allen           /s/ William M. McKay
         --------------------           --------------------
     Name:   A. William Allen           William M. McKay
           ------------------
     Title:  C.E.O.
            -----------------

                                      -9-
<PAGE>
 
                                  EXHIBIT "1"
                              "CHANGE IN CONTROL"

In addition to the events described in the Employment Agreement, a Change in
Control shall be deemed to occur if:

          (a)  any Person (as defined below) is or becomes the Beneficial Owner
     (as defined below), directly or indirectly, of securities of the Company
     representing 20% or more of the combined voting power of the Company's then
     outstanding securities. For purposes of this Agreement, (A) the term
     "Person" is used as such term is used in Sections 13(d) and 14(d) of the
     Securities Exchange Act of 1934, as amended (the "Exchange Act"); provided,
     however, that unless this Agreement provides to the contrary, the term
     shall not include the Company, any trustee or other fiduciary holding
     securities under an employee benefit plan of the Company, or any Company
     owned, directly or indirectly, by the stockholders of the Company in
     substantially the same proportions as their ownership of stock of the
     Company, and (B) the term "Beneficial Owner" shall have the meaning given
     to such term in Rule 13d-3 under the Exchange Act;

          (b)  during any period after the execution of this Agreement,
     individuals who at the beginning of such period constitute the Board, and
     any new director (other than a director designated by a person who has
     entered into an agreement with the Company to effect a transaction
     described in Sections 2(i)(a), (c) or (d)) whose election by the Board or
     nomination for election by the Company's stockholders was approved by a
     vote of at least two-thirds (2/3) of the directors then still in office who
     either were directors at the beginning of the period or whose election or
     nomination for election was previously so approved (hereinafter referred to
     as "Continuing Directors"), cease for any reason to constitute at least a
     majority thereof;

          (c)  the stockholders of the Company approve a merger or consolidation
     sale, acquisition, purchase, reverse merger of the Company with any other
     Company (or other entity);

          (d)  the stockholders of the Company approve a plan of complete
     liquidation of the Company or an agreement for the sale or disposition by
     the Company of all or substantially all of the Company's assets; or

          (e)  any Person is or becomes the Beneficial Owner of securities of
     the Company representing ten percent (10%) or more of the combined voting
     power of the Company's then outstanding securities and (A) the identity of
     the Chief Executive Officer of the Company is changed during the period
     beginning sixty (60) days before the attainment of the ten percent (10%)
     beneficial ownership and ending one (1) year thereafter, or (B) individuals
     constituting at least one-third (1/3) of the members of the Board at the
     beginning of such period shall leave the Board during the period beginning
     sixty (60) days before the attainment of the ten percent (10%) beneficial
     ownership and ending one (1) year thereafter.

                                      -10-