| “CREATIVE
COMPENSATION: To Keep Valued Top Management, Smart
Restauranteurs Give More Than Just a Paycheck” |
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by Dennis L. Monroe |
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from FoodService News, July 2001 Issue |
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Compensating key restaurant employees is crucial to a restaurant's success. In today's competitive market, creative compensation techniques are part of the solution to retaining key employees. Key restaurant employees may include general managers, executive chefs or sous chefs. This article summarizes some of the basic compensation techniques that have been developed by such restaurant groups as Wolfgang Puck, Lettuce Entertain You and our clients.
It is very important to maintain a base salary that is market based for the key employee, and to give the key employee a participation right in the growth and profits of the restaurant. We have seen this accomplished in the following ways:
1. Bonus. A bonus arrangement usually ranges from 25% to 50% of the employee's base compensation. The bonus can be based on a number of factors: (a) straight percentage of profit; (b) controllable costs; (c) food costs; or (d) growth in sales. In many cases a hybrid bonus plan is used wherein points are awarded for various components and then the points are translated into dollars.
2. Deferred Compensation. Deferred compensation has two components:
a. A straight deferral to accumulate a savings for the key employee; and
b. A more speculative deferred group plan tied to the increase in value of the restaurant. This plan is based on a theoretical formula usually based on a multiple of store operating profits. For instance, if the value of the restaurant and revenues grow 10% per year, then the account (which has been set aside for this growth portion) increases by 10%. The key employee then has a sense of participation in the growth of the restaurant without providing the employee direct ownership.
Both of the above components create a deferred compensation pool that provides the key employee with future retirement or a source of increased net worth. It is important that this deferred compensation account provide a vesting schedule to give the key employee an incentive to remain with the company.
3. "In-Service Loans" We have also recently seen employers provide their employees access to the deferred compensation prior to termination through the use of "in service loans." These loans allow the employee (hopefully on a tax-free basis) to withdraw funds for personal use, even though the employee has not separated from employment. This, again, provides incentive for employees to stay with the company and gives them the benefit of the deferred compensation without requiring an event (such as retirement or termination of employment).
In summary, pure salary is not enough in today's market. The key is to provide good, creative compensation solutions that attract and retain key employees.
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