| “Creative
Compensation: To Keep Valued Top Management, Smart
Restauranteurs Give More Than Just A Paycheck.” |
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by Dennis
L. Monroe and Phillip R. Krass |
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from Franchise
Times, October 2001 |
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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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