An incentive compensation program that rewards managers with bonuses based on the restaurant’s performance and profitability has been found to be an effective way to increase profits by many restaurant owners.
• Base the bonuses on prime cost control and how well kept the restaurant is. A restaurant manager most likely can’t control sales, but he has some control of the food and beverage cost, labor cost, cleanliness of the restaurant, and employee training.
• The incentive compensation plan should be simple, realistic and specify which managers are included in the plan.
• The incentives should be capped at a maximum level to avoid service and quality deterioration. For example, you want to prevent managers from buying inferior products to reduce cost.
Managers who receive incentive compensation will be more invested in the restaurant’s success and will also ensure that their employees are better trained and provide better service. It’s a win-win for both the manager and the owner!
Note: It’s wise to consult with a lawyer before you draft an incentive compensation program for your restaurant since it’s considered to be a legal contract.
Allen & Company, PC - a CPA firm with a specialty in franchises