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Manager bonuses based on profit

Money

Question:

Is there a standard for giving manager bonuses based on profit? After successfully growing our business, we were finally able to hire a manager last year. We pay him a good wage, and I throw extra his way whenever I’m so motivated (it’s good to be king). However, I’d like to come up with a more quantifiable way of giving bonuses based on profit.

– Joanna Rendi, Owner, Moochie’s, Salt Lake City, UT

Answer:

One of the common frustrations in our industry is a lack of benchmarks. A number of practices exist for calculating manager bonuses and there is no one right or wrong way. The key, as in other aspects of management, is to be clear about the criteria for earning those bonuses, and to communicate frequently with your managers regarding their progress in meeting those goals. Strategies include:

  • Bonuses based on a percentage of sales over a budgeted or historic target.
  • Bonuses based on specific metrics such as raising revenue while lowering food cost, labor cost or prime cost.
  • Bonuses as a percentage (commission) on catering/private dining sales.
  • Bonuses based on strategic sales or control initiatives such as increasing the percentage of bar sales, reducing voids or raising check averages.

For example, John Perkowski, CFO of Terra Momo restaurant group in Princeton, New Jersey says, “We establish incentives for the GM and executive chef at each location where they can achieve 50 percent of their bonus based upon sales increase targets while maintaining an efficient prime cost (cost of goods sold and labor). If two of the four locations achieve their individual store goals an additional 16.66 percent is earned; three of four, 33.33 percent; and if all four achieve their goals the group would earn 100 percent of their incentive. These calculations are done quarterly. We also have incentive programs for our private party planners (commission based) and for our wine stewards, which is based on sales increases while maintaining a predetermined wine cost percentage.”

I would encourage you to focus on multiple measures of success. Raising revenue, lowering food cost or trimming labor costs are all key to a successful operation. But if your bonus system is tied too heavily to one or more of these factors, other less-quantifiable areas of the restaurant may suffer. For example, sending a kitchen worker home early may help with labor cost but if the kitchen suffers from lost hours of cleaning and organizing, the negative impact on health inspection scores and food waste may far outweigh the labor savings. Use multiple metrics, including guest and employee satisfaction, and make this part of your regular review process for better results.

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