Performance bonuses for Management can be good or bad. They are good if they result in the desired performance that the bonus is intended to reward.  They are bad if ownership and Management have differing opinions on the desired performance results. Deciding which path is right for your restaurant is all part of a good business plan

Lack of clear communication can be a major factor in the misunderstanding.  Ownership gives directives with a bonus reward, and assumes that Management clearly understands what is expected of them.  Management may understand in general, but not in specific terms. Without explicit understanding by Ownership and Management, the result can be a misunderstanding of the desired results.  This type of imprecise communication leads to frustration by Management and the assumption by Ownership that Management is either incapable of understanding instructions or incapable of carrying them out.

Good communication is an art form that not everyone possesses. Therefore, an effective method when communicating important written objectives is an old and proven management system called “Management by Objective.  MBO has been emulated many times over by modern day business gurus such as Covey, Drucker and many others.  The system is flexible and simple, so it lends itself to many uses.  The principle of MBO is “Accountability through agreed to expectations”.

The objective is written by the owner and the General Manager. The objective must be specific, stretching and with a completion date.  Most importantly it must be agreed to by both parties with complete understanding.

Due to the broad nature of some objectives, which can cause some ambiguity, a second part to the objective is written called “By that I mean”.  In this section, point-by-point clarified explanations are listed until both ownership and Management agree on the expectations.

This plan can be based on the principle of extra financial incentive through specific achieved goals and appropriate rewards.  It has the additional advantage of ensuring long term employment by making Management feel more a partner than just an employee.

  1. Base salary of approximately $$K.  May vary in certain geographical areas.
  1. A quarterly bonus bases on four equal parts.  Gross sales volume, food cost, labor cost and Quality Evaluation scores.  These are the operational factors that the GM can control.  The net profit will be driven by these four categories. Designed as follows:
  2. Ownership and the GM sit down at the end of each quarter and write an objective for each of the above categories for the following quarter.  The written objective must be specific, measurable and stretching.  It must be agreed to by both of you as reasonable.  A sample objective is as follows:

Sales for 2nd quarter 2005 will be not less than 30,000.

(keep in mind number of days in month and seasonal factors).   Food cost will not exceed 30% and labor cost will not exceed 26% (volume will effect labor %).  Quarterly QE score will be 90 or above.  All line items on P&L, i.e. legal, accounting, repairs etc. should be agreed upon and set with a specific budget.

Ownership will use the objective as a barometer for the bonus but it should be somewhat subjective.  Ownership may decide that the objectives were not met through no fault of the GM and give the bonus or a portion of it anyway.  However, Ownership should make sure that the negative circumstances were severe enough to justify and that it does not become a habit or the written objective will lose its power.

  1. In the 1st two quarters of operation in the 1st year, there will be some expenses that would not be normal to regular operations.  Therefore, this period of time would be used to establish realistic objectives that both Ownership and Management can agree on and no bonus would be paid during this time. If all objectives were met in the 3rd quarter then the GM would receive a 5% bonus of net profit for that quarter in addition to base salary.  The same % would apply to the 4th quarter.
  1. The 2nd twelve months would be based on 10% bonus per quarter.  The 3rd year if all quarter objectives met the previous year, 15%. 4th year 20%. 5th and subsequent years 25%.  The GM would not proceed to the next bonus level for the following year unless quarterly objectives were met all four quarters of the previous year.  He/she basically becomes Ownerships 25% partner.  However if they leave Ownerships employment, they of course forfeit all benefits.  Insurance and other benefits are optional depending on the bottom line and how much Ownership values Management.

Variations can be made to the plan.  However the basic premise of specific and agreed to accountability is essential. Contact Us for assistance with planning.