Don't Give 'Em a Management Entitlement Program

publication date: Jun 20, 2008

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author/source: David Scott Peters

If I had a nickel for every time I am asked about how to properly structure a management bonus program, I could start thinking about retirement. No, really, this has got to be one of the most asked questions.

The truth is that structuring a bonus program is actually not that difficult. Often the bigger challenge is having the right systems in place to build it properly. Without the right systems, many management bonus programs are what I call management "entitlement" programs, where managers expect a bonus just for showing up.

To help you avoid this profit sucking mistake, here I share the six systems you need to have in place to write a useful management bonus program that will encourage your managers to earn their bonus.

Job Description
This is a no brainer, yet often overlooked when we talk about management. Without a detailed job description for each level of management in place, like the ones found in my "SMART Restaurant Management Training Program", you have managers on the floor who have no real clue of what their job is or how well you expect them to do it.

The beautiful part about a well-laid-out manager job description is it becomes your paint-by-numbers outline when you start to write your bonus program because your minimum expectations are already outlined in black and white.

Budgets
Budgets give you, the operator, the ability to set targets, measure progress, evaluate performance and ensure you run profitably. As a part of the budgetary process you have to create realistic targets such as food cost, pour cost and labor cost percentages you want management to achieve. Honestly, without a budget and targets in place there is no structure for any reasonable bonus program. You might as well run a charity.

Prime Cost Control Systems
When you have budgets in place for your restaurant, you have cost of goods sold and labor targets (together they make up what is called your prime cost), but do you have systems in place to help management achieve those targets? For example, just giving your management team a 30 percent labor cost percentage to shoot for isn't enough. You must give them a road map of how to control those numbers and achieve their goal, or you might as well not even bother implementing a bonus program. They will never hit their goal, which ultimately translates to lost potential profits for you.

Scoring Systems
When I refer to scoring systems, I am referring to both those that you impose and those that are imposed on you. For instance, your health department inspections scores and customer complaints are imposed on you. You should also be utilizing secret shopping services, customer comment cards and internal inspection forms to make sure your restaurant is working in all areas. Profitability alone should never be your sole focus.

While scores are not something you can put a hard dollar cost to, in many instances, low scores can kill your business. So implement, utilize and evaluate your scores. They will tell you a lot about how well you are doing and should be included when evaluating managers' performances.

MBOs
I successfully used Management by Objectives (MBOs) early in my career and it remains a staple in my business planning to this day. The concept of MBOs was originated by Peter Drucker at The Harvard Business Review. He is called the Father of Modern Management, and he outlines MBOs in his 1954 book The Practice of Management.

This is a systematic process that helps management focus on company goals and reach the best results possible.

There are five basic steps to the MBO Process, which are: 1) Review the objectives the company would like to accomplish, 2) Set objectives for your management team, 3) Continually monitor progress, 4) Continually evaluate progress, and 5) Reward the achievers. When you've done all that, you then start the process over again.

Timely Reporting
Last but not least, you have to have timely reporting. It's not good enough to have all of these systems in place if you can't gather, analyze and distribute your results to your team on a timely basis. Taking too long can de-motivate your management team and even worse yet, cause you to lose money.

I think you can clearly see why each of these are extremely important to have in place when you are putting together a management bonus program that is not an entitlement. This is because it is based on specific performance standards that can all be measured and quantified. With the right program, your managers will work harder than ever to earn that bonus and won't blame you if they miss their targets.

Now what do you do when you have all of these systems in place and want to structure an effective and fair bonus program?

Again, since this has and will always be such a popular topic, I recorded about two hours of one of my two-day Elite Member Meetings where I taught my step-by-step process of how to put together a great bonus program. During that section several of my members actually shared their programs with us. If you would like your own copy of the recording and the Bonus Structure Worksheet template, please click here for the "How to Structure a Restaurant Bonus Program." It's only $87 and will change the way you and your managers view your bonus program - for the better.

Put the six systems in place, and you'll have the solid foundation you need to structure a management bonus program that benefits you.