ÿþ <html> <pre> ARE MANAGEMENT INCENTIVES THE KEY ELEMENT TO SUCCESS? By Lloyd M. Gordon, GEC Consultants, Inc. Most restaurant executives agree that a key element of success for a restaurant chain is the proper motivation of unit-level management. Why is this factor so important in the restaurant industry, and what are the most effective incentives for managers? Any labor-intensive business is heavily dependent on the attitude of its employees. We know that it is especially true of restaurants, because they are so heavily oriented toward service and product quality. Unlike the situation prevailing with most retailers, with restaurants the quality of the product is measured instantly at the time of purchase. Furthermore, the restaurateur is usually fully responsible for the quality of the products served in his restaurant, whereas many retailers can pass the blame for an inferior product on to its manufacturer. Consequently, product quality is less important to other retail establishments, and they have relatively little control, whether perceived or actual, over it. Buying a defective shirt from Brooks Brothers will probably not result in a lost customer, but eating a disappointing meal at a restaurant may well mean the patron will never return. The best way to ensure that unit-level employees will adhere to quality standards is to make it worth their while to do so. Obviously, that takes the form of some kind of incentive. As basic as the principle may seem, some restaurant companies still pay their restaurant management personnel a straight salary. Others provide a bonus based on management's exceeding some minimum profit and return goals. Still others treat their managers as partners in their business by paying a percentage of the earnings or sales of the individual restaurant. What Is the Best Approach? No easy answer exists. However, the closer a restaurant manager is to the owner of that restaurant, the higher the sales and profits. Unit managers must think like owners, rather than employees, and how they relate to their customers should have a direct impact on compensation. However, it is not by accident that several of the most successful restaurant companies offer their unit managers, in effect, an equity interest in their restaurant. On the other hand, many successful companies do not treat their unit management like partners. Nevertheless, in almost every case, a company does provide some incentive to that group of employees. Indeed, Ryan's Family Steak House pays its unit managers salaries plus a percentage of the unit's sales above a certain amount less a penalty for exceeding food and labor cost guidelines. In the chain restaurant business, a company is only as successful as its individual units. Each unit, in turn, is only as good as the last meal served and the smile on the face of the server. Senior management must recognize that fact and provide an incentive to the individual restaurant operator to ensure that both the quality of product and the smile are present. </pre> </html>