Connections for Success

 

07.31.15

How to Create Effective Management Incentive Plans
Ken Gillie

There’s a reason why everyone in the restaurant industry is talking about Management Incentive Plans (MIPs). Highly successful when used effectively, they motivate hospitality managers to stay laser-focused on the most valuable, controllable, profit-enhancing elements of your business. With the right balance, you can structure an MIP to pay a portion of salary according to performance, giving you the flexibility to recoup losses if they occur.

The Keys to Successful Incentives
Successful MIPs start with the right objectives and they include an appropriate and adequate financial reward. The plans that truly motivate are applied fairly and consistently, plus they involve regular monitoring and communication. An effective MIP will give your restaurant manager a sense of ownership, providing the motivation to focus on correct, controllable measurements, despite the many distractions of a busy restaurant.

When incentive plans set unrealistic objectives, pay out only once a year or lack regular discussion and revision, the effect can be quite different. Handled without due care and attention, an MIP can become demoralizing and demotivating to your staff and fail to accomplish the primary objective of improving profitability.

A Valuable Recruitment Tool
Today, many large chains offer their management teams 401Ks, health benefits, training, education and even ownership options. Implementing an MIP places you in a competitive position, so that you can tap into a prospective employee’s entrepreneurial spirit.

Each Plan is Different
Every MIP should have fundamental elements that reward managers who control losses and expenses, as well as increase sales. However, each operation will have priorities and circumstances that dictate the finer details. Success lies in creating a customized MIP that reflects the unique characteristics of your business and the managers who work for you.

Every MIP should have a mechanism in place that motivates managers to take actions to increase sales. A good manager should at least pay for his or her salary by increasing sales through guest interactions, customer promotions and staff motivation. Including revenue targets in an MIP maintains a focus on sales and provides a payroll cushion in the event of a drop in revenue. If a manager’s bonus is too closely linked to sales performance and sales are down, it will significantly affect motivation to hit targets in other areas. A common weight for sales increase targets is 25% of MIP payout, with the objective of hitting a 3% increase over the previous year or period.

Consider reserving 25% of your MIP for measurable, value-added management behavior, such as avoiding health code violations, maintaining on-hand inventory levels or achieving good attendance records. You can also add other qualitative measures to reflect the unique characteristics of your business.

Putting a Management Incentive Program
You can either incentivize your managers with a bonus expressed as a percentage of profits or as a percentage of salary. There are advantages and disadvantages to both but, in most cases, the most successful is based on salary. Managers who are incentivized on profits may not make a bonus at all, despite working hard to hit predetermined targets. MIPs are at their most successful when people know how much money is at stake and believe there is a realistic chance of consistently making bonus. Basing incentives on salary also means you can budget for a predetermined bonus allocation. Equally, if your manager doesn’t make target, you are able to recover some of the losses. A common MIP bonus value is 20% of budgeted salary. For example, rather than pay your general manager $60,000, you might use a base of $50,000 with $10,000 in yearly bonus potential.

Start by outlining the basic structure of the MIP to ensure that all the best practices are in place. The next step is to get agreement to the terms of the incentive program and ask your manager to help develop the finer details. This consultative process increases the chances of success, and in many cases, enriches the program by uncovering more ways to add value.

Timing and communication are critical when you’re creating a Management Incentive Plan. Don’t make the mistake of putting together an annual bonus plan. In an industry with high turnover, incentive periods need to be more frequent, with the prospect of reward in the near future. When you’re measuring performance against target, make sure you apply the rules consistently and that you’re scrupulously fair. Then communicate results quickly. Schedule unmovable quarterly meetings with your management team to review MIP plans and results, so you can highlight exceptional performance and act fast to make improvements in areas that need attention.

For help creating an Management Incentive Plan, contact Ken Gillie at Sculpture Hospitality at  [email protected]  or call him at 773.454.1300.  Visit ORBA.com to learn more about our Restaurant Group.

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