February 3, 2006 - Jim Laube is the President of RestaurantOwner.com, an online resource center for independent restaurant operators. For more information visit www.RestaurantOwner.com.

In preparation of a Special Report on Management Incentive Programs, we asked our members, who are nearly all independent operators, to describe their incentive or bonus programs. Many operators reported a high degree of success, that included improved profitability, higher morale and lower management turnover, as a result of their incentive plans.

Here's a summary of some of the common characteristics noted in successful incentive programs:

1. Simple and easily understood. Several members’ plans as described were quite involved and detailed. The results of these plans tended to be average. The most effective plans were simple in that they were based on the results of just 3 to 4 areas which several operators referred to as “key performance objectives”. These key performance objectives were activities or processes the managers had some degree of control over.

2. Mutually agreed upon, achievable goals. Many operators with successful plans stated that performance goals in the areas of sales and profit are discussed with management and mutually agreed upon. The objective is to make the goals challenging, but at the same time, also achievable and realistic. Make the goals too easy to achieve and managers can get complacent, make them impossible to achieve and managers can get discouraged and quit trying.

3. Incentives tied to “topline” improvements as well as costs and bottom-line profit. Nearly all operators with highly successful plans indicated that some portion of their incentive payment is based on improving or maintaining high levels of sales activity.

4. Monthly or quarterly incentive periods. Operators with annual programs with an annual payment cycle only, appeared to have less success than those whose programs that were broken down to a 4 week, monthly or quarterly cycle.
 
5. Accurate, timely reporting. Having a reliable, speedy accounting process in place before implementing an incentive programs appears to be very important. Several operators noted that interest and motivation from their incentive programs suffered because managers had to wait so long to get their numbers or that they lost confidence in the accuracy of the reports/P&Ls produced by their bookkeeper/accountants.
 
6. Regular incentive program review. Many operators with successful programs reported that they revisit the terms and goals of their incentive program at least annually to keep it relevant with current operating conditions.
 
7. Weekly progress meetings. Nearly all operators with highly successful programs indicated that they had some type of weekly management meeting to evaluate their key numbers from the previous week. The previous week’s numbers were evaluated in light of whether they were hitting their goals as established by their incentive program.