Crafting the Perfect Compensation Package
What Restaurant HR Leaders Need to Know
Lower unemployment bodes well for the economy. Nonetheless, restaurant operators face a growing set of challenges in terms of attracting and retaining top talent. Today’s benefits go beyond base pay and health insurance. Employees are seeking more development and career training, work-life balance, and higher target bonuses, to name a few.
“To remain competitive and position a company as a great place to work, a multifaceted compensation strategy is essential,” says Jennifer Hubert, Director of Analysis at Black Box Intelligence (formerly TDn2K). “Operators must consider many elements in terms of how they are setting up their compensation and benefits from the restaurant hourly level up to the corporate executive level. Important fundamentals to consider include health benefits plans and their associated costs, variable pay program details, and payroll and operational costs.”
5 Things to Consider in Your Compensation and Benefits Plan:
1. Opportunity to Solve Retention Problem Lies in Total Rewards
The restaurant industry continues to see turnover at historically high levels as employees leave for more money creating scarcity. Operating in this environment creates a critical need for expanding beyond base pay and bonuses to retain employees.
Many operators offer additional rewards such as dining discounts, contributions toward health care, or education assistance programs, to name a few, yet do not distribute total rewards statements to restaurant employees. Only 31 percent of companies surveyed provide annual rewards statements; of that group, only seven percent provide them to all employees.
Adding up total rewards and issuing to employees on an annual basis provides employees with a quantifiable value of perks and benefits they receive and supports the motivation and retention of staff.
2. Labor Costs Rising Relative to Sales
The rise in labor costs is largely driven by manager pay. The total payroll costs as a percentage of total revenue for general managers have increased from 8.8 percent in 2015 to 10.2 percent in 2017. This metric for hourly employees has remained relatively flat, hovering around 24 percent.
While labor costs are increasing, it is critical to remain strategic with expense, however, there is an opportunity to view these costs from an investment standpoint. Data consistently indicates strong correlations between rewards practices and what happens in terms of customer traffic.
3. Manager salary increases and bonus payouts remain unchanged
Limited service brands are showing an uptick in hourly increases, likely driven by market pressures, but otherwise, the average pay increase remains unchanged for the industry. Companies with the lowest management turnover had bigger merit increases – top performers based on management turnover showed a 3.7 percent increase, compared to 2.5 percent for bottom performers.
The target bonuses for general managers did increase by a percentage point, however, the actual bonus amount remained the same. 95 percent of companies paid bonuses to restaurant employees in 2016, compared to 93 percent in 2017. The results indicate that a lot has not changed for managers, even though there is evidence that those restaurants that provide a little “extra” tend to show better results.
4. Health benefits costs increasing across the board
The percentage of health plan costs paid by employers has remained stable over the last few years, around 65 percent, however, the costs to both the employer and the employee have risen. The largest cost increase was seen in HMO plans, where the price difference between HMO and PPO plans was about $50 per month in 2016, compared to $10 in 2017.
5. Industry Moves Toward Broadening Benefits Outside Health
Companies are taking initiatives to mitigate the rising costs of health insurance for employees. Member companies report these measures as having a positive impact on employee retention or business results. In addition, companies are exploring other ways of providing benefits to employees outside of health benefits.
Non-traditional new parent leave, such as paternity or adoption leave, is an emerging trend. It is also becoming less uncommon to see maternity leave offered to restaurant hourly employees. These initiatives are not yet widespread, however, they are taking over in popularity compared to the previous trend in wellness programs. Black Box Intelligence recently completed the 2018 Corporate Compensation and Benefits Survey and conducted an in-depth analysis of data points provided by over 100 corporations and more than 200 unique concepts. This year’s key takeaways include information about turnover and retention, compensation practices, as well as employee benefits, and total rewards.