Three Ways to Reward and Encourage Key Employees

GRA Blog , Human Resources , Operations ,
By Jessica Hussain, Tax Senior Manager at Aprio

In an industry notorious for turnover, motivating and retaining key employees can be a huge challenge. Without recognition of their contributions toward making your restaurant successful and profitable, employees may not feel invested in their job and decide to go elsewhere. Here are three programs you can implement to reward your employees’ contributions – and decrease your employee turnover.
 
​1. Cash Incentive Plans
The most popular type of incentive plan strategy, cash incentive plans encourage retention by giving employees a measurable and compensable goal to work toward. To implement this type of plan, you must create easily measurable and transparent goals so employees understand how you are scoring their performance and how their performance helps the restaurant.

These plans pay out through payroll bonuses and can be either short- or long-term. Short-term plans work best for front and back of the house employees who do not participate in management. You should measure short-term plans throughout the year with monthly or quarterly payouts. For your management-level employees, focus on a long-term plan that encourages them to stay.

2. Equity Incentive
Ownership incentives allow employees to share directly in the profits and growth of the company.  The equity incentive plan deployed depends on the entity type. Two of the possible types of equity incentives to consider for your restaurant are:
  • Phantom ownership – This method lets employees share in company growth without ceding any actual ownership. Phantom ownership arrangements cover a specified time frame. If the arrangement results in a payout sometime in the future, the payment comes through a bonus in payroll. This results in ordinary income to the employee and an ordinary deduction for the restaurant. Phantom ownership does not result in an immediate payment, so if you want to incentivize an employee to stay with you until you sell your restaurant, this type of arrangement may be a good fit.
  • Profits interest – If the entity is a partnership, this method gives a profits percentage ownership in the business to your employees. Profits interests allow employees to participate in the profits at the store level or company level, based on the entity agreements. The profit allocation would be reportable as income by the employee, and it could have additional state tax considerations.

3. Retirement Plans
Retirement plans for the restaurant industry can present a challenge. According to the ALM Intelligence’s 2017 401(k) Benchmark Report, Accommodation and Food Services “has the worst plans of any of our surveyed industries, ranking 26th out of 26,” with half of the smallest employers offering no contributions at all. These industries struggle with cost of the contribution, compliance with regulations, retention of employees and recruitment of top talent. Restaurant owners in particular sometimes receive many of their contributions back, having to make “top heavy” contributions to non-key participants or incurring penalties from running afoul of IRS and DOL regulations.

Bringing in a retirement plan professional to evaluate your restaurant’s specific challenges can provide many unique solutions that could be tailored to your needs. Fortunately, you can often recoup the expense of hiring a qualified professional in cost savings from employee retention and increased contribution opportunities.

By rewarding your employees through an incentive or retirement plan, you can reduce the costs associated with hiring and training new employees for your restaurant. Take time to consider the options available to you and what might fit your unique business situation.

Need help determining the right way to incentivize your employees? Contact Jessica Hussain at jessica.hussain@aprio.com or 770-353-3051.