Incentives to perform

[private]

I get asked about incentive schemes for hospitality staff quite often. It’s an interesting topic, and one that is rising in importance as hospitality business operators struggle between stagnant or falling revenue and steadily rising costs. Incentive schemes seem to offer the promise of tying staff remuneration with productivity rather than the traditional time based payment that we have been used to living with.

Time based payment — eg. paying someone so much per hour, week or month — provides an inherent disadvantage to both sides of the employment arrangement. For the employer it means that you are forced to pay an employee a set amount just to attend, no matter what productive work they do while they are there — there is no direct relationship between their pay and their contribution to the business. Also, why should staff lift their game when the business is not doing well if their pay remains the same no matter what?

That lack of direct relationship also works to the disadvantage of good employees. Why should they work harder or smarter than their peers if they are not going to be financially recognised for their efforts?

More and more employers are recognising this and are seeking my advice as to how they might break away from this system and adopt a system where they are able to tie payment with result. It is not too difficult if you are lucky or smart enough to have negotiated a results based collective bargaining agreement with your staff, but very few businesses have done this because it is difficult and expensive to organise in an existing business. Most are stuck with the restrictive blanket provided by the Federal or State Awards, and have to work within the allowable parameters.

All is not lost, however. Modern computerised point-of-sale systems and in house accounting packages offer a valuable opportunity that was not available to hospitality operators in the immediate past. The beauty of these systems is that if they are set-up properly and maintained they can measure almost anything you want in your business. This provides the perfect mechanism for objective incentive schemes.

You are stuck with the base pay levels and conditions that are defined by the Awards, but what you can do is offer your staff bonus incentives based on performance above and beyond the normal. These should be structured to reward staff with a portion of the extra profit you make when they make extra money for you.

As a simple example, consider a waiter or a bistro cashier. The more efficiently they sell to each customer they serve, the higher the profit you will make from their services. Add-on or suggestive sales come with minimum labour cost attached and are often very high margin items. Why not set-up a sliding scale of bonus payments according to the increase in customer average sale they deliver over your average performance? This can be measured on a weekly or monthly basis. If the payment scale is carefully calculated it won’t cost you anything to pay the extra — in reality you’ll make a good margin on the deal.

Moving up to your key staff, you can reward chefs according to their food cost percentage and their wage cost percentage, staff turnover, repairs and maintenance expenditure, use of energy, etc. For managers you can reward on growth in revenue (exclusive of price increases), wage cost percentage, cost of goods sold percentage, staff turnover, operating profit — or whatever else you can measure.

The main point being that as you make use of all this modern technology you’ve purchased to track your financial performance in-house, you can also use the information that is being constantly fed into your system for accounting and management purposes to measure staff performance.

I have come to the belief that most effective incentive schemes revolve around money and status. Don’t expect to get your staff to rev up for extended periods of time for a bottle of champagne or a dinner for two. This may work for some people but the majority will regard those sorts of offers with casual indifference. They have to see the opportunity as substantial before they will react.

When we are talking about a bottom line staff member, a 10% increase in their hourly pay rate is substantial, as is a lump sum of say $2000 to a supervisor, or a trip for two to Fiji (which may cost you less than $2,000 and which may be tax deductable). For a senior staff member we may need to be talking in amounts of $10–15,000 per year before we get the desired effort. The trick is in making sure that you have made at least this sum or more as your part of the bargain before you pay them their bonus.

As good, well trained hospitality staff become harder and harder to find there is a steady upward pressure on wages. It’s inevitable. If staff have an opportunity to earn more by working for you than they do with the business down the road, you will be able to pick and choose from the best available people.

I think we are foolish to just keep paying higher amounts without getting extra benefit in return — if you do you’ll just erode your margin to the point where it will disappear. Then you’ll be running a charity for your staff and your customers.

[/private]