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Chain LeaderEditorial Archives2005April 15 — Best Places To Work

Staying Power
Applebee’s “people first, employees second” philosophy keeps manager turnover well below the industry norm.

By Lisa Bertagnoli

General-manager turnover at Applebee’s company stores fell to 8 percent, and turnover for all unit-level managers dropped to 14 percent after the company implemented its People Metrics program.

Five years ago, Applebee’s International’s management turnover rate was 30 percent. That figure would make most any operator leap with gladness, but it wasn’t getting any jumping jacks out of Lloyd Hill, chairman and chief executive officer of the Kansas City, Kan.-based casual-dining chain.

“Lloyd said, ‘What’s going on?’” recalls Lou Kaucic, chief people officer at Applebee’s, which has about 430 company-owned and 1,370 franchised locations around the country. “I said the figures were right in the middle of the industry average, and he said, ‘Is that the legacy we want to leave?’”

Recalls Kaucic: “It was a breakthrough conversation: Were we happy being in the middle?”

The answer, of course, was no. So Hill, Kaucic, Executive Director of Field Human Resources John Prutsman and a handful of other executives retreated to southern Missouri to discuss the turnover problem. The group set a goal of 25 percent, then agreed “to pull out the stops and focus on this like never before,” Kaucic says.

Applebee’s International
Overland Park, Kan.
1,247 franchised, 424 company-owned
2004 Systemwide Sales
$3.978 billion
Average Check
Expansion Plans

125 in 2005

The resulting program, called People Metrics, exceeded the group’s wildest expectations. By 2003, general-manager turnover at the chain’s company stores had fallen to 8 percent, and turnover for all unit-level managers had dropped to 14 percent. According to People Report’s Survey of Unit Level Employment Practices, in 2003 turnover for general managers was 19 percent, while turnover for unit managers averaged 33 percent.

There’s a direct tie between sales volume and management turnover, so Applebee’s was wise to make the effort, says Suzanne Zuniga, chief operating officer at CorVirtus, a hospitality-management-consulting company based in Colorado Springs, Colo. Long-term managers “think of the restaurant as their own, and they take better care of employees,” Zuniga says. Cared-for employees take better care of customers, who in turn visit more often and recommend the restaurant to friends, “and sales go up,” she says.

Applebee’s, she adds, “has a great reputation for doing well in HR and working hard on retention.”

Kaucic explains that People Metrics is an extensive program, encompassing everything from meticulous hiring practices to bonuses to idea swaps at the annual general managers’ convention.

“There’s no silver bullet, but a key area is selection,” Kaucic says. Management candidates undergo four or five interviews. Applebee’s hires them only if their skills match established competencies such as decision-making, integrity and managing relationships.

“We hire against competencies versus ‘I like that person,’” Kaucic says.

Benefit City
Applebee’s managers enjoy a benefits package that offers health, dental and vision insurance; life insurance; short-term and long-term disability insurance; and an employee-assistance program.

The company also offers more nontraditional perks including flexible-spending accounts for medical expenses, adoption assistance, a computer discount through Dell Computers, daycare discounts and domestic-partner benefits. Domestic-partner benefits, inaugurated five years ago, “allow us to attract a more diverse work force,” Kaucic says.

He characterizes the base pay for managers as “right in the middle of the pack.” Bonuses tied to their store’s financial performance can shoot managers’ salaries into the top quartile industrywide, Kaucic says. “Our best GMs make well over $100,000 a year, and top [unit] managers make $70,000 a year,” he says.

A deferred compensation plan, called “MO Money,” offers further incentive for general managers. They’re vested in the program after two years and receive annual bonuses tied to their stores’ sales and profitability. Managers can receive a check outright, put the money in a 401(k) or buy company stock. And it’s hardly pin money: “The checks can be $30,000,” Kaucic says.

Turnover among GMs in the MO Money program is 4 percent, Kaucic says. “[That] told us all we needed to know,” he says. “It’s helping us hold on to our best GMs.”

People First, Employees Second
The generous bonuses and liberal menu of benefits are part of an overall philosophy that treats managers as “people first, employees second,” Kaucic says. That philosophy extends to quarterly People Metrics meetings, where managers share best practices for retention.

General-manager turnover at Applebee's company stores fell to 8 percent, and turnover for all unit-level managers dropped to 14 percent after the company implemented its People Metrics program.

One such practice is a Turnover Alert Form, designed to prevent unhappy managers from fleeing the chain. In some cases, Applebee’s flies the managers to Kansas City to meet with Hill, Kaucic and other executives. “We say, ‘You’re a valued member of our team. Why are you leaving?’” Prutsman explains.

Why the fuss over an unhappy employee? “When we lose a manager, it costs us at least $10,000 to hire and train a replacement,” Prutsman says.

Practical Ideas
Other employee-saving ideas have surfaced at the annual convention of general managers. A few years back, a manager suggested that new managers attend, with a guest, a get-to-know-you dinner with the area director. The dinner, now standard practice, helped reduce manager turnover in the critical first year. “Having the connection with the next level above makes a difference,” Prutsman says.

The “people first, employees second” approach has certainly worked for Kim Kotzer, general manager of an Applebee’s restaurant in Mankato, Minn.

Kotzer, 34, joined the chain as a server on May 8, 1996. A week later, on her birthday, her new co-workers surprised her with a cake and a card. “I never said anything, but they knew it was my birthday,” Kotzer says. “I fell in love with the company right away.”

Kotzer was promoted to assistant general manager in 1997 and to general manager in 2003. Even as a well-seasoned Applebee’s employee, she still sees “people first” efforts directed her way. For example, Applebee’s recently conducted an hourly-employee retention contest that ran for six months. Kotzer won the contest, retaining 85 percent of her new hires.

Alas, Kotzer had spent three of the six months at one location and three at another, which disqualified her from winning the prize. But Applebee’s bent the rules, and Kotzer and her fiance will spend four days in Marco Island, Fla., this June. “That’s the nice thing about the company,” Kotzer says. “They’re always going above and beyond for us.”

Another example: Every year, the company asks general managers how it can improve the annual convention. Last year, managers, who met in Arizona, said they’d like more free time to explore the convention’s locale.

This year, when they meet in Kansas City, the assembled managers will get time to explore the Nelson-Atkins Museum of Art, the American Jazz Museum, the fabled Country Club Plaza shopping mall and other Kansas City attractions.

Director of Field Human Resources John Prutsman (l.) says managers respond well to meeting with higher levels of management.

Back to Basics
Applebee’s drive to lower turnover hasn’t been continuously successful. In 2004, the turnover rate for general managers jumped to 9.8 percent and for all unit managers, to 20 percent.

“We thought we had the thing figured out, that all systems were in place,” says Prutsman. “Well, it was a painful lesson we learned. We took our eye off the ball a little bit, so the numbers crept up.”

Kaucic agrees, saying that Applebee’s turned a people-oriented model into a business model and saw turnover rise as a result. “I would call it ineffective leadership,” he says bluntly.

As a result, this year Applebee’s is administering People Metrics in its original form, complete with quarterly meetings and excruciating attention to detail. But, due to growing industry competition for talented managers, Kaucic says he can hardly expect the 14 percent figure of two years ago. “I would be happy in the 16 percent to 19 percent range,” he says.

So would the rest of the industry.

Mixed Reviews
Applebee’s says its in-depth annual review process is key in identifying talented managers—as well as underperformers.

In the review process, called Mix Management, Applebee’s executives evaluate all its managers—about 2,000 at the chain’s 430 company stores—according to nine competencies. They then sort the group into the top 20 percent of performers, the middle 60 percent and the lowest 20 percent.

The top 20 percent are targeted as future leaders, no small matter in a company that has added 100 stores a year for the last 13 years. The middle 60 percent “we continue to develop, challenge and recognize so they can get to the A layer,” says John Prutsman, executive director of field human resources.

The bottom 20 percent contains managers new to the position, “who with time and focused development can be an A,” Prutsman says. That mix also includes managers who might be in the wrong field or at the wrong company. “That’s where we have to compassionately have that conversation: ‘Is this the right place for you?’” he says.

“We take reviews very seriously,” Prutsman explains. “The only way you grow restaurants is to have a leadership pipeline. It’s important to us to assess who the next leaders are.”

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