A Profitable Partnership
LongHorn’s “skin in the game” program for managers has cut turnover and boosted sales.

By Lisa Bertagnoli

Eight years ago, LongHorn Steakhouse’s general managers received a benefits package of insurance, a 401(k) and other perks. Beyond that, however, they received no special rewards or incentives.

The result: An annual turnover rate of 35 percent among general managers. The rank and file experienced a trickle-down effect: hourly turnover hovered around 120 percent.

LongHorn executives decided that something had to change. “We knew that from our research, the No. 1 indicator of consistent performance is general-manager tenure,” says Dave George, president of Atlanta-based LongHorn Steakhouse. “So the longer a GM is in place, the greater the chance of positive growth results.”

Incentives to Stay
To foster GM tenure, and thus growth, Eugene Lee, chief operating officer of LongHorn parent Rare Hospitality, and Doug Benn, Rare’s chief financial officer, crafted a managing-partner program. In exchange for a $10,000 investment in the restaurant, the five-year, renewable agreement offers managers a percentage of annual sales growth dollars, a percentage of profit growth dollars, plus a base salary.

The package also includes health, dental, vision, long- and short-term disability, and life insurance; a 401(k); tuition reimbursement for relevant classes; and a monthly dining allowance, plus an annual restricted-stock award and a $1,500 vacation allowance. “We want them to take their normal vacation and bump it up a notch,” George says.

Such benefits comprise a “very, very competitive if not superior package for a general manager of a casual-dining steakhouse restaurant,” George says. “This helps us attract and retain some of the highest quality operators in the industry.”

The bundle of benefits, and most crucially, ownership in the restaurant, has had a profound effect on LongHorn’s retention rates and financial performance. General-manager turnover is less than 20 percent, and the hourly turnover rate has dropped to 86 percent.

The company is enjoying high double-digit sales growth and brisk unit growth as well. Sales have grown steadily to $666.1 million in 2005, up from $416.9 million in 2002. Expansion plans call for 29 or 30 new restaurants to open this year and a comparable number in 2007, though George says 2007 expansion plans have not yet been finalized.

According to LongHorn, the managing-partner program is a critical component of expansion, so the company opens all new restaurants with a managing partner. “We believe our growth opportunities are only limited by not having superior-quality managers available to open new restaurants,” George says. “The managing-partner program helps to alleviate this challenge.

“When a GM goes from being a normal GM to a partner, and they do invest $10,000, they take a different viewpoint to how they operate their business,” he adds. “The point is to have owner-operators that look at the business as if it were their own.”

Managing partners are in place at 180 of LongHorn’s 247 restaurants. The remaining general managers are, presumably, working toward an invitation into the managing-partner program. “We ask them to operate the business successfully; when we feel they have a good grip, we recognize them with a managing partnership,” George says.

Not all general managers accept the invitation; some, for instance, cannot afford the $10,000 investment. “But most know it’s a great program,” George says, “so they borrow it or save it themselves.”

Survival of the Fittest
Programs that give general managers “skin in the game” are necessary to thrive in a competitive marketplace, says David Mansbach, managing director of HVS Executive Search, a recruiting firm based in Mineola, N.Y. “The GM is the touchpoint to the customer, to corporate, to all the unit-level employees,” Mansbach says. “If you’re not doing it, you will be behind the eight ball.”

To work optimally, such programs must evolve over time, Mansbach says. They also must provide a way for talented managers to rise to the multiunit level. If they don’t, retention programs could serve as so-called “velvet handcuffs” for participants.

“There’s a point where these managing partners make a lot of money,” Mansbach explains. “In fact, they make more money than 99 percent of the area directors of the concepts they’re competing with.” Salary surveys conducted by Mansbach’s firm indicate that unit-level managing partners can earn $200,000 or more a year, while the average high-performing area director makes $150,000 to $180,000 a year.

As managing partners enjoy a high income, however, “they’re tied into a certain skill set,” Mansbach says, and often are overlooked when recruiters go hunting for multiunit managers.

Evolutionary Tale
According to George, LongHorn’s managing-partner program has indeed evolved over the years. “Every year we look at the agreement and make sure it’s relevant and helps us support our goals,” he says.

The agreement now allows managers to re-sign when their five-year contract is up; approximately 30 managers are now in their second five-year term. Two years ago, the company increased managing partners’ base salary by 20 percent. Five years ago, the company began guaranteeing a five-day work week (managers are paid extra when they work a sixth day).

It also offers opportunities for managers interested in moving to the multiunit level. All managing partners are eligible for promotion to regional manager; 30 of the company’s 45 regional managers were managing partners at one time, George says.

Citing Rare Hospitality’s status as a public company, George declined Chain Leader’s request to interview a managing partner. He did, however, share a story about a general manager who repeatedly turned down the company’s offer to become a managing partner.

“We considered him a successful general manager,” George says, adding that the GM posted 4 percent to 5 percent sales growth a year.

“He wasn’t sure he could grow the business...he thought maybe he was maxed out,” George says.

After George persuaded him to become a managing partner, sales at his Longhorn restaurant increased by double digits each year. “He becomes a partner and starts cranking out 8, 9, 10, 11 percent growth.

I joked that he was holding out on us,” George says.

“[The partnership] changed his whole outlook on the business,” he says.