Benefit Performance
Operators turn to experimental programs and novel incentives to attract and retain hourly employees.

By Deborah Silver, Senior Editor

When Darden Restaurants decided to expand its newest chain, Smokey Bones BBQ and Sports Bar, to Columbus, Ohio, it counted on the growing popularity of barbecue to win over this Midwestern city.

What the Orlando, Fla., restaurant giant did not count on was a labor market so tight it could not find enough employees to fill the unit’s employee roster in time for an August opening. As a result, the first day of operations for the Columbus Smokey Bones was pushed back one month until a sufficient number of workers could be hired.

For the industry, these are the best and worst of times. More people are dining out more often then ever before, and food and beverage sales are up 9.9% to $177.2 billion for the first seven months of 2000, according to the U.S. Bureau of Census.

But there’s a downside to the prosperity: a lack of hourly employees.

With unemployment hovering at 4%—a 30-year low—and no dramatic shift expected for several years, restaurant operators are scrambling to come up with innovative ways to fill their stores’ ranks.

“The labor shortage, particularly at the hourly level, is the biggest problem for restaurants,” says David Geraty, managing director of the Minneapolis-based investment bank Dain Rauscher Wessels.

“They’ve had to put enormous effort into doing a better job of compensating all employees on a unit level. The days of employment ads that state ‘hourly work, no benefits’ are over,” Geraty says.

MONEY TALKS

Today’s shallow labor pool dictates that employers “must give every employee—even part-time—concrete reasons to stay, and those usually come in the form of incentives and benefits, the more immediate the better,” says Vici Wilkerson, director of human resources for Austin, Texas-based Fired Up Inc., parent of the Johnny Carino’s Country Italian chain.

A 1999 study by management consultant Hewitt Associates based in Lincolnshire, Ill., confirms that companies are providing bigger and better benefits to hourly workers. Of the companies surveyed, 78% offer health and dental coverage, 91% give paid vacations and 77% provide paid sick days to part-time employees who work more than 30 hours weekly.

“It’s a new, friendlier workplace for these workers,” says Hewitt analyst Carol Sladek. “They’ve emerged as an essential part of the work force and are beginning to reap the rewards.”

Financial compensation remains the biggest draw for hourly employees. “Our staff makes money, and that’s why they stay,” says Howard Gordon, vice president of development with Calabasas Hills, Calif.-based The Cheesecake Factory Inc., which has one of the industry’s lowest turnover rates at 80%.

But more than a healthy paycheck is required to win the loyalty of hourly wage earners. Cheesecake units provide them with medical and dental insurance, historically compensations reserved for the industry’s salaried employees. They also qualify for vacation benefits.

Johnny Carino’s Country Italian offers hourly wage earners insurance benefits after the first year of employment. After five years, the company picks up all premium costs. In addition, workers who put in more than 25 hours per week get an annual bonus that increases with tenure. Front-of-the-house staffers receive $175 after one year, $900 after 10 years. Back-of-the-house staffers receive $250 after one year, $1,200 after 10 years.

Carino’s store managers also are encouraged to give out special tokens to hourly wage earners who “are caught doing something good,” says Wilkerson. Tokens can be redeemed for prizes, such as a $50 bonus check.

The impact of such incentives is difficult to measure. Although the turnover rate in older Carino units is as low as 40% per year, it can reach 200% in newer stores. The rapid turnover, however, might result in part from the company’s aggressive growth plans—10 stores added last year and at least 90 franchises under development—which “tends to push us toward an any-warm-body-will-do hiring policy,” says Wilkerson.

CASES IN POINT

Seattle-based Starbucks Coffee escaped the warm-body syndrome by recognizing the value of hourly workers early on and rewarding them. The coffee giant was the first private company in the country to offer stock options to salaried and hourly employees when it implemented the “Bean Stock” plan in 1991. Under this employee-ownership program, workers who have been with the company a minimum of six months and work at least 20 hours per week are eligible to purchase stock.

The amount awarded each individual, however, depends on a number of factors, including salary, stock price and the company’s profitability.

In addition, every Starbucks employee who works more than 20 hours per week receives full health-care benefits after 90 days on the job. The health plan, which pays for 90% to 100% of medical expenses with a $10 co-payment, costs employees about $400 per year. Dental insurance and optical care are free. Employees also are invited to join the company’s retirement plan after one year. Starbucks puts in roughly 25 cents for every dollar an employee contributes.

The result of these financial perks is a 65% annual turnover rate, far below industry numbers that range from 150% to 400%.

“Starbucks is the innovator in pushing stock benefits down to the hourly level,” says Geraty. “Now everyone in the industry is looking at ways to get their people to act like owners, but so far no one has quite been able to match Starbucks’ success.”

Though matching that track record has been tough for others, many restaurant operators have developed strategies that fit their specific staffs’ needs.

Acapulco Restaurants, a 43-unit operation based in Long Beach, Calif., instituted an employee-of-the-month program, which includes a $50 bonus, one day off and a parking space by the front door for 30 days. Any Acapulco employee who comes up with a money-saving idea that is adopted receives $1,000. An employee’s act of outstanding service can result in a $2,500 reward.

Referral rewards have emerged as an increasingly popular form of compensation. At Acapulco, hourly employees receive $100 for hourly referrals, $300 for management referrals. In both cases, referrals must stay with the organization more than 90 days. One Burger King franchisee in Virginia pays a $250 bonus to employees who recruit a co-worker who stays with a store at least six months.

Minneapolis-based Buca di Beppo has brought its turnover annual rate down to 87% for hourly workers through a number of innovative financial perks. All employees are eligible for a week’s paid vacation per year, and health and dental benefits extend to hourly employees and their family members.

But Buca has gone one giant step further by creating the domestic partnership program, which provides employees’ significant others, regardless of gender, full benefits if the couple has shared a lease for three years.

“We looked at the people who work for us and realized how diverse they are,” says Jennifer Percival, Buca’s vice president of family resources. “We couldn’t very well promote a family atmosphere unless we included everyone that our employees consider to be family.”

A BENEFIT BY ANY OTHER NAME

Liberal inclusion policies are still unusual in the restaurant industry, but certainly innovative policies are becoming more common, and not just of the financial kind.

At Buca, all employees are allowed to eat free every day, even on days off. They also can bring extended family, no matter how many people that might include. For those who are alone during holidays, Buca organizes activities. At Christmas, employees have the option to serve a meal in a homeless shelter and then go to a Buca restaurant, where they are given free rein to cook a meal and eat together in the restaurant.

“Many of our workers are in this country without their families,” says Percival. “We consider it our responsibility to bridge the gap and give them the sense of belonging to a community.”

McDonald’s Corp. of Oak Brook, Ill., encourages franchisees to hire from the growing and underutilized pool of senior citizens who want to earn extra money but do not want a salaried position. To attract and retain older workers, McDonald’s encourages unit managers to provide specific programs, including social activities such as potluck dinners.

“McDonald’s has been ahead of the pack in this arena,” says Jerry Wilkerson, president of Franchise Recruiters Ltd., an executive recruiting firm in Crete, Ill. “Companies are just beginning to realize what an incredible untapped hourly resource seniors are, and it’s one that will grow tremendously as baby boomers retire.”

CLASS ACTION

McDonald’s also has a flexible scheduling policy for younger workers to accommodate education needs, such as classes, exams and homework. Education incentives, long offered to salaried employees by most companies, are fast becoming an expected part of the package for hourly staffers (see the sidebar on Chipotle Mexican Grill).

One Burger King franchisee has established a plan that pays for one course at a local college for employees who work 10 to 15 hours per week, two courses for 16 to 25 hours per week, and three courses for 26 to 40 hours per week.

“Cash is not necessarily king anymore,” says Wilkerson. “People want self respect, connection and the chance to advance, no matter their work status.”

Programs that allow hourly wage earners to better balance work and personal lives are also becoming an expected part of the compensation package.

Marriott International in Bethesda, Md., has established a Work-Life Programs department, complete with a child-development center, child-care discounts, family-care spending accounts, and referral services for child, elder and family-care issues.

Dallas-based Carlson Restaurants Worldwide is considering a discount voucher program that workers can use at the day-care facility of their choice. “We have to find a way to put more benefits in the hands of more people,” says Roz Mallet, senior vice president. “We have to start thinking out of the box.”

When it comes to finding hourly employees, however, restaurateurs are already well aware that they must do more than think. They have to pursue. Restaurant chains have begun to solicit hourly workers at high schools, colleges, culinary schools and places of worship. On a less professional level, they’re hiring recruiting firms to raid the employee rosters of other foodservice operations.

Franchise Recruiters’ Wilkerson encourages unit owners to carry cards to hand out to potential employees “that tells them who you are and says we’d love to talk with you” but draws the line at “cutting each other’s throats.” Promises of rapid promotions, pay raises, incentives and training programs for hourly workers now are the norm.

Management is quickly replacing hard-line approaches toward hourly wage earners with flexibility, and industry analysts expect restaurateurs will continue to up the ante to attract workers for years to come. “It’s going to be a tough battle for the hearts and minds of employees for a long time,” says Geraty.

Language of Success

In the mid-1990s, Chipotle Mexican Grill realized it had a problem. Denver, the chain’s base of operations, had a growing Hispanic population from which local units were drawing many employees. But most of the Spanish-speaking workers Chipotle brought on board had little or no proficiency in English.

“Something had to be done that would help them communicate better with management and customers,” says Cecilia Gowins, Chipotle’s manager of language programs. A native of Peru, Gowins was hired four years ago as an independent contractor to develop a Chipotle-specific, English-language program for the chain’s Denver restaurants. She developed textbooks and an audiotape and set to work.

After one year, the program proved so successful Gowins was hired to oversee it full time.

Today she teaches eight classes weekly, ranging from beginning to advanced, to 60 Denver employees. Any Spanish-speaking Chipotle employee can take the classes, which are conducted free of charge in the morning before the restaurants open. Employees are on the clock during classtime.

The program soon will be inaugurated in Chipotle units in Phoenix and Dallas; more cities are under consideration.

One offshoot of the program has been a desire on the part of Chipotle’s English-speaking employees to learn Spanish. Gowins now teaches a Spanish class at corporate headquarters.

Chipotle believes the program will go a long way toward instilling company loyalty. It is already credited with stabilizing turnover, which has leveled off at 100% in recent months.