To keep staff, treat them like owners
The ideal employee is one who wakes up every morning and thinks, “How can I help my company do better today?”
The average franchise operator can probably count those ideal employees on one hand and they are are harder to find and retain than maybe ever. And nothing works for long—money might for a while, a cool culture may help for a time.
But at 4.1 percent unemployment, the labor force is just not loyal. That’s a rate not seen for nearly 20 years, according to the Bureau of Labor Statistics. On top of that low unemployment, there are scores of options from Uber to DoorDash and TaskRabbit that give the employee a real stake (if inflated) in how much they can earn.
For younger workers, having some ownership over their paycheck is a major motivator. It’s expressed by the high desire toward entrepreneurship among millennials and Gen Z, their penchant for freelance work, side hustles and their adoption of the gig economy overall.
To carve out a space for those ideals and keep people engaged, companies are taking a fresh look at performance incentives and finding ways to give employees an ownership stake, or at least the sensation of one.
“The benefit of a performance-based incentive plan one is certainly retention. Typically the owners are paying out after a performance period, so you have to be employed,” said Tom Ziemba, global employer services managing director at consulting firm BDO. “Secondly the big benefit is really directing behavior, identifying what’s important to the firm and being able to have that translated into a metric that focuses on behaviors that will improve that metric, whatever it is.”
Under that broad umbrella, there are a lot of options: simple bonuses on a routine basis, spiffs for going above and beyond in the moment, profit sharing and an actual or phantom piece of the company equity. Each works a little different and tends to resonate for different people.
Spiffs or immediate cash bonuses are a smart way to recognize good behavior in the moment for young employees, essentially a Pavlovian way to reinforce that behavior. And Ziemba said profit sharing works well for mid-tier and lower-level employees who can see a windfall ahead and work toward it, and hopefully maybe the next round, too. And equity works great for upper management, the stakeholders who have an outsized ability to affect overall company value, the driving force that builds equity. Annual bonuses, however, don’t work all that well in his experience since the windfall is generally too arbitrary to engage someone.
He said the first step in a successful program is determining what the overall salary should look like.
“We look at the overall mix of compensation, base pay, any long-term incentives, then look at profit sharing to see what would put them at a market level that makes sense,” said Ziemba.
Over his years of looking at pay packages, he sees 75 to 90 percent base pay as a good range so store-level managers know they’re getting something and the rest can come from incentives that keep them engaged.
Many operators stick with traditional performance incentives, and they work well to maintain focus on the bottom line and help renew focus on metrics. The key is tying the bonuses directly to metrics for the company, such as drive-thru times that affect consumer perception and topline sales.
Those operational metrics, paired with the overall financial health of a location, determine the bonuses. Another important part is revisiting the metrics and the compensation.
Ideally, Ziemba said the program should at least be revisited whenever the business climate changes. That ensures the right metrics are getting management focus. But more communication is better, especially in this era of high turnover.
A quarterly update, for example, means new employees are on the same page and seasoned employees have some updated goals. Both slim corporate micromanagement and empower store-level management to be more autonomous.
On the complex end, a handful of franchise operators give their managers and employees a chunk of the business in the form of equity. Michael Kulp, CEO at KBP Foods, an operator with more than 350 KFC locations and No. 11 on the Restaurant 200 list, has a more traditional performance incentive program for store-level staff, but a robust, true equity program for higher ups.
“We have two ways we do that. We have what we call executive class equity owners and a partner track program,” said Kulp.
For executives, they write a check to the company for a chunk of equity, Kulp explained. And the partner track kicks in at a certain level of responsibility or tenure with the company. Currently, there are 37 people in the program, people that otherwise might not be at KBP.
“I jokingly say I could count on one hand” the number of those “we could get and retain without this,” said Kulp. “The biggest differentiator is we’ve created an ongoing set of liquidity events for these people. We continually dividend it out. That’s significant dollars to these people to create the realness of ownership.”
He said the “best of the best” he seeks out have the desire to do their own thing, but have a bit of difficulty jumping from a nice corporate salary to their own handful of restaurants. The program, Kulp says, allows them to have the best of both worlds.
Of course it gets a little complicated, requiring a watchful eye from the finance department and a little training for participants in the equity program. Even seasoned operators and high-level managers can have difficulty wrapping their head around how equity really grows.
Ziemba helps companies with equity programs like KBP train their new equity holders.
“We use models. We show them the stock option plan, what the stock value is expected to be, what is your exercise value and the number of shares they have,” said Ziemba.
“More importantly, we talk about what impacts the value of shares. It’s not just the value of the company but it can be competitors and the market as well.”
Kulp said that education is crucial, as is training around how to file taxes when someone jumps from a 1040 to complex filings. But the most difficult thing is making room for more equity holders.
“I think the biggest challenge is just not being able to bring everyone we want into the program. So there’s tough conversations when you have to tell people no or to wait,” said Kulp.
Aggressive acquisition and location growth helps KBP drive equity upward, another thing to remember. When the incentive is equity, the company needs to keep growing.
Some brands see tuition as retention
To keep people around, two of the largest brands in franchising are revisiting education assistance to attract and retain the best employees. Taco Bell and McDonald’s announced major changes to their respective education programs.
McDonald’s CEO Steve Easterbrook said tax reform under President Trump helped accelerate a renewed investment in the Archways to Opportunity program. “By offering restaurant employees more opportunities to further their education and pursue their career aspirations, we are helping them find their full potential, whether that’s at McDonald’s or elsewhere,” said Easterbrook in a statement.
Rob Lauber, senior vice president and chief learning officer at McDonald’s, said they heard what employees were saying. One of the changes was lowering the time commitment before becoming eligible for the program from nine months to just 90 days.
“When we talked to participants, they said they knew people were interested in coming on board but nine months is a long time,” said Lauber. “So it’s been conversations like that where we’ve really looked at how we can make a difference.”
Lauber said he and the team take a close look at the data every month to see how the four aspects of the program (high school completion, English language, college assistance and advising) are working.
The biggest change was moving from a tuition reimbursement program to a tuition assistance program. “Literally what happens is we pay for it up front. When someone enrolls, we get the invoice,” said Lauber.
He said he’d like to see 400,000 people in the program, and early results have been positive. Franchisees love to give their employees some extra perks, and employees love the expanded offerings.
Bjorn Erland, Taco Bell’s vice president of people and experience, said the company has partnered with Guild, an education coaching organization that acts as a go-between for companies and schools.
“Taking it back a couple years, we survey our employees to ask them what they’re looking for from Taco Bell from a benefit standpoint. One of the top three things is education, whether that’s going back to high school or college,” said Erland.
During an annual deep dive into compensation, training and perks, he and his team came across Guild. It seemed to be the answer to a lot of the issues with prior education programs. Namely, it wasn’t a reimbursement program, so employees didn’t have to pull together thousands of dollars just to get started.
But he said that wasn’t the most important part. “I would say the support piece of Guild is the biggest win for our employees,” said Erland.
The support is very high touch, helping prospective students navigate all the paperwork and helping them from the first day through graduation day. Erland said many employees started with leadership classes and language lessons to “give them a little taste of going back” before they commit to a full degree. Guild partners with mostly online schools.
As for business results, it seems to be working in the initial test locations. “It does help with retention. We saw an increased 34 percent retention for those who are in the program,” said Erland.