Chef's Resources

Chef Food Cost Bonus Program

Creating a Bonus Program for your Chef

Creating a bonus program for your Chef is an excellent idea, but it can take some serious thought to implement correctly.  The goal of any such program needs to be to benefit the business and the Chef.  If the bonus program only benefits one or the other then it is a failed system. 

Designing a bonus program depends upon many variables.  What is the current status of your business and what are your current goals?  A new business will have a different program than an established business.  And an operation with a consistently good food cost will have a different program than one which is experiencing food cost problems. 

Define Your Restaurant and Kitchen Goals

 You need to first define what your primary goals for your business are at this time.  Are you looking to fix a problem or maintain the status quo?  Generally speaking, there are two types of bonus programs that I am aware of.  One is a bonus program based upon food cost.  And the other is a bonus program based upon EBITDA where you compare the total costs of the kitchen against your bottom line. 

Food Cost Based Bonus Program

A bonus program based upon food cost is an excellent choice for businesses which are experiencing food cost problems.  This gives the chef the incentive to find ways to correct the many faceted issues which go into analyzing food cost problems.  If you choose to do a bonus program for your chef based upon food cost, then you'll want to be involved in verifying his/her inventory, as well as having the final say on menu development and pricing. 

Problem with Food Cost as a Gauge of Health

The problem with doing a bonus program based upon food cost is that food cost alone is not an accurate analysis of the health of your restaurant.  For instance, if your chef's menu has nothing on it but BLT sandwiches being sold at $6 a pop with a 25% food cost, then you will be able to attain an excellent food cost.  However, your revenue to the bottom line will not be very good ($4.50/order margin).  On the other hand, if your chef sells nothing but lobster at $40 with a 50% food cost, the food cost is going to look awful, but the money to your bottom line will be significant ($20/order margin). 

I would suggest using a food cost based bonus program for restaurants that have a legitimate food cost problem.  And I would suggest using a bonus program based upon EBITDA for restaurants which have a healthy operation and a consistent food cost.  Ultimately, any bonus program for a chef needs to have the result that the business is affected in a positive way.  

EBITDA Based Bonus Program

A bonus program for a chef based on EBITDA would be designed by determining the total costs of the kitchen as a percentage of EBITDA.  For the kitchen operational costs you would need to include everything that the chef has control over such as kitchen labor and cost of food,  But exclude those things which he has no control over such as cost of the front of the house staff, equipment, lease/mortgage, utilities, etc. because those costs are part of the EBITDA against which the kitchen costs are compared to.  So, set a budget for the percentage of EBITDA which the kitchen costs should attain. 

Let’s apply the EBITDA bonus program to an example.  Going back to the food cost example, if the chef ran BLT sandwiches he would have a fantastic food cost but because of the low margin there would not be much revenue to the bottom line.  This would make a minimal impact upon the percentage of savings in kitchen expenses compared against the bottom line, which would affect his bonus by giving him a small bonus.  But, if he sold only lobsters, even though the food cost would look bad, the margin on the higher priced sales would generate more income to the bottom line which in turn would decrease the overall percentage of kitchen operational expenses and result in a larger bonus.  This model is the most fair because it accurately compares the kitchen to the bottom line and puts the food cost into proper perspective. 

Bonus Program Follow-up and Modification

I think that any incentive program should be based upon a duration of six months or one year.  This will give time to show a history to work out the bugs and to show seasonal changes of business over time.  Once a term has been established, whether six months, a year, whatever, it should be made clear to both parties that the bonus program will be reviewed and possibly modified at the end of that term.  This will give the opportunity to fix what is wrong with the program.

Please add comments about your thoughts on this topic.