Creating a Bonus Program for your Chef

Salmon on a Stick by Chef's ResourcesCreating 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 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 because it doesn’t account for the impact of sales mix on your food %.  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.

 

Comments from before Site Migration

Add a Comment!

CHEFMAV    [ Apr 26, 2015 ]

No credit necessary – incorporate whatever you want.  My family recently relocated to a relatively small town in Wisconsin – not a lot of high-end restaurants, and I find myself doing more consulting these days than anything else – I have a lot of my thoughts compiled from over the years – sometimes, I’ll start start commenting when I get caught up in a post, then twenty minutes later I look up and there’s a thousand words – sorry if I tend to run on every no and then.  You might have noticed already – I’m pretty opinionated about a lot of things in our industry.  Shoot me an email sometime, and if there’s any particular topic, I probably have something  you’d be interested in.

If you want, I can go through my bonus incentive stuff files and assemble it into a more thorough article – just let me know.  Sanitation should have been way more of a focus when I started hitting the keys the other day (or was it night?), especially with a lot of the Food Safety issues I see these days.  I’m certified to teach the course and administer the test for ServSafe – since I’ve relocated, I’m constantly shocked when I see how different local Health Department officials handle business – have you ever heard of them making an actual appointment to come inspect your facility?  I would have killed for that in cities like Chicago or Houston.  They actually email you a list of last year’s issues for you to follow up on before they arrive…….“Hey, guys, we need to break out that clean set of cutting boards next Wednesday at ten, OK?  And put the chicken on the bottom shelf again for a few days…..yeah, yeah, OK, I’ll get some of those things of soap for over by the hand-sink we thaw the shrimp in…” – it’s nuts – and then as soon as they leave, they put everything back the way it was the day before.

DAVID BUCHANAN    [ Apr 24, 2015 ]

ChefMav – excellent detail and highly useful info in your comment. If you agree, I’d love to simply work your longest comment into the actual article and credit it to you. Let me know if this is ok, and also what name you would like me to use for the author of your contribution.
– David

CHEFMAV [68.117.88.58]    [ Apr 24, 2015 ]

Quick follow-up –

I completely neglected to mention Sanitation as part of the Bonus Program.  It’s as important as any other facet in the Culinary program and needs to be addressed.  You can base a percentage of the bonus on Sanitation Scores, either from the Health Department itself or your own internal auditing system – typically most third party auditors are a little tougher.  In more “corporate” settings, Sanitation can typically be around one third of the bonus program, and it needs to be taken seriously.  That’s it – the cleaner you work, the better.

CHEFMAV [68.117.88.58]    [ Apr 24, 2015 ]

A bonus program is always nice, especially for Chefs who work on a salary, and I’ve taken part in a number of them.  But remember, once you begin the program, it’s tough to change in the middle of the year, so getting it right the first time is paramount.  If you’re putting a Bonus Program together for the first time, there are some important things you need to keep in mind – this list is by no means complete, but it’s a good starting point:



 

    • The bonus needs to be reasonably achievable.  Lots of programs I’ve been exposed to over the years look great on paper, but are nearly impossible to actually make happen.  If you’re running a restaurant and the typical food cost is 34% averaged over the year, it’s not realistic to have an awesome bonus if the food cost suddenly drops to 28% – in fact, something like that is actually dangerous (more on this later).
    • Any bonus plan needs to have rules, and the rules need to be clearly and concisely defined before the program begins.  Any and all questions need to be answered, and everyone needs to know exactly how the program works.  In some of the more corporate companies I’ve worked with, the bonus program is detailed over ten pages – quarterly programs leading up to annual totals, different facets of each line on the P&L that make up bonus, direct and indirect operating categories of the financial statement, budgeted vs. actual, A vs. T (actual vs. theoretical), special “Act of God” situations (sounds crazy, but a hurricane can ruin a bonus pretty fast), ways the bonus can be nullified……..it’s like reading the rules for Monopoly, or going through the bank’s paperwork when you close on a house.  Lots of details, sometimes too many, but depending on the annual sales and possible dollar amount, all bases need to be covered.  If you have questions, and you should, every single one needs to be answered.  If you, as the business owner, don’t know the exact answer, it’s best to have an accountant or the person in charge of financials field these questions so there’s no confusion at the end of the year.  Normally, as part of orientation, the bonus program is covered when the salary is defined, and there’s a form that need to be signed stating it’s been read, understood and that you’ll never take retaliatory action against the Company if said bonus is not achieved and/or given.
    • If the bonus program has a year-end component, make sure everyone knows where they stand every month (or at least every quarter).  Every four weeks, add a “Report Card,” segment to the Managers’ meeting and look at the bonus plan based on actual numbers.  If there’s a monthly or quarterly payout, that’s great, but if everyone is holding their breath going into the end of the year, make sure every individual person knows where they stand, especially around the holidays.  About ten years ago, one of my Sous Chefs asked the GM a question regarding his bonus, received a completely incorrect answer, and there were some very hard questions that had to be answered at the end of the year when the Sous didn’t get what he thought he had coming – if he’d been made aware within a couple weeks that the answer he received was incorrect, a lot of hard feelings could have been avoided.
    • Think very hard about an Individual vs. Team bonus.  If you’re fortunate enough to have a core group that’s been working together for five years, odds are good that they function very well together, get along in a professional setting and are willing to pitch in wherever needed – in this case, a Team bonus might be a good way to proceed.  On the other hand, if you have a seasonal type of business where the management turns over every year or two, or the type of operation where people don’t stick around forever, then you probably want to look at an individual bonus instead – the last thing you need is the morning Sous kicking the shit out of the closing Sous over labor cuts that weren’t made, or the Service manager getting on the Bar manager’s case because the numbers aren’t looking so great.
  • Have a list of actions that can make the entire bonus program null and void, and make it crystal clear before the paperwork is signed.  This needs to be part of the “rules and regulations,” when the bonus plan is being explained in detail (typically during orientation when a new manager is being hired). Bevery specific.  Just like the Employee Manual every person reads and signs (hopefully), there should be a list of disciplinary actions that can cause “termination.”   If you’ve read some of my other comment posts, you’ll know that I’m by no means a fan of HR procedures.  Hell, if it was up to me, personally, I’d take someone out back and kick their ass most of the time instead of filling out termination paperwork if I could get away with it.  But as someone who has outlined many Bonus Programs for lots of companies on a consulting basis, I can tell you that the last thing you ever want to go through as an owner is to have to tell someone their bonus for the year is gone – or worse yet, they screwed their fellow managers out of a bonus and are probably on track to getting a nice ass-kicking later that evening.  You need to have a section titled something to the effect of, “Actions that nullify the Bonus Program,” and then a list that uses wording similar to, “…the following list includes, but is not limited to, actions that may cause the bonus program to be cancelled, as well as disciplinary action taken to include, but not limited to, verbal and/or written documentation, relocation, suspension and/or termination.”  Sounds harsh?  You bet it does.  But after seeing a Purchasing Agent switch from a USDA Prime beef program to ungraded substandard products purchased from other countries, I can tell you that Integrity isn’t always something you can count on when food cost is straddling the line at the end of the year.  I was once so close on an end-of-year labor bonus that I found myself asking guys to punch out, then come back to work to finish up, and this was in a very corporate world where I would have been fired on the spot if my bosses found out – fortunately, I lived close to the restaurant, I lived alone, I had a well-stocked bar, a big screen TV, a rooftop pool (complete with more than a few strippers living in the building) and a couple of extra bedrooms with lots of air mattresses and sleeping bags.  And since the entire BOH staff knew I got a huge bonus based on labor, the Lead Line Cook (acting as a broker for the rest of the crew ) negotiated a deal where they’d work off the clock as needed, party at my place on designated evenings, and also that I’d relinquish a minor percentage of the bonus to the night crew – that kept everyone from squealing – nothing quite like Pedro, King of Sauté, covered with prison tats and knife scars, having a discussion with the new Pantry kid about punching out early and keeping his mouth shut.  Here are some (but not all) of the basic things that will shit-can your bonus, and you should be fucking ashamed of yourself if you’ve ever even considered them:
    • Buying less-expensive food to save money.  Another word for “less expensive” is “Shitty.”  Nothing is more sacred than Quality, except maybe Sanitation.  If this was my restaurant, the best advice I can give you is to immediately head for a non-extradition country and enjoy looking over your shoulder for the rest of your life.  And I promise you that when I find you (and I will), you’ll never see it coming.  One minute you’re ordering a piña colada on the beach, the next you wake up in a warehouse, handcuffed to a wall with an alligator clip on each testicle…
    • Cutting smaller portions – I once had a Sous at another location use the excuse, “I forgot to zero the scale earlier,” when all of the ribeye and New York strips were two ounces smaller.  What a fucking imbecile – he made all of us look bad, especially me since it was my region.  But, I guarantee he’ll never make that mistake again, wherever he is.  Hopefully prison.
    • Deliberately adjusting punch out times without an employee’s prior knowledge.  All it takes is one person to save their chits from the POS and you’re done.  And in response to the question you’re probably asking yourself right now, “…well, what about what you did with your crew on the last paragraph, you fucking hypocrite?”  It’s very simple, and it gets answered in three parts:
      1. Whenever possible, it’s always easier to ask for forgiveness than it is to ask for permission (if you’re married, you already know this), and nobody ever told me I couldn’t do what I did, even though they probably assumed I should’ve known it already.
      2. Back then, I let my crew party at my place a lot, crash when they needed to crash and I bought a lot of breakfasts at the corner diner on our way out in the morning, but at the end of the day, after I paid them out that month (and it was done fairly, based completely on hours and wages lost), I netted over eight thousand dollars.  Also, my Cooks had my back – I’d have taken a bullet for any one of those guys – and when you’re young, working the Line next to your crew, at the end of the day, taking care of your guys probably comes naturally, and that’s all that really matters.
      3. (Fuck you).
    • Telling a server to input a lower guest count in order to make the check average seem higher.  Some POS systems allow the Server to do this compared to the systems that look at the number of entrées ordered to determine it automatically.  Believe it or not, there are actually some managers out there that think they can get away with this, but are unaware that when sales are graphed, a nearly vertical spike up almost always implies the system is being manipulated.  Having check averages as a part of a bonus can be very tricky to manage – the smartest thing to do, especially in a busy place, is to post check averages and use it as a tool when writing the schedule – an even smarter thing to do is to have the server with the highest check average do this for you – when done properly, it guarantees that your check averages will climb (the right way) and a little competition never hurts.  A by-product of this is that the smarter servers will actually figure out (usually on their own) that sometimes, having four tables is better than having five tables, and the Quality of Service improves by itself.
    • Changing the time zone on the POS – this would be handy for someone who gets a bonus based on breakfast or lunch counts – put the time back or forward a couple hours and you seem like a hero.  Unfortunately, most Excel-based platforms will call bullshit during the data migration process at a corporate level.
    • Moving an item number from one category range to another in the POS to increase sales for another department.  This might seem trivial, but putting a cup of chowder in the “Wine by the Glass,” section every weekend for a month will get that sales group right back where some idiot manager thought it needed to be.  Never mind the fact that it’s a big red flag to anyone doing a sales analysis, and wine by the glass sales are generally a similar percentage based on guest counts.
    • Adding a job code so an employee can punch in as another department.  If the labor in the bar is way under budget (this probably happens a lot on Saturdays when the percentage is based on bar sales), it sure seems simple to put a Dishwasher in a Barback slot and get away with it.  You might, but anyone writing a budget will take that into account when writing the following years budget, and they’ll eventually find out, audit your “scheduled vs. actual,” and what you’ll see happen is basically the same thing that happened to Lance Armstrong, but on a slightly smaller scale.  Giving a bonus back SUCKS – I’ve seen it happen to a Banquet Coordinator, and it’s not pretty, especially when the ten grand was already spent.  Actually, she was a fucking bitch (not my first choice of word), and I sort of enjoyed watching her squirm for awhile before finally bursting into tears and breaking a heel as she ran screaming out of the building.
    • And the list goes on and on……. if you watch NASCAR, you may have heard the Crew Chief say, “If you ain’t cheating, then you ain’t trying hard enough to win,” and while that might be true when it comes to the volume of a case can or how tight a lug nut is, when it comes to Restaurants, you play by the rules at all times, and if you get tired of the rules, then do what I did: Charge a lot of money and consult for people since you know everything (actually, you don’t), or open your own place
  • Think hard about the actual dollars spent compared to percentages.  Twenty years ago, when I was a Sous Chef, one of the common questions I heard was, “….so, what’s the food cost where you work?”  I still hear it sometimes when I’m sitting at a bar late at night.  People seem to get awfully wrapped up in a percentage they usually don’t understand.  Speaking from a purely mathematical point of view, your Cogs (Cost of Goods sold, in this case Food) is determined by dividing Food Purchases directly into Food Sales.  The resulting percentage is your food cost percentage.  In the excellent post above, the following question is posed:  Would you rather sell a BLT at a 25% food cost or a Lobster at a 50% food cost?  For an inexperienced sous chef with a bonus based on straight food cost percentage, his/her right answer is usually your wrong one.  And the last thing you want is someone who orders seafood running out of lobsters early into the weekend but conveniently having a plethora of bacon on hand.  You don’t take a percentage to the bank, but it’s hard to illustrate the math involved with margins compared to percentages on an Excel spreadsheet or by looking at a P&L.  What is the most efficient way to have the best of both worlds?  That’s a loaded question with no right or wrong answers, but the way to find the right answer for your operation depends on a number of variables…..mainly total sales volume, culinary menu mix, seasonal items, private dining sales, beverage sales mix and also how detailed your invoices are broken out into different GL codes.  I just came across this website a few days ago, and if there’s a post on Food Cost, I’ll leave a comment on how to determine Actual vs. Theoretical, but this isn’t the place.  The bottom line (at least for me) is this:  In order for everyone in your operation to want to make you the most money, percentages shouldn’t be part of the equation on broad categories like Food Cost.  If you want to look at a percentage, make it on something like cleaning supplies – you’ll see the open box of steel wool and green scrubbies suddenly disappear from the Dish Room and the door to the Cleaning Supplies & Chemicals will suddenly stay locked all the time.  Another good area is Paper and Disposables – tired of everyone using the thirty five cent Kiddie Cups for their soda?  You’ll see a less expensive option pop up really quickly (as well as some very tasteful signage where they get stored) when the person in charge of purchasing them understands there’s money riding on hourly employees suddenly being held accountable.
  • Balance the bonus categories accordingly.  If something is 1% of your sales, then it shouldn’t get a lot more than 1% of your attention once a system is in place – the last thing you want is for one of your managers being the Kiddie Cup police on a Saturday night when he/she should be in the Dining Room – so that category should represent a much smaller percentage of the total bonus than Cogs or Labor.  But you need to be fair – if your operation does fifteen million dollars in sales, you might have someone in a position that can save you a shitload of dollars spent on paper, disposables, containers for to-go orders vs. leftovers, etc., and it may be worthwhile to offer that individual a substantial bonus based on potential savings.  But don’t overdo it and have managers running around with blinders on focusing on little things that aren’t as big-picture as the larger components – as crazy as it sounds, I’ve seen Chefs more concerned about the Pantry Cook replacing paper before the rolls are empty instead of watching seafood yields when we had a quarterly meeting and realized we barely missed a category that printer paper fell into.  Also, if a bonus is based on a broad category like Labor, for example, understand everything that goes into that number (or percentage), such as all the deductions that go along under the top line – if your bonus isn’t structured right, someone simply taking a well-deserved vacation can fuck up the entire bonus for everyone else when another hourly employee fills in the gap on the schedule.
  • Finally, there needs to be some history to work from in order to make the bonus realistic.  I’ll have a new operation opening (hopefully) within the next fourteen months and I don’t plan on having a bonus until I know what the business is truly capable of.  I’ll probably pay the Chef and GM more than I normally would, but for the right reasons – I don’t know what my sales are going to be initially, and it’s not fair to dangle a carrot in front of someone if they’ll never be able to grab it.  Metaphorically speaking, all it accomplishes is to make them either steal a carrot or make them not interested in carrots altogether.  The word “EBITDA,” is mentioned above, and although I don’t understand most junior managers to understand the concept of Earnings Before Income Tax, Depreciation and Amortization, the concept of “what’s left after all the bills are paid,” is something anyone who doesn’t live with their parents anymore should understand quite well.  If the bonus program needs to be spelled out line by line based on GL codes, then so be it (I once ran an operation that did well over twenty million dollars in sales, and the bonus program was insanely detailed).  Volume forgives a lot of sins, but if your restaurant does lower volume, then there probably won’t be a bonus incentive for office supplies or six different sub-categories in the Marketing Department.  Whatever system for a Bonus you decide on, just make sure it’s attainable (and that means being able to take a hit financially if it’s too attainable instead of being an asshole and changing the rules in the middle of the first year).

Most important, and this should go without saying, but I’ll say it anyway:  As the owner of an Operation, if you prefer not to have a bonus in place, then don’t have one.  It’s as simple as that.  Lots of places don’t have bonuses and are better because of it.  Most of the time, I’d prefer to know exactly what I’m making every year, not taking a lower check hoping a bonus at the end of the year will make it all worthwhile – more often than not, depending on the type of bonus and the variables involved, it doesn’t work out that way.  After a busy holiday season where everyone worked long hours and didn’t get a lot of days off, a slap in the face isn’t what they need to motivate them as business levels trend down.  Personally, when I decide to implement a bonus program in a business I own, I let the department heads look at the numbers with me and decide if it’s something we all want to do together.

CYNTHIA ZOEL [67.174.86.102]    [ Apr 27, 2014 ]

Yes..Starting over again….I’m old school all of these templates have what I need. It will be better 2nd time around!!!!

DAVID BUCHANAN    [ May 23, 2013 ]

Antonia, I couldn’t find any exercises, but here are a few links I found which may help:

Food-Inventory-Taking-Inventory
Food-Cost-Management-and-The-Forty-Thieves-of-Food-Cost
How-To-Calculate-Recipe-Cost
http://www.kendallhunt.com/uploadedFiles/Kendall_Hunt/Content/Higher_Education/Uploads/McVety_Ch7_4e.pdf

PENFAR@ONVOL.NET [77.71.224.33]    [ May 22, 2013 ]

I have my son who is studying for a chef.  He has a mathematical learning difficulty so he needs some exercises to woork on purchasing,cost&control,Basic costings and book keeping.  Is there any chance to help.  His exams are on the 3rd of june.  Thanks Antonia

CHEF SIMPSON    [ Nov 05, 2012 ]

Never really heard of the bonus program before, but it is a great idea for the new and upcoming chefs, im not on a bonus scheme, its all about the kpi’s to keep the yearly package with my boss. which i can understand

CAMZ    [ Mar 11, 2011 ]

When thinking about EBITDA based bonuses, keep in mind what the acronym stands for “Earnings Before Interest Taxes Depreciation and Amortization”. An operator must carefully consider what Interests, Taxes, Depreciation and Amortizations are still to be paid, and what their operating cash needs are. Many food service establishments are operating on slim marginal incomes with loans to be paid, assets to depreciate and expenses that are amortized. This is why strict, strategic, and conservative annual business planning/ budgeting is necessary. Any bonus program introduced to this mix should be well thought out…perhaps discussed with an accountant if you have one, a consultant if available, even a lawyer if the bonus program is part of a hiring contract.

I would agree that a bonus based on EBITDA would better award the chef for those areas in which the chef has control. To do this, the business plan would have to be defined by a Kitchen Budget and Dining Room Budget.  I would not suggest using a % of EBITDA as the starting point for a bonus, but first look at the dollars. Is there enough money to even offer the bonus? If your revenues fall short, but your percentages remain on track, the dollar amount of EBITDA is reduced there by reducing the amount of cash available for the ITDA. Financial security is first and foremost, otherwise there will no bonus period. The operator must first be certain the money to do business is there (i.e. EBITDA was at or higher than budget) then make the determination what factors play into the bonus. Look at the Kitchen performance and Dining room performance and give award where award is due. It is my opinion and preference that this type of bonus would be a monthly program. Give award when award is due.

DAVID BUCHANAN    [ Jul 29, 2010 ]

Thanks for the excellent comment Magic!  I’m still looking at giving more details on how to implement the EBITDA method.

MAGICOFSPICE    [ Jul 29, 2010 ]

First might I say an exceptional article! As a former “Master Chef/General Manager”  of a cooking establishment… Where where you all of my life? 🙂 This is great beyond my wildest thoughts. I so love the comparisons that drive to the bottom line… and I have mixed feelings between a six mo v yearly review, but feel that this should be based on the local and type of establishment. Well said and well done:)

Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments

Suggested Reading

Join Us!



 

See Our Tutorial Library!

Kitchen Management Tools

Blog Archives

Books by Chefs Resources!