In the competitive world of restaurants, where talent is your greatest asset and turnover can sink even the strongest operations, innovative incentive programs are the secret sauce to attracting and retaining top performers. Drawing from insights shared in a recent webinar by experts from GBQ Partners’ restaurant services team and Monroe Moxness Berg, this article will explore deferred compensation-type plans tailored for the restaurant industry. These strategies not only align employee interests with business growth but also foster a culture of loyalty and shared success.
We start with the foundational approach: deferred compensation plans – a straightforward yet powerful tool to create “golden handcuffs” without overwhelming complexity.
Why Deferred Compensation Fits The Restaurant Landscape
Restaurants face unique challenges: high employee costs surpassing even food expenses, unionization pressures in major cities, and the constant battle for skilled staff in front- and back-of-house. Deferred compensation addresses this by offering future rewards tied to performance, much like how Outback Steakhouse pioneered profit-sharing to fuel its expansion. It’s essentially a contract between employer and employee, deferring a portion of pay – for example, 20% of compensation – into an account that accrues over time, payable after a set period, such as one to five years.
This isn’t about complexity; it’s about motivation.
As webinar co-presenter Dennis Monroe emphasized, these plans are customizable contracts, not rigid federal mandates like ERISA. They empower owners to design incentives that suit individual needs, from retirement-focused CEOs to short-term bonuses for key managers, all while keeping cash flow intact since funds aren’t segregated.
Key Benefits For Attraction & Retention
Deferred compensation shines in building long-term loyalty without immediate cash outlays. Here’s why it’s a game-changer:
- Golden Handcuffs Effect: Vesting periods (e.g., five years) discourage early exits, reducing turnover costs that plague the industry.
- Tailored Incentives: Tie deferrals to metrics like food cost control for executive chefs or overall profitability for C-suite executives.
- Flexibility in Design: Include provisions for loans against balances, non-compete clauses, or family payouts upon death, ensuring the plan motivates without unintended consequences.
- Competitive Edge: In a market where everyone claims to be “a great place to work,” offering deferred profit-sharing sets you apart.
Tax & Accounting Essentials: No Surprises
From a tax perspective, it’s straightforward. The benefit is taxable as wages to the employee when paid, and deductible for the company at that time. For GAAP financials (generally), expense it as earned over the vesting period, which may have an impact on your bank debt covenants. Understanding these implications upfront prevents unintended consequences, allowing you to focus on growth.
In essence, deferred compensation is the low-complexity entry point to incentive mastery. It’s not just about paying more; it’s about paying smarter to build a resilient team.
Up Next: Phantom Share Plans
Stay tuned for Part 2, where we dive into phantom share plans – the next step up for sharing growth without true ownership.
If you are ready to learn which option is best for your restaurant, now is the time to contact GBQ today for a thorough discussion. You are also welcome to view the Restaurant MasterClass session that inspired us to look deeper into winning strategies for restaurant employee incentives.
By Kaz Unalan, CPA, CEPA, Partner, Tax & Advisory
Looking for more insight and employee benefit solutions? Check out these resources:
GBQuarterly: The State Of Employee Benefits – Strategies To Mitigate Costs & Manage Risk
Protecting Your Employee Benefits Plans From Cybersecurity Threats
ESOPs: A Savvy Ownership Transition Alternative For Restaurant Owners
