Pay It Forward: Chain Compensation Edges Up in 2008

Base pay for restaurant-chain executives, managers and non-exempt employees will edge up between 3.5% and 4% this year over 2007.

By Staff -- Restaurants & Institutions, 2/28/2008

Base pay for restaurant-chain executives, managers and non-exempt employees will edge up between 3.5% and 4% this year over 2007, according to a study from global management consultancy Hay Group and the Chain Restaurant Compensation Association (CRCA), an industry group focused on compensation and benefits issues. The tight labor market is a key driver of the salary increases, says CRCA President Ann Tincher, while federal minimum-wage legislation is pushing up pay among non-exempt workers.

Tincher, director of total rewards and recognition for the Lexington, Ky.-based Fazoli’s restaurant chain, offers these additional insights on the survey, which reflects compensation practices by 1,900 companies and 1 million employees:

• Good employees are hard to find, so competitive compensation is critical. As long as unemployment continues to hover around a relatively low 5%, the market for good employees is likely to remain tight. For the restaurant industry more than others, Tincher says, this makes attracting top people even more difficult. “The restaurant industry is such a great career, but I don’t think people grow up saying ‘I want to be in the restaurant industry.’ Our job is to help people see it as a career path as opposed to a pass-through job,” she says. “Our labor pool is not as large as other in other industries, so we have to design compensation and benefits packages that attract career-ists.”

• Pay for performance is an increasingly attractive proposal for companies and employees.

The relatively small increase projected in chain executives’ base salaries, 3.86%, reflects companies’ increasing shift toward pay-for-performance programs, Tincher says. “It has to do with gross margins. With commodities, gas prices, healthcare, [seemingly] every possible line item on our P&L going up through no fault of our own, we have to contain the creep on base wages but also be able to provide a lucrative income for our top performers. You do that by containing the base but increasing bonus incentives.”

• Rising minimum wages will continue to drive up hourly employee pay. Between 2007 and 2008, increases in pay for non-exempt staff rose by slightly more than those for executives, thanks in big part to federal legislation passed last year. The legislation raised the minimum wage by 70 cents to $5.85 in July 2007 and provides for upcoming hikes to $6.55 this July and to $7.25 in 2009. “The federal government didn’t react in a timely fashion to the needs of the minimum-wage population and therefore, states began to take action on their own. Now that federal minimum wage [has been raised], the states will slow down,” Tincher says, adding, “It certainly deters [Fazoli’s] in our growth. We don’t want to go where the minimum wage is $10 an hour. And that’s not good for the state. I’m sure other industries are feeling the same way.”

• What happens next will depend on how the struggling economy shakes out in 2008.

How the economy will continue to affect the chain-restaurant hiring and compensation practices in the next year is “the million-dollar question,” Tincher says. “Commodity costs are going up astronomically, along with everything else, and our margins are tight. You’ve got to stay within that to remain profitable, so you have to contain costs and be able to attract employees at the same time, and that’s a juggling act I think every company is facing right now.”