Maximizing on an Organizational Compensation Philosophy within the Chain Restaurant/Retail Industry
by David Mansbach and Brad Ellman
Hospitality Trends 2007-08-13
Based on conversations with restaurant/retail business leaders and public documentation, too many companies are developing 'boiler plate' compensation plans.
While most companies within the chain restaurant/retail industry purport to have an organizational compensation philosophy, we have found that many companies don't take full advantage of a programs potential. A well-crafted compensation philosophy will provide your organization with a roadmap supporting the company missionstatement and short and long-term business strategies.
Based on conversations with several restaurant/retail business leaders and reviewing public documentation, it is apparent that too many companies are developing 'boiler plate' programs comprised of words that have no substance. Listed below is a common example:
"Our philosophy in establishing the compensation policy for our executive officers and other employees is to create a structure designed to attract and retain highly skilled individuals by establishing salaries, benefits, and incentive compensation which compare favorably with those for similar positions in the geographic area and other companies within the chain restaurant industry".
(Restaurant Company X - 2006 Proxy)
The chain restaurant/retailers that maximize on their compensation philosophy have shown superior results in all areas of the business; achieving business strategies and attracting and retaining the highest performers. For example, McDonald's Corporation created their philosophy around a program entitled The Plan to Win and Best Buy promotes reward flexibility and entrepreneurship for their employee base. Listed below are pertinent excerpts from McDonald's and Best Buy's stated compensation philosophies.
"Our executive compensation program is designed to support our business strategy based on the long-term plan we adopted in 2003: The Plan to Win. The Plan to Win focuses on maximizing customer satisfaction and strengthening our financial position. To achieve those goals, the Plan to Win emphasizes operational excellence, leadership marketing, innovation and financial discipline with initiatives implemented around five drivers of exceptional customer experiences - people, products, place, price and promotion - which we refer to as the 'five Ps.' When we adopted the Plan to Win, we also redesigned our Company-wide compensation program, which we refer to as our global compensation program, to further our strategic objectives under the Plan to Win.
In determining the amount and mix of executive compensation, we seek to achieve the following principal objectives:
a) To reward executives for supporting the five Ps and delivering profitable growth;
b) To differentiate rewards based on the achievement of Company, geographic business unit and individual performance goals so as to ensure that executive compensation is reflective of performance;
c) To achieve an equitable balance in the compensation levels of executives who have comparable levels of responsibility; and
d) To set compensation levels that enable us to compete for talent in a highlycompetitive global market, balancing this goal with the other business priorities we consider in allocating the Company's resources."
(McDonald's Corporation - 2006 Proxy)
"We believe our success depends on employees at all levels using their unique strengths, experiences and ideas to foster innovation and build strong customer relationships. While our compensation and benefit programs are important tools in attracting and retaining talented employees, we also believe that non-monetary factors such as work environment, learning and development opportunities, and relationships between employees and managers are critical to provide a rewarding employee experience. Collectively, these elements comprise our 'Total Rewards' philosophy. We believe this company-wide approach to attracting, motivating and retaining talent is a competitive advantage.
Our Total Rewards philosophy seeks to:
a) Provide employees with a greater choice of rewards that are most valued by them;
b) Differentiate rewards to individuals, based on their contributions;
c) Encourage and recognize experimentation, entrepreneurship and innovation; and
d) Reward employee contributions for achieving strong financial and non-financial results.
We implement the Total Rewards philosophy by employing broad-based programs that are designed to align employee interests and create a common vision of success."
(Best Buy - 2006 Proxy)
An organizational compensation philosophy is a vital tool for success. Taking fulladvantage of a well thought out and strategic program will set you apart from yourcompetition.
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