One of the keys to a financially successful ski area food service operation is the structuring of a plan for compensating the supervisor. Five steps now will make all the difference to your profit picture next spring: 1) analyse the operation; 2) establish the supervisor’s role; 3) determine the elements of performance to be rewarded; 4) establish the salary and bonus program; 5) present the plan.
Analyse the operation
First look at the organization chart for the food service department and plug in the employee’s names from the previous season. Next, the time cards should be culled to extract man hours of each employee for the season and their base pay. At this point, one must make some decisions.
Can this department be better organized? What inflation will have taken place since last season? Will you be replacing higher paid experienced employees with neophytes entering the job market? Will your season be longer this year?
Once you have determined the seasonal man hours requirements and the likely budget in dollars, round out the budget by calculating product cost, utilities and supplies. When matched with revenue, there should be from 25-30 percent available for a departmental contribution to overhead. To do this the labor and product cost combined should fall in between 60-65 percent of the sales estimate. To insure that the budget becomes a viable plan, restate it at 10 percent less sales and 10 percent more sales. Now you are ready to look at management.
Establish supervisor’s role
Based on your initial organization and man-hour study, where do you see the supervisor fitting in? Is he part of the production team? Does he run the cash register? Does he talk to the purveyors or merely requisition supplies through the main office? This role must be determined as it has a direct impact on the budget and his remuneration.
If he is all worker and no supervisor, does he really coordinate and control the department? If he is all supervisor and does not participate in production or service functions, is your operation sufficiently large to require and support this overhead?
Most ski areas require a working supervisor, an employee who understands that to meet peak demand service requirements, all must roll up their sleeves and pitch in; but at the same time he is paid a premium because he controls the flow of men, money and materials.
What is to be rewarded
Those aspects over which the supervisor has control over should be outlined and performance objectives set accordingly. For example, can he control sales, food cost, labor cost, departmental profit?
You want to motivate your employees to “sell” the customers through exuberance and willingness to serve, but their compensation for doing so cannot be a major component of their remuneration. The reason is that their control is somwhat limited: they cannot control bad weather, good skiing or the Dow Jones average.
Product cost control, however, is one area where the manager has considerable control. Prices do go up in the market place, but a good manager will substitute or make menu changes to cope with such price increases. The biggest worry in any event, is not inflation, but waste. As much as 5 percent of the total sales dollar can be funneled to departmental profit by prudent supervision.
Unlike sales incentives which are easily established at the same percentage of sales, a product cost bonus usually requires establishing a fixed bonus and a sliding scale which diminishes as the objective is missed. For example, assume that the objective is to operate at a 35 percent food cost. The bonus amount is set in the budgeting process and 100 percent is granted if the food cost ends up in some range around 35 percent. As the food cost goes up, the manager should lose money. At the same time, if the food cost drops below a reasonable amount, the bonus should taper off. Unless this is done, your manager may be rewarding himself at the expense of your customers.
The following might be such a bonus schedule:
| Product Cost as a % of Sales | Percentage of Bonus Amount |
|---|---|
| 40% | 0% |
| 39% | 30% |
| 38% | 70% |
| 37% | 90% |
| 36% | 100% |
| desired 35% | 100% |
| 34% | 100% |
| 33% | 100% |
| 32% | 80% |
| 31% | 50% |
| 30% | 10% |
It is extremely important always to think of sales and cost incentives as mutually inclusive. You should not have one without the other because they tend to work at cross purposes. An overly cost-conscious manager will drive customers away by cutting back on quality, and a sales-oriented manager will consider cost someone else’s problem.
Labor cost is another area of control which can be treated like product cost. The manager can be penalized for each percentage point above a certain budget. The labor question, however, depends very much on what component of the cost is fixed. If hourly employees are required at the same times each week, then it is really a fixed cost and there is little control involved. Do not create a compensation system unless the degree of variability has a substantial impact on departmental profits.
Since departmental profit is what the food service is all about, it should be included as part of the management compensation scheme. The reasoning is simple. A manager rewarded with a sales incentive and a product cost incentive can perform extremely well in those specific areas and still allow the department to be nickel and dimed to death with excessive labor and supplies. Like the sales incentive, the profit incentive can be based on a straight percentage.
Establish compensation program
How much should the supervisor be paid? To the extent that more supervision and control is required then more expensive expertise must be purchased. Find out what your comptitors are paying in your local region. Since food service is a low operating leverage business, management remuneration is most often a function of sales volume. Salaries range from 5-10 per cent of sales volumes with the lower percentages applying to the larger sales levels. Set the total amount that you can afford to spend on management within your projected operating budget. Remember if a job applicant demands a higher salary, it must be paid for out of departmental profits.
Once the total amount has been determined, calculate and deduct the various bonus plans. For example a sales incentive at 1 per cent or less of total sales; a product cost control incentive, which if fully disbursed will roughly equal the sales incentive; and a departmental profit participation, which should be 5 per cent or less depending on profit anticipated. As a general rule, the total bonus package should not exceed 25 per cent of total remuneration. Deduct the total bonus plan from the total remuneration and divide by the number of weeks of employment to get the weekly salary.
Presenting the plan
In negotiating the salary of a manager it is most important to emphasize that the weekly salary is the amount that he is paid for being on the job. The bonus is the amount provided as a reward for doing a good job. The employee should have the bonus program fully and candidly explained to him. That is, he should see the projections and understand why it has been structured as such. If the program has been properly structured, that certain magic chemistry will take place wherein the owners and managers will be working for the same objectives.
