How to build a restaurant GM bonus plan

A good restaurant GM bonus plan pays the GM a share of the store's controllable profit above a fair baseline, such as the same quarter last year. It adds a few gates, like customer reviews, a food safety check and crew turnover, that must be met before anything pays out. It is simple enough to work out on one page, and it pays often enough that the GM can see the line between this month's work and this month's check.

What it must never do is pay a store for running short. A plan built on labor percentage alone does exactly that, and the guests and crew pay for it.

What should a restaurant GM bonus be based on?

Base it on controllable profit. That is net sales minus the costs the person running the store can actually change:

• Food and paper
• Hourly labor
• Operating supplies, smallwares and minor repairs

It leaves out costs set above the store: rent, royalties, the marketing fund, insurance, depreciation and the GM's own salary. A GM should not win or lose a bonus because the landlord raised the rent.

Controllable profit works because it includes sales. A GM who grows sales with catering or a faster line moves it up. A GM who saves on labor by running short loses sales and moves it down. One number holds both sides. If you are new to the P&L lines behind it, start with how to read a restaurant P&L and how to calculate prime cost.

How to calculate a controllable profit bonus

Pick a baseline, pick a share, and pay the share of anything above the baseline. The same quarter last year makes a fair baseline because it carries the same season. For a new store, use a target you agree on up front.

That bonus pays only if the gates below are met. Over four quarters like this one, the bonus is worth about $12,860, which is meaningful money on a GM's salary.

Some operators prefer a small percentage of all controllable profit instead of a share of the improvement. That pays something every quarter, which helps at a store that is already strong. The tradeoff is that it pays for last year's work as well as this year's. A blend works too: a small base share plus a larger share of the improvement.

Add gates that protect guests and crew

Gates are conditions the store must meet before any bonus pays. They stop a GM from hitting the profit number by cutting corners. Keep them to two or three, and make each one clear:

• Reviews: the store's Google rating for the quarter holds at or above where it started. Our guide to improving online reviews covers what moves it.
• Food safety: the store passes its health inspection and any brand audit in the quarter.
• Crew: early turnover, people leaving within 90 days, does not rise against last year. Our guide to reducing employee turnover explains how to track it.

A gate can also be a modifier instead of a pass or fail. For example, the bonus pays in full with all three gates met, and at half with two.

Bonus designs that reward understaffing

The most common mistake is a bonus on labor percentage. It looks sensible. It rewards the wrong thing.

Here is what happens at a store when the incentive points at labor alone. Provo runs $30,000 a week with $7,200 in hourly labor, which is 24.0%. Next week's schedule cuts 40 lunch hours at an average of $15 an hour. Lunch slows down, and the store loses $1,500 a week in sales.

Labor percentage improves from 24.0% to 23.2%, so a labor bonus pays out. Over a 13-week quarter, the store gives up $5,850 in controllable profit. A controllable profit bonus would have paid less, which is the right answer.

Other designs cause the same kind of harm:

• Bonuses that reward fewer labor hours without any measure of service. They push stores to run short at the rush.
• Anything that tempts a store to shorten or skip breaks, work off the clock or send people home mid-shift. Make it plain in writing that none of these count toward a bonus, and that staffing changes go on next week's schedule.
• Food cost alone, which can reward skimpy portions and hurt reviews.
• So many measures that nobody can tell which one moved the check.

How big should a GM bonus be?

A common range is a bonus worth roughly 10% to 25% of the GM's base salary in a good year. Ranges vary by concept, region and store volume. The Castle Rock example above, at about $12,860 a year, lands inside that range for many burger-store GM salaries.

Two tests help. A strong quarter should pay enough that the GM notices. A flat quarter should pay little. If the plan pays the same whatever happens, it is part of salary, not a bonus.

Think about a cap carefully. Caps protect the owner from a windfall, like a new office park opening next door. They also tell a GM to stop trying once they hit it. A higher cap, or none, keeps the incentive alive all quarter.

How often to pay, and how to roll it out

Quarterly is the most common period. Monthly payouts feel more connected to the work. A middle path pays monthly against a running quarterly total, so one strong month counts but a weak month later in the quarter still nets out.

When you roll it out:

1. Write the whole plan on one page: the formula, the baseline, the share, the gates and the payout dates.
2. Walk the GM through last quarter as if the plan had already been running.
3. Share the running numbers every week, not only at payout.
4. Do not change the rules mid-quarter. Change them for the next one, in writing.
5. Have your accountant or an employment advisor review the plan before you start.

If you run the store yourself and have no GM, the same structure works for an assistant manager or shift lead, scaled down. If you are a franchisor, sharing a model plan with franchisees is one of the easiest ways to help them keep good general managers.

Common GM bonus plan mistakes

• Paying on labor percentage or labor hours alone.
• Including costs the GM cannot control, like rent or royalties.
• Using a baseline from a different season.
• Too many measures, so nobody knows what moved the check.
• Paying out months after the quarter ends.
• Changing the rules after the quarter starts.
• Gates that are vague, like "good guest experience".

A simple weekly habit

Every week, send the GM, or whoever runs the store, three numbers: controllable profit so far this quarter, the baseline to beat, and where each gate stands. It takes five minutes once the P&L lines are set up. A GM who can see the number moving will make better calls on next week's schedule than one who hears about it at quarter end. Pair it with clear weekly instructions so the plan and the work point the same way.

Franlever's AI COO compares each store with its own recent weeks and the middle store in its brand, and sends the owner and GM the same specific lever when something is worth acting on. That keeps both of you looking at the same numbers the bonus pays on. Read how Franlever works for the details.

General information for restaurant and franchise operators, not legal, tax, accounting or financial advice. Figures in examples are illustrations, not predictions or promises of results. Laws and platform policies change and differ by location, so check the current rules and talk to a qualified advisor about your situation.