In 2017, the Bouillon Chartier still overachieved its production target with a 8% growth. I would like to share hereunder my 2017 post about the voluntary gain-sharing plan of this restaurant.
When the CFO of a familial group of 10 traditional restaurants based in Paris asked me in 2007 to design the team-based bonus plan of its last buyout, the famous restaurant Bouillon Chartier, I was very enthusiastic about this challenge. Indeed, this restaurant was opened in 1896 and is classified as « Historic Monument » since 1989. In 2006, 365 days a year, 800 French and worldwide customers used to test its slogan: « Offer a meal worthy of the name to a modest price and to keep the respect and the customer loyalty. »
Now they are almost 1,600 customers who daily enjoy one of the 319 seats of the retro style dining room built in an ancient station hall. The voluntary gain-sharing plan of the Company, which has been recognized by the French social administration as a model of clarity and effectiveness, is one of the key driver of its success, according to the executive manager.
The strategic design choices
Christophe Joulie, who is the CEO of the Group Gerard Joulie, explained us the business strategy for the Bouillon Chartier:
« In our other traditional restaurants, two third of our growth rate comes from the average price per meal increase and upselling, with average ticket amounts between 40 $ and 60 $. But for the Bouillon, 75% of the growth should come from the customers’ number, for the price per meal must stay at 20$ in an affordable restaurant. In other words, our courses arise from the traditional French cooking; they are simple, good and especially cheap. Therefore, our Company’s strategic goals are to increase the number of customers and improve the staff performance in the dining room and the kitchen. »
We both agreed on the fact that a great team can make a great restaurant, with the right management. Consequently, I suggested to the executive committee: « The easier way to achieve these goals is to motivate all the employees with a new VGS (Voluntary Gain-Sharing, which French name is l’intéressement) program that could both manage the teams’ performance on appropriate key metrics and grant attractive bonuses over an extended period (> 10 years). » That last duration point was perfectly matching with the strategic skyline of their investment.
Furthermore, the Group Gérard Joulie planned an additional investment to expand the capacities with the modernization of kitchen equipment in the 2nd year following the buyout (2009).
We agreed that the new Bonus Plan objectives were:
- Give every employee the opportunity to share in the results and the progress of the restaurant with bonuses exempt from social charges.
- Provide the management with a new performance monitoring tool to motivate in achieving the yearly targets.
To choose the metrics that will support the strategy, we used existing KPIs previously tested in other restaurants of the Group.
For the welcoming and serving staff, we chose a mix of qualitative and quantitative metrics:
- the seating turnover,
- the customer satisfaction (welcome and service),
- the selling of higher margin products and beverages.
The kitchen team should be interested in its gain and progress in
- productivity and control of the food cost ratio,
- food safety and hygiene,
- customer satisfaction (products).
The funding rule of the new bonus plan
Insofar as the variable part had already two components, a commission system on the revenue for the serving staff and the compulsory profit-sharing or CPS plan (participation) for all the employees, we decided that the target team-based bonus should weight half a salary month and to set a cap at a month and a half. Of course, the growth of EBITDA should fully fund the payouts.
As the reward of VGS+CPS plans should weight approximatively 8% of the annual salary, the appropriate calculation period was annual. Indeed, quarterly or half-yearly periods for the VGS bonus could not have a strong motivational effect with periodic payouts of 1 or 2% of the annual salary.
A calculation formula that makes the difference: simple is better, closer too
A lot of Managers regard the VGS (Voluntary Gain-Sharing) or the CPS (Compulsory Profit-Sharing) as cheap ways of redistributing to employees a part of the wealth they helped creating.
The traditional calculation formulas of a bonus plan using the legal framework of the VGS are seldom motivating because employees cannot easily foresee their bonus, that is a portion of the pool of money obtained with the calculation formula. Indeed, the pool of money must be shared according to a negotiate criterion that is mostly in proportion to the employees’ wages: an employee cannot accurately know his/her sharing coefficient before the day 365 of the yearly calculation period. Even if their manager communicates the forecast amount of pool of money to be shared, employees cannot calculate their bonus before the end of the year for wages are confidential and variable data.
The second threat to motivation is to choose a VGS calculation at Company level rather than at Team level. With closer performance metrics to employees, team-based VGS plan may have a stronger impact on their motivation than any plan with undifferentiated measures.
So, my recommendation was to use a simplified formula which avoids that drawbacks and promotes employee’s motivation with the following message:
- At the target, your bonus will be 4% of your annual wage, that is half a salary month: 20,000 $ of annual salary means 800 $ of bonus when your team and the Company achieve the target. You don’t have to know other employees’ annual wages to calculate it.
- Above the target, the payout can rise to 12% (3 x leverage).
- Below the target, the payout will progressively decrease to 1% (0.25 x leverage) or 0 if Company achieves less than 80% of its gross profit target, that is the trigger threshold.
- For a team, the pool of money will correspond to the sum of all members’ bonuses.
- For the company, the Gain-sharing will correspond to the sum of the two team bonuses.
We translated the components of the formula in visual bonus schemes and gave a lot of examples of calculation to facilitate the payees’ understanding.
In a VGS plan shared in the proportion of wages, set the reward as a percentage of salary rather than in an amount of money has two advantages. Firstly, the reward can have the same weight for each employee. Regarding motivation, it makes a difference. Secondly, the personal reward will not change whenever employees are hired, promoted or leave the Company.
Target setting method to deal with cyclical ups and downs.
Instead of setting objectives for a three-year term, that is the duration of a VGS plan in France, we chose to set a yearly target for each metric using an addendum to the current plan. That solution would grant that:
- the multiple targets will remain achievable and challenging year after year,
- the VGS plan will support a culture of continuous improvement,
- the return of the investment will always be under control.
Another advantage is that the annual appointments to negotiate the VGS contract could create a healthy social climate and would promote the culture of transparency and performance in the organization.
Implementation: a tough first step
To implement the VGS plan in 2008, the signing of staff representatives was necessary. Despite several presentations and negotiation rounds, they rejected the random variable VGS plan and claimed for a permanent salary increase, that was not granted by the Company. As a pay system that involves a real variable element, VGS implies that employees bear a financial risk, that is the risk of null payout if performance doesn’t improve.
Despite this failed attempt, we did not want to give in and decided to communicate throughout the year the achieved quarterly team’s performance and to show the calculation of the payouts that would have been done if the contract had been signed by the staff representatives.
Before the end of 2008, almost 90% of the employees said yes to the VGS plan, following an alternative set-up mode, the agreement upon by a two-thirds majority of staff.
Communication and training improve motivation
In small and medium companies, a direct communication can be very effective on motivation. When employees have a clear awareness of their Company’s situation, objective, and achievements, they are more apt to give you their best performance. Therefore, we designed several communication tools, co-presented with Executive, HR or Financial Managers to all employees the VGS project during 1 hour yearly meetings and answered to their questions.
Our performance monitoring tool helped managers hold regular quarterly meetings, manage performance and give forecasted payouts of the VGS plan.
We also trained all the restaurant’s managers having performance-oriented meetings before each shift and improving their communication skills.
Company founder and former CEO Gérard Joulie « I am proud of our compensation policy which offers the staff an additional salary month with our profit & gain-sharing plans. They have a great impact on motivation that begins even before the day one of the calculation period. Since we introduced the first plan and the following year performance targets, employees have been improving their work. That’s because VGS is a modern HR system in which employees are valued and educated. »
Analysis of the alignment between performance and payouts of the VGS plan:
« At the end of your meal, the Bouillon Chartier’s waiters keep things old school and tally up your billright in front of you by scribbling your order and calculations on the tablecloth. »
Between 2007 and 2016, three major downturns affected the traditional restaurant sector in France:
- Financial crisis of 2008 with a strong general decline in 2008 and 2009
- Three years of mild slowdown from 2012 until 2014 in the sector
- Terrorist attacks on Paris in 2015 involving a 15% decrease in foreign visitors.
Nonetheless, these last nine years, both Bouillon Chartier’s dining room and kitchen teams achieved excellent performances, far better than other competitors: increase of 60% of average meals/day and 70% of the revenue, which was also backed by lowering taxes from 2009.
The very challenging key-targets, seating turnover ratio, and kitchen productivity have been overachieved year by year, without affecting the customer satisfaction.
Fig 1 – Monitoring of the restaurant’s performance and VGS metrics
Before = 2007 After = yearly average 2008-2016
(*) 2009: 60 days close for renovation of the kitchen (**) 2011: 15 days close
In average, the 2008-2016 VGS plan payouts are 4.3% of annual salary for each employee, that was close to the target bonus set in 2007. Bonuses genuinely could go up and down with a maximum at 12% and a minimum of 1.8% depending on the year.
The return on investment of the VGS plan is excellent: payouts correspond to approximatively 1 % of the Company’s annual revenue while the increase of the yearly gross margin equals to 20 years of bonuses.
Our client Christophe Joulie believes that the voluntary gain-sharing plan helps to focus the staff on how the business works. “Our employees know this and follow key performance factors. They are of course happy because exceeding the objectives allows them to improve their remuneration but also because it values them. Employees are concentrated on and concerned with the Company’s objectives.”
On my mind, the effectiveness of any new team-based variable pay plan fulfilling the French legal framework of VGS depends first on the design process including the initiation and the implementation of the project. Designers should clarify what are the compensation objectives of the new plan and balance them with the employees’ needs. Thinking that they focus only or mainly on financial needs is a mistake, if the goal of the VGS plan is to motivate all the employees to achieve better performance. The non-cash elements of the plan that create group commitment around the Company’s goals, stimulate involvement or celebrate yearly success, matter as well.