Labored Improvements: Restaurants Beef Up Benefits

Contents:
Enthusiastic Employees
Benefit Structures
Quicker Eligibility
Cost-Benefits

The last time the unemployment rate was this low, the first Wendy's restaurant had just opened in downtown Columbus, TX. The lone T.G.I. Friday's in New York was still packing in the singles crowds four years after bursting onto the restaurant scene. Taco Bell had just raised the price of a taco 32% . . . to 25 cents.

The year was 1969, unemployment was 3.5% and good help was hard to find. A lot of things have changed since then. Unfortunately, the difficulty of staffing in the foodservice industry has gotten nothing but worse. Unemployment is down to 4% -- a 30-year-low -- and finding good help is tougher than locating a 25-cent taco.

With the economy on an unprecedented growth streak and showing no signs of stopping, the restaurant industry is adapting its compensation packages to attract and retain quality workers. Perks that were rare a decade ago -- health insurance for hourly employees, stock options, employee assistance programs -- are slowly becoming the norm.

"This is absolutely the start of long term trend," says Alice Elliot, president of Elliot Associates Inc., a nationwide personnel search firm that specializes in the hospitality and service sectors. "Employee expectations have changed with the onslaught of the Internet and e-commerce and expanded job opportunities. The hospitality industry is coming to understand that it is no longer a luxury to think about these things, but a necessity and good business."

Sandwich chain Schlotzsky's Inc., Austin, TX, is one company that would agree with Elliot. Earlier this month, the chain instituted a program offering health care benefits and 401(k) participation to hourly staff at its 300 company-owned stores and offering franchisees the opportunity to tie into the program. The impetus behind the plan was "probably about 50% to help recruiting efforts and 50% to keep people working for us," says Alice Klepac, human resources manager.

Enthusiastic Employees
The plan already seems to be paying off just weeks after its unveiling. Part-time workers are asking for more hours so they can qualify for the benefits and are telling relatives -- spouses, brothers and sisters who have no insurance -- to apply, says Klepac.

"We see it as a real attraction for a lot of people who might not have come to Schlotzsky's before to talk about opportunities," she says.

While Schlotzsky's may be the latest chain to beef up it benefits program, it is far from the only one. T.G.I. Friday's, O'Charley's, Wendy's International and Outback Steakhouse are all acutely aware of the employment shortfall and have adapted their benefit plans to fit the times.

Benefit Structures
Generally, their benefits packages are divided into two classifications: management and part-time hourly workers. Management packages are more extensive, with greater emphasis placed on long-term benefits, while hourly programs look to more immediate needs: salary, vacation and flexible scheduling.

"It's extremely competitive out there, especially when you are trying to hire managers and you need to offer everything from insurance to stock options," says Carol Arrowood, director of human resources for Nashville, TN-based O'Charley's. "For hourly employees, while benefits are important, there is a whole lot to be said about the right culture -- making it fun. This is a transient group, a young group of folks, and for most, this is just a stop along the way in their career. Their concerns are how much money do I get paid, do I get the shifts that I need and, better yet, will I have fun while I'm there."

The casual dining chain's management program includes a stock option plan (added in 1998), an employee assistance program that offers help on "life issues," such as marriage, drug and alcohol counseling, and 401(k) and health plans that "match up with anybody's out there," says Arrowood.

As part of the insurance plan, O'Charley's foots the bill for a greater percentage of insurance premiums as an employee puts in time. "After seven years, we pay it all," Arrowood says. "The cost is very well worth it to us if we have an employee who knows our business that well. The longer you are here, the more value you bring to the company."

For hourly workers, O'Charley's offers a discount stock purchase plan and a 401(k), and is just now rolling out a scaled down health insurance program. Plus, the company lowered its eligibility requirements this year so new hires can enter into the benefits plan immediately.

"As we continue to grow, we review the plan every year with the benefit committee and see what we can attach to the package," says Arrowood.

O'Charley's as well as Wendy's and Friday's runs annual focus groups with its employees to listen to what they want from a benefits package.

"Based on those focus groups, we have changed benefits, worked on communications and improved training programs," says Anne Varano, vice president of human resources and operations services for Carlson Restaurants Worldwide Inc., Dallas. Varano has been with Carlson for four years, and benefits packages for Friday's managers and part-time staff have been in place before she began. Both packages include health and dental, but the managers receive disability, life insurance, a 401(k) option and other considerations.

Quicker Eligibility
Modifying the plans is a continuous process, says Varano. The latest changes took effect in January. Friday's now offers two levels of medical and dental benefits -- Gold and Silver -- with different premiums and degrees of coverage. Last year, Friday's also introduced a dining discount card for all its workers. Cards were awarded after 90 days employment. This year, the cards are given immediately to new hires. Last year, tuition assistance to hourly employees was awarded after a year of service. This year, the required service period dropped to 90 days.

"The labor market is very competitive and you have to figure out what differentiates you from competitors when it comes to attracting and retaining great people -- and also what is it that you should offer that will meet the needs of a very diverse workforce," Varano says.

Even as companies work to develop more extensive compensation programs, Elliot says look no further than Starbucks Corp. for "the best case scenario. They have been a trailblazer in that area."

Seattle-based Starbucks began providing comprehensive health benefits in 1987 and a discount stock purchase plan in 1991 to all employees who put in a relatively low 500 hours a year. The coffee-kingpin offers health, life and disability insurance; a resource and referral help-line; an employee assistance program; a 401(k) plan with matching contributions; a discount stock purchase plan; stock options plans; and various other bonuses, awards and recognition based on achieving specific business goals.

The program has paid off for the chain: Starbucks annual turnover rate is only 65%, compared with industry averages of 150% to has high as 300%.

"The program has really paid off," says spokesperson Helen Chung. "It proves the old mentality, the old way of thinking, is not correct."

Cost-Benefits
Some might argue that implementing a system similar to Starbucks' across the foodservice industry would be cost prohibitive. With the exception of flex time, which costs a restaurant nothing but the time necessary to coordinate a schedule, none of these things are cheap. However, Starbucks and other foodservice operators that have upgraded their plans say the expenditures are justified.

Schlotszky's says the price of its new program is $170,000 per year but expects those costs to be offset by reduced turnover and other operating efficiencies.

Friday's conducted a specific analysis of the price of turnover in 1998, calculating actual costs for a new hire, from placing the ad in the newspaper to training to providing new uniforms.

"I also believe there are things we can't quantify off the P&L statement: What effect does a new employee have on a guest, does guest satisfaction go down, how many comped meals do we have to give out because of employee mistakes, how many customers don't return, how many tell friends and how does it all hurt sales. We looked at hard costs and assumed the factors we could not quantify probably doubled them," says Varano.

While she would not release the numbers Friday's came up with, Varano says, "we believe they justify keeping employees longer. We made the changes to our benefits program with the assumption that we will improve retention and it will pay for itself. We designed and continue to improve the programs around the goal of attracting people, staffing a store and retaining more employees who understand the restaurant's programs, who can provide guests with the restaurant service they are looking for."

Put in the plainest terms, says Schlotzsky's Klepac, "Quality employees will go where they have best benefits."