It’s no longer enough for a restaurant to put together an amazing team. The key to success and longevity in this competitive food service environment begins and ends with employee retention. Losing a key employee can cripple a successful business. If you’re not prepared for the loss, your entire company will be affected.
Key personnel hold the responsibility for running specific areas of your restaurants, knows your client/guest base, and generally hold a stronger bond with the restaurant’s employees than the restaurant’s principals/ownership. Sudden management changes usually create a negative image for employee retention on how owners view the relationship between themselves and their personnel.
Even worse, most management personnel leave for what they feel is a better opportunity and generally recruit other key employees to join them in these “greener pastures”. Additionally, key personnel change usually affects employee morale reducing employee efficiencies, causing loss of productivity and an often results in an economic hit to your restaurant.
Some restaurant principals have tried to maintain employee retention by paying management higher salaries, increased sales incentive compensation, and even profit sharing. However, in a competitive market, that is not always a cure all. In addition, perks only increase a restaurant’s overhead without obtaining the desired result and only positions that employee to be open to more lucrative offers from cash rich or even desperate restaurants looking for qualified candidates with successful track records.
Minimize Your Employee Retention Risks By Taking Several Steps
First, you need to identify whom in your organization you simply can’t afford to lose. Which of your employees are key people that you are not prepared to lose? Which employee leaves your restaurant vulnerable to a decrease in productivity and even a possible conflict with a key vendor relationship? Does that employees exiting leave other employees susceptible to being recruited to join them. Again, who are the people in your organization that you can’t afford to lose?
Make A Major Effort To Lock In A Key Employee From Leaving
Is your key employee relevant to your succession plan or valuable in some other way that makes it logical to pull out all the stops to keep him or her on board? Take a deep look and put a value on that person. If that value is high enough that the person may be very hard, if not impossible, to replace, then consider this option.
Use Life Insurance To Provide Key Employee Value
By using a permanent life insurance policy, the restaurant owner/ employer can create a mechanism to provide the key employee with a retirement benefit for a fixed period of time that is beneficial to both the valued employee and ownership.
If the employee dies while still employed the family will receive a survivor’s benefit from the employer for a defined period time. The employer would be the owner of the policy on the employee. The policy would be designed to build substantial cash values, which would be an asset on the employer’s balance sheet and accumulate tax-free. Upon retirement, the employer would withdraw (or loan) cash value from the policy each year to fund the agreed-upon retirement benefit. The policy death benefit would be used to: a) fund the survivors benefit and: b) provide the employer with protection for losses that may incur the death of the event employee.
Finance The Life Insurance
By utilizing the premium finance extremity to pay the premium, the employer, rather than paying manual premiums will pay interest on loan, will provide the employer with the cash flow savings compared to the premium payment. The interest on the loan will be based off a fixed spread over 90 day or longer duration LIBOR.
The policy cash value will provide the majority of the initial collateral needed on loan overtime as the cash value grows, it will become the sole source of collateral. The policy may be designed using a high cash value rider to minimize the collateral needed to impact the employees balance sheet as minimally as possible. In addition, the policies will be designed to retire the debt incurred by the employer 11-15 years.
For this example, we are sending a 40 year old key restaurant employee.
The employee would receive:
- A supplemental retirement benefit of $50,000 per year, beginning at age 65 for 20 years
- A survivor’s benefit of 50,000 would be paid to inane beneficiary of the death of the employee for 10 years while still employed at the company prior to age 65.
The employer’s contribution to the plan would be as follows:
– Initial interest payment: $5,554
– Total projected interest payments: $264,319
– Initial collateral amount: $30,000
– Peak collateral needed: $60,000
**Predicated on current interest crediting assumptions and current costs of insurance.