Docstoc

RGM AC Bonus Guide

Document Sample
RGM AC Bonus Guide Powered By Docstoc
					RGM / AC Bonus Guide
Purpose and Report Contents

 Serve as an educational resource for HR and Finance within YRI BMUs
   Outline design parameters for the implementation of the Yum RGM / AC Bonus
   Provide detailed design steps and techniques for modeling the Yum RGM / AC
    Bonus
   Provide support for a YRI Q1 2005 implementation


 As such, this document includes the following sections
   Bonus design and implementation process
   Data to be collected as “pre-work” to modeling the bonus
   Outline of principles and objectives of the bonus to assist in communication and
    education within the BMU
   Steps for modeling the bonus including an outline of design parameters for each
    bonus component


 The examples and methodologies outlined in this presentation and Bonus Modeling
  Tool are intended as a starting point for modeling; each BMU must consider what
  makes sense for restaurant performance and objectives within the BMU
                                                                                       2
Bonus Design and Implementation Process
   Bonus Design and Implementation Process

           Q2                                      Q3                             Q4               Q1
       Mar - May                               Jun - Aug                       Sept - Nov       Day 1 Pd 1

                                          Work with Finance                     Execute
  Engage Finance
                                           & Operations to                  Communication       Go Live
   & Operations
                                           validate design                  and training plan


                                            Test design &
                                           revisions within
  Model the bonus
                                              TPM tool

Tools
 RGM / AC Bonus Guide                     Finalize design
 Bonus design tool                         and develop
Outcome
 Proposed design                        communication plan


 Test design within                             Gain BMU
     TPM tool                                   Approval


 Become familiar with TPM tool
  capabilities                              Develop Field-
 Experiment with design & data
 Experiment with reports                   ready bonus &
Tools                                     training materials
 TPM tool
 Report templates
Outcome                                   Tools
 Preliminary understanding of how the     US templates
  bonus will be administered through      Outcomes
  TPM                                      Bonus communication materials
 Identification of issues/barriers        Training materials                                          4
Pre-Work
Pre-Work

 Collect a full year of data for the following key Yum! performance measures

    Sales and Profit (RCP) data
          Plan for 2004
          Plan and Actual results for 2003
    Flow-Thru
          Results for 2003
          Target for 2004
    CHAMPSCheck
          Results for 2003
          Target for 2004
    Results from Strategic Initiative measure
          e.g., Team Member turnover results for 2003 and target for 2004
 To ensure you have a full year of data, you could collect current YTD data and estimate the
  balance of the year (e.g., using plan data)

 Collect the data for each restaurant including restaurant number and area number
                                                                                                6
    Pre-Work -
    Tips

     “Clean” the data                                                                                The Strategic Component should be
                                                                                                   determined by the BMU. For this example,
         Use annual data for design work                                                          we have assumed Team Member Turnover
                                                                                                          is the strategic component.
         Remove partial store periods and use “Full Store Periods” only
         Remove extreme data points
                  For example, sort the data by sales and delete extremely high or low sales
                   figures…repeat for RCP and other data points
         The modeling technique outlined in this document uses full-year data, when validating the
          design you may want to consider what the bonus will payout for each quarter


                                                Actual (2003) and Plan (2004) Data
                                                                                                  2003                      2003
                       2003         2003        2004          2003         2003        2004       Flow- 2003 Flow   2003    Team
      Area Store       Sales       Sales        Sales         RCP          RCP         RCP        Thru   Thru to # of 100% Member
Count ID    ID         Plan        Actual       Plan          Plan        Actual       Plan      Results  RCP     CHAMPS Turnover
  1      001   1,000   1,010,000    1,085,511    1,097,861      280,000      308,000   327,000    319,088     103.6           9                78
  2      001   1,002     730,000      752,000      790,617      201,663      205,000   223,733    210,156     102.5           7               127
  3...
 199     025   1,396    765,000      751,000      781,830       221,434      228,077   255,826    237,200     104.0          14                42
 200     025   1,398    930,000      925,000      950,460       261,934      269,792   305,527    264,397      98.0          9                120




                                                                                                                                              7
Bonus Design Principles and Objectives
Bonus Design Principles

 Motivate RGMs and ACs to meet and exceed performance target
 Aligned with other programs (e.g., BSC, PA) and across Operations & BMU
 Achieve a balanced emphasis on Customer, Sales, Profits & Strategic

          Sales & Profit              Make Plan Matrix and Flow-Thru
          Customer                    100% CHAMPSCheck
          Strategic                   Strategic Initiative (e.g., Turnover)

 Drive operating Blue Chips
   Building people capability
   Driving customer mania through 100% CHAMPS
   Grow profitable sales
   Improve RCP & margins            “Beat Year Ago”



                                                                              9
  Bonus Design Objectives


Design Objective                                  Design Element to Achieve Objective


Engage employees through short-term incentives      Quarterly payout


Higher volume restaurant = Higher value to Yum!     Volume-based financial rewards
  and higher rewards for RGM/AC

Fixed $ payout based on satisfying customers        Customer Mania focus
   100% each time (RGM only)

Flexibility to focus on strategic initiative        Business Unit focus


Performance-based                                   Leveraged to encourage higher
 Competitive payout for on-target performance        performance
 Increased payout for exceeding target
 Limited payout for below target performance

                                                                               10
Aligned

                               F/T P&L Reports




      RGM Bonus               Balanced Scorecard           Performance Appraisal
        Customer                     Customer                       Customer
    100% CHAMPSCheck            100% CHAMPSCheck             BSC + Process (CER, 1-800)
                                  Speed of Service
          People                                                      People
        Strategic Focus               People                  BSC + Leadership/Culture
 e.g., Team Member Turnover           Turnover                 (Safety, Staffing, Team
                                    Core Training                  Development)
          Sales                      Retention
     “Make Plan” Matrix                                                Sales
                                       Sales              BSC + Leadership/Culture/Process
           Profit                 Net Sales to Plan
         Flow-Thru                                                     Profit
                                       Profit             BSC + Leadership/Culture/Process
                               Profit to Plan Flow-Thru




                                                                    Examples:
 Long Term Incentive                                           Period: CHAMPS Cards
                                                             Quarter: Team Celebrations
                                                            Yearly: Champions Club Trip &
                                                                       Prizes
                                                                                          11
Balanced emphasis on
People, Customer, Sales & Profits

 BMUs will adjust weights based on overall strategy

 Bonus will reward results and carries heavier weightings on financials compared to the
  BSC to minimize funding risk
                 %




                                   %
               20




                                 20




                                                                            %
                                                                          30
                                                                                    Profit
                 %




                                   %
               20




                                 20



                                                                 gic
                                                                                    Sales




                                                                            %
                                                               te

                                              Sa
                                                            tra

                                               al




                                                                          30
                                                  e
                                                  es
                                                           S
                                                     &
                                                    r
                 %




                                   %




                                                  me

                                                         Pr
                                                to
               30




                                 30




                                                          ro
                                              s
                                            Cu
                                                            f
                                                            fit                     Strategic




                                                                            %
                                                                          20
                 %




                                   %




                                                                                    Customer
               30




                                 30




                                                                            %
                                                                          20
               BSC       PA (60% for RGM & AC)                           Bonus




                     Long term                                         Short term
               Process-oriented                  Focused on business results

                                                                                                12
RGM Bonus -
Modeling the Bonus
RGM Bonus -
Steps in Modeling the Bonus

Step 1   Determine the target payout for each performance measure

Step 2   Calculate Sales growth

Step 3   Calculate average RCP and RCP growth

Step 4   Develop the Sales & RCP “Make Plan” Matrix

Step 5   Develop the Flow-Thru Chart

Step 6   Develop 100% CHAMPSCheck Chart

Step 7   Develop Chart for the Strategic Component




                                                                    14
RGM Bonus -
Step 1 - Target Payouts

 The following are the performance measures and weight parameters

      BMUs should determine the appropriate strategic measure initiative and adjust
       weights based on overall BMU strategy
 A bonus can be earned for achieving targets on each measure, separately
                                                                             Weight Parameters

           1            Sales & RCP Make Plan Matrix                              30% - 40%


           2            Flow-Thru                                                 20% - 30%


           3            100% Perfect CHAMPSCheck                                  20% - 30%


           4            Strategic Initiative                                      15% - 30%

*Note: In markets that do not have Flow-thru, the Flow-thru component may be omitted from the bonus
design. The weight from the Flow-thru component should be redistributed to the other components.
                                                                                                      15
RGM Bonus -
Step 1 - Target Payout

 Use market data to establish the overall bonus target amount

   Market pricing – target Total Cash at the 50th percentile base salary and 75th
    percentile bonus taking into consideration the following:
         Appropriate “mix” of base pay and variable pay                                                                        Tips and Advice
                                                                                                                              • Avoid major target
         Financial ability to pay at the desired market level                                                                  changes from year to year


                                                Comparison of Yum! Total Cash to Market Total Cash
                                                                                                                             In this example, Yum Total
                                                                                                                             Cash should be between
                                 $50.0                                            $47.4                                      $44.3 and $47.4
                                                                                                                  $46.0
                                              $42.4            $44.3
          Annual Dollars (000)




                                                                                  $8.9                            $6.0
                                 $40.0         $3.9             $5.8


                                 $30.0
                                              $38.5            $38.5              $38.5                          $40.0
                                 $20.0


                                 $10.0                          Example Data
                                    0
                                         25th Percentile   50th Percentile   75th Percentile                     Yum!
                                               Market Data - Restaurant/Unit Manager                           RGM Average

                                                                       Base Pay          Target Bonus Amount

                                                                                                                                                    16
RGM Bonus -
Step 1 - Target Payout

 Worksheet Tab in the Bonus Modeling Tool

                       1_TargetBonus



 Calculate the target payout for each bonus component using the weight parameters


                                                                                 From Market Assessment
       Overall Bonus Target                                           $6,000
                                                                                   
                                                                                   1
                                  Target by Category                                   Change to reflect your bonus
                                              Weight     Weight for                            weightings.
       Category                             Parameters   Example      $ Target

       Sales & RCP Make Plan Matrix         30% - 40%      30%        $1,800
                                                                                   
                                                                                   2
       Flow-Thru                            20%-30%        20%        $1,200
                                                                                    Calculate a bonus target amount for
       100% Perfect CHAMPSCheck             20% - 30%      30%        $1,800                 each component.

       Strategic Initiative                 15%-30%        20%        $1,200               6,000 x .30 = $1,800

       Overall                                             100%       $6,000




                                                                                                                          17
                                                                                           
                                                                                           3



    RGM Bonus -
    Step 2 - Sales Planning

      Worksheet Tab in the Bonus Modeling Tool                                          2_SalesPlan


                                                          
                                                          2
                                                                                               
                                                                                               3

                                                                                                                Calculate 2004 Sales Growth
                                                                 Calculate sums:

1                                                               2003 Sales Actual                  (245,314,938 - 239,100,390)  239,100,390 = 2.6%
                                                                 2004 Sales Plan
Collect Sales Plan data for the
                                                                                                     Make sure this number aligns to the BMU goal!
        upcoming year
                          Calculations:                               
                                                                      2                              
                                                                                                     2
                                                                                                                       
                                                                                                                       3
                          2004 Sales Growth                          239,100,390                     245,314,938       2.6%



                                                      Sales Data - 2003 Actual and Plan; 2004 Plan
                                                        2003           2003          2003         2004
                                                                                                 1                    2004
                                    Area Store          Sales         Sales          Sales         Sales              Sales
                          Count      ID   ID            Plan          Actual        vs Plan        Plan              Growth
                             1      001       1,000      1,010,000     1,085,511     107.5%              1,097,861     1.1%
                             2      001       1,002        730,000       752,000     103.0%                790,617     5.1%
                             3...
                            199     025       1,396       765,000         751,000    98.2%                781,830      4.1%
                            200     025       1,398       930,000         925,000    99.5%                950,460      2.8%




      2004 Sales Growth will be used to set the minimum value at which a bonus will be
       paid (“threshold”) for Sales vs. Plan on the Make Plan matrix
                                                                                                                                              18
RGM Bonus -
Step 3 - Profit (RCP) Planning

 Worksheet Tab in the Bonus Modeling Tool                           3_ProfitPlan

                                                    RCP Data - 2003 Actual and Plan; 2004 Plan

1
                                                      2003         2003         2003           2004         2004
    Collect RCP data for the         Area             RCP          RCP           RCP           RCP          RCP
         upcoming year                                                                        Plan
                                                                                             1
                               Count ID Store ID      Plan        Actual       vs. Plan                    Growth
                                 1    001   1,000    280,000     308,000        110.0%           327,000    6.2%

2
                                 2    001   1,002    201,663     205,000        101.7%           223,733    9.1%
      Calculate averages:
       2003 RCP Actual
                                    3...
        2004 RCP Plan
                                198   025   1,394    464,785     478,728        103.0%           526,647   10.0%
                                199   025   1,396    221,434     228,077        103.0%           255,826   12.2%
                                200   025   1,398    261,934     269,792        103.0%           305,527   13.2%
                               Averages              356,713  384,436
                                                             2                  107.8%      410,420
                                                                                            2               6.8%




                                                                                       Tips and Advice
                                                                            • Work with Finance to ensure that the
 Average 2004 RCP Plan will be used as a basis                               overall RCP growth percentage is
                                                                              aligned to the BMU goal.
  for modeling on the Make Plan matrix and Flow-
  Thru chart

                                                                                                                   19
RGM Bonus -
Step 4 - Develop the Make Plan Matrix


Objective                                           Design Parameters
• Fuel “Beat Year Ago” mentality                    • Based on actual RCP results (volume-based)
• Sales vs. Plan is the Fair Pay measure            • Bonus increases with increase in profitable
   Plan assumes growth over prior year               sales
   Plan normalizes prior year peaks/valleys        • Quarterly calculation (i.e. payout based on
    and addresses quarterly anomalies                 quarterly results)
                                                    • Weight of component can vary between 30% –
                                                      40%



Targets and Thresholds
• Business Unit establishes thresholds
   • The lowest point for bonus payment (e.g., payout 50% for “nearly hitting plan”) should be set
     such that performance exceeds prior year on a national basis
   • Payouts will vary by BMU to fit strategy and financial planning
• % RCP pool figure will vary based on component weight and average RCP for the BMU
• 100% factor within the matrix should correspond to 100% Sales to Plan and 100% RCP to Plan
• 300% factor within the matrix is the maximum upside potential and should typically reward 5-10%
  of performers

                                                                                                     20
RGM Bonus -
Step 4 - Develop the Make Plan Matrix                         (continued)


 Basic steps
   Calculate the Make Plan bonus target as % of the average 2004 RCP Plan
        This number will tell you the percentage of profit that should be paid for
        achieving RCP and Sales plans
   Set up the spreadsheet to model the matrix
   Establish thresholds (the minimum level of performance for which a bonus will be
    paid) and maximums on the matrix
   Adjust Sales and RCP scales to determine the cost of the bonus
        The modeling tool will calculate the average payout that the matrix will
        provide compared to the bonus target that you are trying to achieve based on
        prior year’s performance
   Adjust matrix payouts to ensure bonus is affordable


    Make sure to include your Operations and Finance partners to tailor your design to the BMU.

     The information on the following pages is intended as guidelines to assist you in decision
     making around the Make Plan matrix. Judgment is required to focus appropriate behavior
                                         within the BMU.


                                                                                            21
RGM Bonus -
Step 4 - Develop the Make Plan Matrix

 Worksheet Tab in the Bonus Modeling Tool

            4a_MakePlanMatrix



 Calculate Make Plan bonus target as % of the average 2004 RCP Plan

                                                                                  From Step 1
                 Calculation of Make Plan Target as a % of RCP

       Sales & RCP Make Plan Bonus Target                         1,800           From Step 3

       Average 2004 RCP Plan                                     410,420
                                                                           (1,800  410,420) x 100 =
       Make Plan Bonus Target as % of RCP Plan                   0.44%               .44%




 Make Plan Target as % of RCP Plan is the percentage of profit that RGMs would be
  paid for achieving sales and profit plans. The number will be used as the basis for
  calculating the payout on the Make Plan Matrix.




                                                                                                       22
RGM Bonus -
Step 4 - Develop the Make Plan Matrix                                                                  (continued)


 Set up the spreadsheet to model the matrix
      Worksheet Tab in the Bonus Modeling Tool
                        4b_MakePlanMatrix

                                
                                2
                                                               
                                                               3                              
                                                                                              4                                     
                                                                                                                                    5

1
                                    Calculate estimated 2004       Calculate .44% of 2004         Identify the appropriate               Calculate payouts by
  In the bonus modeling tool,       RCP Actual based on last        RCP Actual for each           matrix multiplier from the            multiplying .44% of RCP
include your prior year Sales              year’s result                 restaurant               Make Plan matrix using                by the Matrix Multiplier
   and RCP data as well as          1.1 x 327,000 = 359,700                                       2003 Sales vs. Plan and
    current year RCP Plan                                          .0044 x 359,700 = 1,578          2003 RCP vs. Plan                     1,578 x 2.0 = 3,156

                                                                                   Estimated Pay-out if Last Year's Performance
                                                   
                                                   1

                                                                               
                                                                               2
                                                                                              
                                                                                              3
                                                                                                              
                                                                                                              4                       Pay-Outs
                                  2003             2003         2004
                     Store      Sales vs.         RCP vs.       RCP          2004 RCP        .44% of         Matrix            
                                                                                                                               5

          Count       ID          Plan             Plan         Plan          Actual           RCP          Multiplier          All        Receivers
             1       1,000      107.5%            110.0%       327,000        359,700        1,578             200%            3,155          3,155
             2       1,002      103.0%            101.7%       223,733        227,435         997              125%            1,247          1,247


             12      1,022      102.2%             90.6%       372,887        337,806        1,482              0%              0


            199      1,396          98.2%         103.0%       255,826        263,501 
                                                                                      6
                                                                                             1,156             60%             693             693
                                                                                       Create a column for
            200      1,398          99.5%         103.0%       305,527        314,693
                                                                                    “Receivers” and for those 60%
                                                                                             1,380                             828             828
                                                                                      RGMs who earned $0
                                                                                   bonus, leave the cell blank.


                                                                                                                                                            23
RGM Bonus -
Step 4 - Develop the Make Plan Matrix                                                             (continued)


 Calculate averages
         Worksheet Tab in the Bonus Modeling Tool                                         4b_MakePlanMatrix



 There are two averages that should be calculated:
         “All” is the average of bonuses paid to all RGMs, even those who received $0.
          This number would be used to gauge the overall cost of the bonus.
         “Receivers” is the average of the bonus paid for only those RGMs who received a
          bonus (e.g., excludes those who received $0). This number would be used to
          assess how competitive the bonus is relative to the labor market.

1

     Calculate the average
                                          Average Payout for "All"                 
                                                                                   1
                                                                                        2,130
    payout for “All”, including
        payouts of $0.                    Average Payout for "Receivers"           
                                                                                   2    3,183


2                                                                                          Estimated Pay-out if Last Year's Performance

     Calculate the average                                                                                                       Pay-Outs
     payout for “Receivers”,                         2003       2003        2004
    excluding payouts of $0.               Store   Sales vs.   RCP vs.      RCP        2004 RCP    .58% of    Matrix
                                  Count     ID       Plan       Plan        Plan        Actual       RCP     Multiplier    All      Receivers
                                    1      1,000    107.5%      110.0%     327,000     359,700      1,578      200%       3,155       3,155
                                    2      1,002    103.0%      101.7%     223,733     227,435      997        125%       1,247       1,247


                                   12      1,022    102.2%      90.6%      372,887     337,806      1,482        0%         0

                                                                                                                                                24
RGM Bonus -
Step 4 - Develop the Make Plan Matrix                                                       (continued)


Guidelines - Setting Sales and RCP Scales
For setting both Sales and RCP scales, you may want to consider aligning the scales to the Balance Scorecard targets.
   Set Sales minimum for payout – To ensure “Beat Year Ago” is achieved, the minimum should be set such that
    achieving the minimum level of performance will result in improvement over the prior year. In this example, sales
    growth is targeted to be 2.6% (from Step 2) so payment should be made only when that level of performance is
    achieved (98% of plan).
   Set RCP minimum level of payout – Work with Finance to determine the expected level of RCP if 98% of Sales is
    achieved. A rule of thumb used in the US is to assume that RCP will be 33% of Sales. This number will vary based
    on the country's margins. For example…
            Formulas:                                                      Example of an average store
            2004 Sales Plan x .98 X .33 = Expected 2004 RCP                1,226,575 x .98 X .33 = 396,674
            Expected 2004 RCP  2004 RCP Plan = Threshold                  396,674  410,420 = 96.6%
   The first increment is typically from the threshold amount (i.e., 98%) to 99.9%.
   Model the scales using the bonus modeling tool (see next slide)         

                                                                              Net Sales vs. Plan
                            0.44%   % of RCP Times     98         100        102          105          108    110
                                                           ---      ---        ---          ---          ---    ---
                                                         99.99   101.99     104.99       107.99        109
                             96                 
                                      ---    99.99        40%      50%         50%         50%         50%     50%

                             100      ---    101.99       50%     100%        125%        135%         145%    150%
              RCP vs Plan




                             102      ---    103.99       60%     100%        135%        150%         175%    200%
       
                             104      ---    109.99       60%     100%        145%        175%         200%    225%

                             110      ---    114.99       60%     100%        155%        200%         250%    275%

                             115      ---                 60%     100%        165%        225%         275%    300%   25
              RGM Bonus -
              Step 4 - Develop the Make Plan Matrix                                                                      (continued)


                                                                                                                                                     
                                                                                                                                                     2

                                                                             Net Sales vs. Plan                                                        Average Payout for “All”
                                                                                                                                                      would be the number used
               0.44%      % of RCP Times          98        100               102             105             108              110
                                                  ---        ---               ---             ---             ---              ---                          for accrual
                                                 99.99     101.99            104.99          107.99           109
                                                                                                                                              
                                                                                                                                              3

                                                                                        1                                                               Average Payout for
                   96        ---     99.99        40%          50%            50%             50%          50%                 50%                    “Receivers” would be the
                                                                                                       2003                                           number to gauge how you
                100          ---     101.99       60%          100%          125%            150%         175%Est. 2004175%
                                                                                                                                                            are paying for
RCP vs Plan




                                                                  Make Plan Target                                    1,800
                                                                 Actual Sales vs Plan                 102.4%                                            performance. $1,800
                102          ---     103.99       60%          100%         150%             175%          200% 102.4% 200%
                                                                                                                                                      should be the payment for
               
               1                                                  Actual RCP vs Plan                  107.8%         107.8%
                                                                                                                                                        achieving plans. The
                104          ---     109.99       60%          100%        150%
                                                                 Average Payout for "All"
                                                                                          200%             
                                                                                                          200% 2,124 200%
                                                                                                            1
                                                                                                                      2
                                                                                                                                                      matrix is paying $3,183 for
                                                                                                                                                          exceeding plans.
                110          ---     114.99       60%            Average Payout for "Receivers"
                                                               100%        150%           200%                         
                                                                                                          225% 3,173 225%
                                                                                                                       3

                                                                  % of RGMs Receiving a Bonus                         67%
                115          ---                  60%          100%          150%            200%         225%                 250%
                                                                                                                                      Estimated Pay-out if Last Year's Performance
                                                                                                                                                                          Pay-Outs
                                                                                          2003         2003           2004
    
    1
                    Adjust scales to determine what                           Store     Sales vs.     RCP vs.         RCP        2004 RCP    .44% of      Matrix
                                                         Count     Area ID     ID         Plan         Plan           Plan        Actual       RCP       Multiplier    All    Receivers
                   total spending would be and if the
                      program would be affordable          1         001      1,000     107.5%        110.0%         327,000      359,700     1,578        200%       3,155     3,155
                                                           2         001      1,002     103.0%        101.7%         223,733      227,435      997         125%       1,247     1,247


      Worksheet Tabs                                     199        025      1,396      98.2%        103.0%         255,826      263,501     1,156        60%        693          693
                                                          200        025      1,398      99.5%        103.0%         305,527      314,693     1,380        60%        828          828

                     4b_MakePlanMatrix                            Averages              102.6%        107.8%         410,420      445,374                             2,124     3,173



                     4c_MakePlanMatrix


                                                                                                                                                                              26
RGM Bonus -
Step 4 - Develop the Make Plan Matrix                                           (continued)


 If the bonus is not affordable using the current matrix percentages, consider changing
  the matrix percentages

    Again, the following are guidelines to assist you in decision making; judgment is
     required to focus appropriate behavior within your BMU

                                    See Next Slide for Matrix Graphic

Guidelines
   Pay 100% target at 100% of RCP Plan and Sales Plan

   If you must reduce cost, adjust from 300% down to 250% (adjust other matrix cells accordingly)

   Pay a percentage of target for nearly achieving plan. To reduce cost, consider holding payment flat for increasing
    sales but not achieving profit plan
   Encourage both growth in sales and growth in profit

   To avoid negative behaviors, consider maintaining a flat percentage for not increasing sales but increasing profit.


   Encourage sales growth

   Consider making the increase between these increments larger to reflect the fact that it is more difficult to achieve
    these levels of performance. Reduce the matrix payouts below this level.

                                                                                                                          27
RGM Bonus -
Step 4 - Develop the Make Plan Matrix                                    (continued)




                                                            Net Sales vs. Plan
               0.44%   % of RCP Times     98      100        102           105         108       110
                                          ---      ---        ---           ---         ---       ---
                                         99.99   101.99     104.99        107.99       109

                96       ---    99.99    40%         50%     50%           50%         50%      50%       
                                                                                                         
                100      ---    101.99   50%         100%   125%          135%         145%     150%
 RCP vs Plan




                102      ---    103.99   60%         100%   135%          150%         175%     200%

                104      ---    109.99   60%         100%   145%          175%         200%    225%

                110      ---    114.99   60%         100%   155%          200%         250%     275%
                                                                     
                115      ---             60%         100%   165%          225%         275%     300% 
                                                                                 




                                                                                                         28
RGM Bonus -
Step 5 - Develop the Flow-Thru Chart


Objective                                          Design Parameters
• Focus RGMs on maximizing profitability by        • Based on actual RCP results (volume-based)
  focusing on costs that they control              • Quarterly calculation (i.e. payout based on
  • Flow-Thru reflects bottom-line controls by       quarterly results)
    adjusting for sales plan attainment            • Weight of component can vary between 20% –
  • Bonus increases with increase in profitable      30%
    sales



Targets and Thresholds
• % RCP pool figure will vary based on component weight and average RCP for the BMU
• 100% factor on the Flow-Thru chart should correspond to at least 100% RCP to Flow-Thru index
  • All other percentages on the chart can vary based on BMU discretion
• BMU establishes thresholds
  • Establish thresholds that ensure good long-term cost control decisions are made



                                                                                                   29
RGM Bonus -
Step 5 - Develop the Flow-Thru Chart

 BMUs may have a different Flow-Thru calculation than the one outlined in the following
  example

   Consult with your Finance partner on how Flow-Thru works for the BMU




                                                                                       30
RGM Bonus -
Step 5 - Develop the Flow-Thru Chart

 Worksheet Tab in the Bonus Modeling Tool

             5a_FlowThru



 Calculate Flow-Thru Bonus Target as a % of the average 2004 RCP Plan

                                                                           From Step 1
                   Calculation of Make Plan Target as a % of RCP
                                                                           From Step 3
              Flow-Thru Bonus Target                         1,200
              Average 2004 RCP Plan                        410,420
                                                                     Calculate the Flow-Thru Bonus Target as a %
              Flow-Thru Payout as % of RCP Plan             0.29%             of Average 2004 RCP Plan

                                                                           (1,200  410,420) x 100 = .29%




 Flow-Thru Payout as % of RCP Plan is the percentage of actual RCP that RGMs
  would receive for achieving Flow-Thru targets. The number will be used as the basis
  for calculating the payout on the Flow-Thru chart.



                                                                                                             31
RGM Bonus -
Step 5 - Develop the Flow-Thru Chart

 Set up the spreadsheet to model the matrix
         Worksheet Tab in the Bonus Modeling Tool

                                       5c_FlowThru

                  
                  1                                    
                                                       2                                       
                                                                                               3
                                                                                                                                  
                                                                                                                                  4

                                                           Include estimated 2004                Identify the appropriate
                   Assume that 2004 Flow-                                                      multiplier from the Flow-Thru      Calculate payouts by multiplying
                  Thru will equal 2003 Flow-                RCP data from “Make
                                                                                                 chart (next slide) using            .29% of RCP by the chart
                   Thru for each restaurant                 Plan” Matrix modeling
                                                                                                estimated 2004 Flow-Thru                     multiplier

         Flow-Thru Bonus Target                                                        1,200                                          .0029 x 359,700 x 1.5 = 1,565


         Average 2004 RCP Plan                                                       410,420

         Flow-Thru Target as % of RCP Plan                                            0.29%

         Estimated Average Pay-out                     
                                                       1                               1,362
                                                                                                              
                                                                                                              3
                                                                                
                                                                                2                                   4
                                                                                     Estimated        Estimated  Estimated
                                            2003            Estimated 2004          2004 Actual      RCP % (from  Bonus
Count     Area ID        Store ID        Flow Thru            Flow Thru                RCP              chart)    Payout
  1         001           1,000            103.6                 103.6                359,700          150.0%      1,565
  2         001           1,002            102.5                 102.5                227,435          125.0%       824

 199        025            1,396               104.0              104.0              255,826             200.0%           1,484
 200        025            1,398                98.0               98.0              305,527             50.0%             443




                                                                                                                                                               32
    RGM Bonus -
    Step 5 - Develop Flow-Thru Chart

     Worksheet Tab in the Bonus Modeling Tool
                           5b_FlowThru


                                         0.29%        (.0029) of actual RCP x quarterly multiplier


                                           RCP versus
                                          Flow-Thru %                Quarterly Multiplier           Payout
    Set 100% payout at 100%
     RCP vs. Flow-Thru %;                 104                                  200%                 2,400
    Set at bonus target for the
      component ($1,200)                  103     - 103.9                       150%                 1,800
                                                                                                
                                          102     - 102.9                       125%                 1,500

                                          101     - 101.9                       110%                 1,320
 Allow for threshold payment
 for achieving within 2-3% of             100    - 100.9                       100%                 1,200
the goal. Work with Finance
to determine the appropriate              98     -      99.9                    50%                  600     
    RCP vs. Flow-Thru %.                                                                                        Based on the performance
                                                         97.9                     0%                   0        distribution, create a logical
                                                                                                               progression for payment (see
                                                            Set the maximum based on your                     next slide). As a starting point,
                                                           performance distribution and what                     you may want to align to
                                                                                                               Balanced Scorecard targets.
                                                         the BMU can afford (see next slide)




                                                                                                                                    33
 RGM Bonus -
 Step 5 - Develop the Flow-Thru Chart
                                                                                                                           
                                                                                                                            3

0.29%       (.0029) of actual RCP x quarterly multiplier                      Use the modeling tool to determine the        Adjust scales to determine
                                                                                appropriate breakpoints based on            what total spending would
                                                                                    what the BMU can afford                   be and if the program
 RCP Versus                                                                                                                    would be affordable
 Flow-thru %                Quarterly Multiplier
104                                  200%
                                                                   Flow-Thru Bonus Target                                       1,200 
                                                                                                                                      3

103     - 103.9                       150%
                                                                   Assuming Actual Flow-thru of . . .                           100.3
102     - 102.9                      125%
                                                                   Assuming Actual RCP of . . .                              107.8%
101     - 101.9                       110%
                                                                   Estimated Average Pay-out                                   1,373 
                                                                                                                                      3

100     - 100.9                       100%
 98     -      99.9                    50%                                                   Estimated       Estimated      Estimated      Estimated
                                                                             2003               2004        2004 Actual      RCP %          Bonus
               97.9                     0%
                                                           Count Store ID Flow Thru          Flow Thru         RCP          (from chart)    Payout
                                                             1       1,000       103.6         103.6         359,700        150.0%          1,578
        Set the maximum at around the 90th
        percentile (e.g., only 5-10% of RGMs
                                                              2       1,002       102.5         102.5         227,435        125.0%          831
        should achieve this level of payment)
                                                             199      1,396       104.0         104.0         255,826        200.0%          1,496
  Worksheet Tabs
                                                             200      1,398        98.0          98.0         305,527           50.0%        447
                   5b_FlowThru                             Averages               100.3         100.3                           100%         1,373

                   5c_FlowThru                             90th Percentile                      104.6


                                                                                                                                            34
RGM Bonus -
Step 6 - Develop 100% CHAMPSCheck Chart


Objective                          Design Parameters
                                   • Every CHAMPSCheck score of 100% is rewarded
• 100% CHAMPS =
  Satisfied Customers                 • Every customer provides RGM with opportunity to generate
                                        more sales and bonus
                                      • Fixed $ payout assumes similar level of complexity in
                                        delivering 100% CHAMPS, regardless of volume
                                   • Period calculation (i.e. payout based on period results)
                                   • Weight of component can vary between 20% – 30%




Targets and Thresholds
• Targets should be set to motivate improvement over prior year
  • Work closely with your CHAMPS team to ensure that you have a good prediction of 100%
    CHAMPSCheck in the base year and the year for which you are planning
• BMU establishes threshold for payment
• Payouts vary by BMU to fit strategy



                                                                                                   35
  RGM Bonus -
  Step 6 - Develop 100% CHAMPSCheck Chart

   Worksheet Tab in the Bonus Modeling Tool
              6_CHAMPSPlanning




                                                                                    From Step 1
              CHAMPSCheck Data - 2003 Actual and Estimated 2004
                                                       2003         2004
                                                      Actual      Estimated   
                                                                              1
                                                                                   Enter the average number of
CHAMPSCheck Bonus Target                                           1,800            CHAMPSChecks per year
Average Number of CHAMPSCheck per Year                  16
                                                          1          16 
                                                                        1
                                                                               Enter the 2004 CHAMPSCheck
                                                                              2

% of Total CHAMPSCHECKS at 100%                       53.8%        62.8%
                                                                        2
                                                                                              target
Average Number of 100% CHAMPSChecks                      9           10 
                                                                        3
                                                                              
                                                                              3
                                                                                  Calculate the average number
Bonus Payout per 100% CHAMPSCheck                                  180.00 
                                                                          4       of CHAMPSChecks needed to
                                                                                         achieve the goal

                                                                                          16 * .628 = 10


                                                                                  Calculate the bonus payout per
                                                                              
                                                                              4
                                                                                   100% CHAMPSCheck score

                                                                                        1,800  10 = 180




                                                                                                           36
RGM Bonus -
Step 7 - Calculate Strategic Component Chart


Objective                                        Design Parameters
• Align to BMU strategic objectives              • Must be measured on Balanced Scorecard
                                                   Summary or Balanced Scorecard Detail
  • Business Unit can change strategic             reports
    measure each year although we
    recommend balancing “year of initiative”     • Calculation timeframe can be period or
    with consistency                               quarterly (we recommend that you pay
                                                   quarterly)
• Example - BMU could use People Measure
  (e.g. TM Turnover to drive people capability   • Fixed $ or volume-based
  mindset) to balance Financial Measures         • Should be a recognized strategic focus for
                                                   BMU and YRI AOP
                                                 • Weight of component can vary between 15% –
                                                   30%




                                                                                                37
RGM Bonus -
Step 7 - Calculate Strategic Component Chart

 Worksheet Tab in the Bonus Modeling Tool                                            The Strategic Component should be
                                                                                    determined by the BMU. We recommend
        7a_StrategicPlanning                                                            a People or Customer measure to
                                                                                         balance the Financial measures.

 Example: Team Member Turnover data

                   Team Member Turnover - 2003 Target and Estimated 2004
                                                        2003             2004
                                                                                         
                                                                                         1

                                                                                           Calculate the Average TM Turnover for the
       TM Turnover Target Pay-out                                       1,200                              prior year
       Average TM Turnover Target                       117%    
                                                                1
                                                                        100%    
                                                                                2
                                                                                         
                                                                                         2


       Improvement                                                      15%     
                                                                                3                   Enter the Target for 2004

                                                                                         
                                                                                         3


                                                                                                  Calculate % of improvement

                                                    2003 Team       2004Team                      (1.14-1.00)/1.14 * 100 = 12.3
                                                     Member          Member
         Count           Area ID       Store ID      Turnover       Turnover               
                                                                                           4


            1               001          1,000            78            67 
                                                                           4                    Use % of improvement to calculate
            2               001          1,002           127            108                    the estimated 2004 TM Turnover by
            3...                                                                                           restaurant
           199              025          1,396            42            36
           200              025          1,398           120            102                            78 * (1-.123) = 68




                                                                                                                                  38
    RGM Bonus -
    Step 7 - Develop Strategic Component Chart

                                                                Set the maximum at around the 10th percentile (e.g., only 5-10% of RGMs should
    Projected              Leverage                              achieve this level of payment). Payment can be up to 300% depending on what
                                                                 the BMU can afford.
Annualized Turnover Payout Multiple
     0 - 54.9                  3,000         250%               Calculate the estimated bonus for each RGM using 2004 Team Member Turnover.
                                                                For example, 69 falls into the 55-74.9 category yielding a bonus of $2,400.
    55 - 74.9                   2,400         200%
                                                                                           Calculate the overall average payout.
    75 - 99.9                   1,500         125%
100 - 114.9                     1,200         100%              TM Turnover Target Pay-out                                            1,200
                                                                                                                                          
115 - 129.9                      900           75%              Estimated Average Pay-out                                            1,338
130 +                              0            0%
                                                                                                             2003 Team 2004Team
                                                                                                              Member    Member                Estimated
                                                                  Count         Area ID        Store ID       Turnover Turnover                 Cost
                                                                     1             001            1,000            78                67        2,400
                                                                     2             001            1,002            127              108           1,200

                                                                    199            025            1,396            42                36           3,000
    Adjust scales to determine what total spending would           200            025            1,398            120              102           1,200
       be and if the program would be affordable. As a
       starting point, you may want to align to Balanced
                        Scorecard targets.


 Worksheet Tabs
                7_StrategicPlanning
                7_StrategicPayouts
                                                                                                                                               39
                  Putting it all together...


              1      Sales & RCP Make Plan Matrix                                             2        Flow-Thru
                                                       Net Sales vs. Plan                              0.29%       (.0029) of actual RCP x quarterly multiplier

              0.44% % of RCP Times     98      100      102        105      108    110
                                       ---      ---      ---        ---      ---    ---                 RCP Versus
                                      99.99   101.99   104.99     107.99    109                         Flow-thru %                Quarterly Multiplier

               96    ---     99.99    40%      50%      50%         50%     50%    50%
                                                                                                       104                                   200%
                                                                                                       103     - 103.9                       150%
               100   ---     101.99   50%     100%     125%        135%     145%   150%
RCP vs Plan




                                                                                                       102     - 102.9                       125%
               102   ---     103.99   60%     100%     135%        150%     175%   200%                101     - 101.9                       110%
               104   ---     109.99   60%     100%     145%        175%     200%   225%                100     - 100.9                       100%

               110   ---     114.99   60%     100%     155%        200%     250%   275%                 98     -      99.9                    50%
                                                                                                                      97.9                     0%
               115   ---              60%     100%     165%        225%     275%   300%




              3      100% Perfect CHAMPSCheck                                             4       Strategic Initiative
                            $180 payout per 100% CHAMPSCheck                             Projected Annualized Turnover              Payout
                                                                                                  0      ---         54.9             3,000
                                                                                                  55     ---         74.9             2,400
                                                                                                  75     ---         99.9             1,500
                                                                                               100       ---         114.9            1,200
                                                                                               115       ---         129.9             900
                                                                                               130       ---                             0
                                                                                                                                                          40
Validation

 To validate the bonus design, the following should be taken into consideration

   On an average basis, consider how the plan is paying out for the level of
    performance that is achieved
   Is the overall cost of the bonus affordable for the BMU

                                                                    Average       Total
                                                       Average      Payout      Projected
             Category                       Target   Payout "ALL" "Receivers"     Cost

             Sales & RCP Make Plan Matrix   $1,800      $2,124       $3,173     $424,717

             Flow-Thru                      $1,200      $1,362       $1,702     $272,353

             100% Perfect CHAMPSCheck       $1,800      $1,809       $1,809     $361,728

             Strategic Initiative           $1,200      $1,338       $1,565     $267,600

             Overall                        $6,000      $6,632       $8,249     $1,326,398




                                                                                             41
Validation      (continued)


 When calculating the projected cost of the bonus, the following should be taken into
  consideration:

   This bonus modeling technique is modeled on annual data. To validate the bonus,
    you may want to model the cost of the bonus for each quarter of data to ensure that
    you are not under or over funding the plan.
   The model assumes that all stores will be open for a full year. Work with Finance
    to determine the appropriate assumptions to apply to the total cost figure.
    The model assumes that no RGMs will forfeit the bonus by terminating
    employment. Work with Finance to determine the appropriate assumptions to apply
    to the total cost figure.
 The model assumes that restaurants will perform at the same level to plan as they did
  in the prior year.




                                                                                          42
    Validation             (continued)


     To test the bonus, calculate bonus payouts for different performance levels and
      restaurant volumes

          Does the payout level appropriately reflect performance?
                                 Restaurant 200                                Restaurant 13                               Restaurant 161
                                 • Almost achieved Sales Plan                  • Achieved Sales Plan                       • Exceeds Sales Plan
                                 • Achieved RCP Plan                           • Achieved RCP Plan                         • Exceeds RCP Plan
                                 • Almost achieves Flow-Thru target            • Exceeds Flow-Thru target                  • Achieves Flow-Thru target
                                 • 10 of 16 100% CHAMPSChecks                  • 8 of 16 100% CHAMPSChecks                 • 6 of 16 100% CHAMPSChecks
                                 • Achieves TM Turnover Target                 • Achieves TM Turnover Target               • Achieves TM Turnover Target

                                 Receives 73% of bonus target                  Receives 118% of bonus target               Receives 215% of bonus target

Category                            Restaurant                  200              Restaurant                  13              Restaurant                  161
Sales and RCP Make Plan Matrix
                                                       Payout                                       Payout                                      Payout
Sales vs. Plan                               99%                       $828              100%                     $1,870             116%                      $6,885
RCP vs. Plan                                103%                                         103%                                        112%
Estimated Actual RCP                      314,693                                      426,447                                     627,982
Matrix Multiplier                            60%                                         100%                                        250%
Flow-Thru
Estimated 2004 Flow-Thru                      98.0                     $443              105.6                    $2,473             104.0                     $3,642
Flow-Thru Multiplier                          50%                                        200%                                        200%
100% Perfect CHAMPSCheck
Number of 100% CHAMPSChecks                      10                   $1,880                   8                  $1,520                   6                   $1,160
Strategic Initiative
Estimated Team Member Turnover                   102                  $1,200                  106                 $1,200                  104               $1,200
Estimated Bonus Payout                                                $4,351                                      $7,063                                   $12,887
Target Bonus                                                          $6,000                                      $6,000                                    $6,000
% of Total Payout                                                       73%                                        118%                                      215%

                                                                                                                                                          43

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:1
posted:9/25/2011
language:English
pages:43