Resource Management: Four Case Studies: Putting the Lid on Rising Employee Costs

Businesses spend an average of $28.87 per hour for each employee, according to recent figures from the U.S. Department of Labor's Bureau of Labor Statistics.

This figure includes salary plus benefits such as time, and workers' compensation. Overall, 69.7 percent ($20.13) goes toward salary and 30.3 percent ($8.74) to benefits, with 1.6 percent ($0.47) of that benefit percentage going to workers' comp.

With labor-related expenses for such a large proportion of franchisee costs--especially in QSR and retail--we asked four franchisees for their "front-line" views on how they are managing rising employee-related costs. These case studies, from four distinct brands (Supercuts, Domino's, Firehouse Subs, and Jiffy Lube) show how each franchisee approaches the complex issues surrounding employee costs--and supply practical tips on how each is dealing with them in 2010. Common threads include increased using technology, and providing competitive wages and a path for advancement.

(Note: For more about each of the multi-unit franchisees who contributed to this story, read their in-depth profile in this issue.)

Creating "Super" employees

Supercuts Cheryl Robinson has been in business for 30 years and knows a thing or two about being an employee: she began working as a bookkeeper in a She also knows something about being an employer: for the past 15 years she and her husband Joey have managed employees at Supercuts locations in Southern California and today oversee 31 units.

As such, she is familiar with the employee compensation issues and expenses that can erode profitability daily, and she keeps a constant eye out for new ideas and solutions. "We changed our health provider this year and got the same or better coverage and a reduced premium. Sometimes there is good news," she says.

As for workers' comp, Robinson says she tries to approach it proactively. "We attempt to 'manage' the workers' compensation insurance company and the process. We offer modified work as soon as possible."

Technology also helps Robinson keep a lid on employee expenses. Her stores all use their POS system to forecast schedule requirements and to review the previous day in detail and make changes. "We monitor daily efficiency by employee so we can adjust scheduling or as needed," she says. This also helps her get the most from every employee--and for them as well.

Robinson says the role of training cannot be underestimated in this context. "Training helps our people understand and improve their customer service, improves their technical abilities, and helps us both make more money," she says. "Helping them understand how to maximize their own paycheck is a key to them growing as stylists."

In her organization, she says, it's critical to develop great unit managers who then choose and develop the right staff at the unit level. "We have been concentrating on reducing our 'deadwood' so we can really concentrate on those who deserve to be on the team." Today's high unemployment level is a help in this regard. Economic realities have helped keep turnover rates low at her 31 As a result, she says, "We are investing some of the budget into current employee training instead of new-hire training."

Keeping costs down at Domino's

Dave Melton estimates that employee healthcare and insurance costs have risen at least 15 percent during each of the past few years he's been in business. But he's had a few nifty solutions to combating some of those increasing costs.

"We've had some GMs whose wives had coverage at their jobs, so we paid their out-of-pocket part for them for that coverage," says the 50-year-old multi-unit franchisee who operates six Domino's stores in Manhattan and Connecticut


Melton helps keep the lid on his workers' comp expenses by meeting regularly with a New York State officer because it gives him a discount on what he has to pay into the state's Insurance Fund. Another idea that's working: "We give a bonus or raffle to stores for each month they don't have a reportable claim," he says. Melton says he's even been known to pay claims directly if someone returns to work right away and doesn't have potential for a long-term claim.

As for his health insurance costs, he pays 100 percent of each of his general managers' health insurance and will pay half the costs for his assistant managers.

There's clearly a team approach at Melton's stores. "We make sure they all know that the more sales we do, the more money they'll earn, and that sales will go up if customers are happy," he says. His goal is to teach every employee to think like an owner and show them, ultimately, that's it's good for their pocketbook too.

Melton says he hasn't had to reduce staff, but he does expect his team to pick up the slack. "We try to maximize production at every position and do more work with less people."

Training helps, says Melton. In his opinion, a well-trained employee does a better job, doesn't make mistakes that can lead to reduced customer satisfaction, and they turn over less--which saves a lot in hiring and training costs.

Melton says his whole approach to managing employee costs and building a more successful organization revolves around a single philosophy. "We strive to have a great reputation where people can earn a fair wage and be treated well. We have people waiting to work for us."

Fireproofing against rising costs

Mike Pietrzyk is all-too-familiar with the delicate calculus of managing employee-related costs. Over the years, he has operated Pizza Hut, Wendy's, and Little Caesars franchises. His current venture is with Firehouse Subs. He sees three key areas involved in properly managing employee-related costs.

First, he provides a competitive wage for both hourly and salaried management staff. In addition, he provides regular performance reviews so employees realize how they are performing and what they should do to improve. "We have always maintained a slightly higher pay range to help recruit a better applicant with more experience," says Pietrzyk, an area representative for Firehouse Subs, with 21 open and a total of 58 on tap for Virginia and West Virginia over the next 5 years.

Paying competitive wages needn't break the bank. Despite the recent economic hard times, he has not had to cut any staff. "What we have done is be more analytical of when we schedule our employees, particularly with the opening hours and closing shifts," he says. Like many other multi-unit operators, Pietrzyk says his units pay insurance costs for all full-time management staff, as it helps retain top talent.

When his managers hire an employee they're never exactly sure what kind of performer they will get, he says, but talent is rewarded. "If the employee's speed and action is second nature to the job role, they generally rise to the top. All of our employees have to multi-task; they have to be able to change gears or position on short notice," he says.

So naturally, training plays a significant role in Pietrzyk's operations. "Training dollars are an important investment with every new employee," he says. "When an employee is hired they expect to be told what their role is and how to do it. If an average employee works 20 hours a week, or 1,000 hours a year, 20 to 30 training hours is a modest and smart investment."

He believes in the training element so much that he says any store problems can always be traced directly back to poor On the downside, poor training can increase operational expenses and result in lost revenue. He expects his managers to be "actively giving directions and talking to the employees."

One other key to Pietrzyk's continued success is ongoing and open communication between managers and crews. It's always been his policy to conduct mandatory monthly meetings with his crews, which he says is the best way to communicate standards and operational changes. Timing those meetings takes some thought. "We now incorporate mini meetings with the crew while they are scheduled during the slower volume hours. It tends to be more challenging for the managers, but the savings on labor dollars are significant," he says.

Good positive communication from the management staff also is critical, he says. "If the employees genuinely enjoy coming to work, that is a great start. We also try to empower the employees to correct a problem with the customer."

In the end, Pietrzyk says, if the management team is fair and consistent in their communications, employee performance will be above average. "The better our employees perform, the better our sales. And the higher our sales, the lower our labor is as a percentage of sales," he says. "When everyone on our team works hard to take care of the guest, we all benefit."

Troubleshooting at Jiffy Lube

Keep tabs on employee-related expenses at 51 Jiffy Lube locations can make for exhausting work. That's one reason David Griffin has developed several initiatives to reduce employee turnover--and the headaches and costs associated with it.

For example, he's created employee break rooms in each of his locations. He's also implemented clear career paths for employees, starting with their first day on the job. "From day one you know what our expectations are and what you need to do to move up in the company," says Griffin. His company also holds quarterly luncheons to recognize outstanding employee performance. He says all of these measures have "greatly boosted the morale and excitement of our lower-level, non-management employees."

He's also developed a plan aimed at motivating his managers. Last year he began organizing manager retreats filled with training sessions, keynote speakers, and, of course, camaraderie and friendship. "It's been a great way to lay out our annual goals and get each manager's input and buy-in," he says. "At the same time we can train managers on best practices in management, labor, inventory, customer service, and many other topics."

A profit-sharing plan is another technique Griffin has developed to get the most from his managers. "Our company philosophy is built on three pillars that translate into a manager's bonus: customer care, customer sales, and customer counts," he says. "We have criteria they are to meet, and if they meet said criteria they achieve a monthly bonus along with a percentage of their store's bottom line."

On the healthcare costs front, Griffin says he's winning the battle right now, having grown enough over the past couple of years to stave off rising health insurance cost hikes. Before that, he says, those costs were rising 12 to 16 percent annually. He's also taking other actions to help keep them in line.

"We are looking at forming an employee health program that would help educate and promote healthy lifestyles in our stores," he says. "Many of our employees smoke and are young, so helping those who want to quit will help our healthcare costs go down." He'd also like to partner with some gyms to get good rates to make memberships more affordable for employees.

Griffin also is a big believer in employee training as a way to increase productivity and reduce costs. "The better trained employee helps keep workers' comp claims down, helps minimize turnover as employees feel they are learning and progressing, and better trained employees run more efficiently and can generally keep direct labor costs lower," he says.

He uses his stores' POS systems to help train and manage employees. For example, he says, each store has a comprehensive labor calculator that gives each manager that include traffic reports, productivity reports, and trends to help them staff their store to its most efficient level.

"The manager can track live, throughout the entire day, the store's labor costs," he says. "This has greatly helped our locations staff correctly," he says. It also allows his managers to rearrange staff schedules to strike the proper balance between customer flow and the goal of keeping labor costs in line.

Ultimately, Griffin says, managing rising employee costs involves constantly looking for new ways to maximize efficiencies and labor output. In his operation, that could be as simple as ensuring that each employee has the right tools and inventory in their workspace to minimize the number of steps needed to execute a given task.

"This helps the store run more efficiently and helps keep labor costs lower because we are not having to go from room to room, or upstairs to downstairs, to get tools or inventory," he says. Sometimes it is that simple.

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