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Texas Roadhouse Inc.'s compensation program for its restaurant operators creates financial incentives for operators to keep their facilities and workers as safe as possible, said Patrick Sterling, senior director of risk and legendary people.
Operators are paid 10% of their restaurants' net income. In the past year, Mr. Sterling implemented a program that charges operators a flat fee for losses that occur at their restaurants, such as $9,750 for workers compensation claims that involve a worker missing more than 14 days of work, or $2,250 for a general liability slip-and-fall claim.
Restaurant operators can also receive credits for positive risk management, such as $2,500 if an injured worker comes back to work in 30 days or less.
Mr. Sterling said the flat-rate claim program was just rolled out to all of Texas Roadhouse's markets last year. Restaurant operators had a choice of whether to adopt the flat-fee payment structure or remain on Texas Roadhouse's previous compensation program.
The prior structure provided a $20,000 claim accrual account each year toward each restaurant's claim charges. If a restaurant's annual claim costs fell below that $20,000, the remaining balance was paid to restaurant operators at the end of the year.
Mr. Sterling said restaurant operators viewed the year-end accrual payout like a holiday bonus, which meant some operators placed a heavier emphasis on claims management at the end of the year rather than year-round.
“A lot of the restaurants had big windfalls in December, so they never saw an additional hit to their” profits and losses, Mr. Sterling said. “It almost became like guaranteed-cost insurance to them.”
The new claim allocation program allows Texas Roadhouse to hold restaurant operators responsible for how their restaurants contribute to the company's overall insurance and claims costs each month. But charging operators a flat rate, rather than the full cost of a claim, prevents unusually large claims from cutting drastically into operators' income, Mr. Sterling said.
“They can't control how a claim grows, but they can control whether they have an accident,” he said.
Mark Simpson, vice president of legendary people who handles human resources for Texas Roadhouse, said the claims allocation program creates a business case for restaurant operators to adopt Texas Roadhouse risk management and safety standards.
Before joining Texas Roadhouse Inc., Patrick Sterling spent 10 years in leadership roles at Maryville, Tennessee-based Ruby Tuesday Inc., including heading its human resources and sales functions, and running human resources and other functions for Baton Rouge, Louisiana-based Piccadilly Restaurants L.L.C.