Phill Holland, the founder of MOBI, outlines the process of compensating the managers and the way in which a business should organize their accounting periods.
In a chain store operation, we think the incentive compensation paid to store managers plays an important role in maximizing earnings, as well as retaining outstanding managers. The key is that managers be paid on their individual store earnings rather than from a pool that is shared with others or on a company-wide basis. Bonus compensation for managers who are responsible for a group of stores can be based on the earnings of the stores under their supervision, rather than on company-wide results. So, the key is to pay bonuses based on individual store earnings. Paying manager bonuses based on their individual stores will require a profit and loss accounting system for each store. It will compartmentalize your financial statements so that each store becomes an individual profit center with its own income statement on which to base the bonus system for each manager. In many cases, profit and loss statements can be prepared weekly which means that the manager’s bonus can be paid weekly. There are two great benefits in having frequent PNL accounting periods. First, is that the shorter the time period for the payout of bonuses, the greater will be the incentive. Also, frequent PNL’s will provide you with early warning signals of problems, that over a longer period of time can become much bigger problems. Motivating your store managers by providing individual store income statements can also be applied to other key management departments, as well, by setting up your manufacturing, marketing, or distribution where these functions become individual profit centers.