Equity Incentives For Restaurants
Disclaimer: This post discusses general legal issues, but it does not constitute legal advice in any respect. This post is not a substitute for legal advice and is intended to generate discussion of various issues. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel. Cara Stone, LLP and the author expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this post. The views expressed herein are personal opinion.
Another consideration for restauranteurs when setting up a restaurant group or single location is if they want to offer critical people at the corporate level incentives, equity ownership, or options.
Many restaurant groups, especially ones that are multi-location and scaling regionally or nationally, reach a point where they want the core management and corporate-level employees and advisors to be incentivized and excited about the company. To do this, they may give them some equity incentive in the overall venture.
With a single location entity, offering equity incentives may be less appropriate. Here, an excellent way to incentivize people is through bonuses. In many cases, a cash bonus is more concrete and impactful to the employee’s life than equity. Equity can be hard to understand and seemingly far removed from the employee’s immediate circumstances.
Restauranteurs should take into account many factors and considerations before deciding to offer employees an equity incentive. These incentives can be complex to set up and have long-term tax consequences. (Check out our posts on equity incentive plans for LLCs or get in touch to learn more). If a restaurant offers an equity incentive, we typically see it offered at the higher level (Managers, Finance, corporate operations, etc). These higher-level employees usually stay with the company longer and align more with the restaurant’s larger goals. It is much harder to implement equity plans at the staff level. There are many reasons for this, a primary one being that there is a fair amount of turnover in staff in this industry. Turnover makes it especially difficult to administer equity plans. Another reason is that, for the most part, staff aren’t as likely to be motivated by equity long-term because it’s hypothetical, and there isn’t value until an undetermined point in the future.
Equity incentives for employees may be something that restauranteurs can implement down the road; however, knowing the issues involved early on can help the restaurant prepare. Remember the different factors motivating the employee base and which group of people the restaurant is trying to encourage with incentives before you enact them. Also, consider other aspects, such as how much ownership is allocated to investor groups. Give some thought to how the restaurant is going to incentivize its employees to do what’s needed to make the business a success for everyone. Considering these factors as the restaurant gets off the ground will avoid surprises as it grows and ensure the owners get their desired outcome.
Disclaimer: This post discusses general legal issues, but it does not constitute legal advice in any respect. This post is not a substitute for legal advice and is intended to generate discussion of various issues. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel. Cara Stone, LLP and the author expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this post. The views expressed herein are personal opinion.
Another consideration for restauranteurs when setting up a restaurant group or single location is if they want to offer critical people at the corporate level incentives, equity ownership, or options.
Many restaurant groups, especially ones that are multi-location and scaling regionally or nationally, reach a point where they want the core management and corporate-level employees and advisors to be incentivized and excited about the company. To do this, they may give them some equity incentive in the overall venture.
With a single location entity, offering equity incentives may be less appropriate. Here, an excellent way to incentivize people is through bonuses. In many cases, a cash bonus is more concrete and impactful to the employee’s life than equity. Equity can be hard to understand and seemingly far removed from the employee’s immediate circumstances.
Restauranteurs should take into account many factors and considerations before deciding to offer employees an equity incentive. These incentives can be complex to set up and have long-term tax consequences. (Check out our posts on equity incentive plans for LLCs or get in touch to learn more). If a restaurant offers an equity incentive, we typically see it offered at the higher level (Managers, Finance, corporate operations, etc). These higher-level employees usually stay with the company longer and align more with the restaurant’s larger goals. It is much harder to implement equity plans at the staff level. There are many reasons for this, a primary one being that there is a fair amount of turnover in staff in this industry. Turnover makes it especially difficult to administer equity plans. Another reason is that, for the most part, staff aren’t as likely to be motivated by equity long-term because it’s hypothetical, and there isn’t value until an undetermined point in the future.
Equity incentives for employees may be something that restauranteurs can implement down the road; however, knowing the issues involved early on can help the restaurant prepare. Remember the different factors motivating the employee base and which group of people the restaurant is trying to encourage with incentives before you enact them. Also, consider other aspects, such as how much ownership is allocated to investor groups. Give some thought to how the restaurant is going to incentivize its employees to do what’s needed to make the business a success for everyone. Considering these factors as the restaurant gets off the ground will avoid surprises as it grows and ensure the owners get their desired outcome.
