Turning Turnover Around

Lou Kaucic, head of HR at Applebee's, has done what some might call near-impossible by fostering retention in an inherently high-turnover industry.

Saturday, October 16, 2004
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During a job interview with a Pizza Hut executive more than 20 years ago, Lou Kaucic got his first inkling of how the restaurant industry generally views employee turnover. He had been managing a waffle factory in Atlanta where he counted as his major achievement dropping annual turnover from 4 percent to 3 percent.

When Kaucic asked about turnover, the executive told him it was not even measured. "I thought, 'Boy, it's so low they don't even monitor it,' " he recalls. "And then [the executive] proceeded to say, 'It's so high we don't know how to measure it,' and I'm thinking, 'What's 'so high' mean? You mean it's over 100 percent? Because I couldn't even fathom that. And he goes, 'I think it's over 400 percent'... that's when I knew I'd landed on a different planet."

It's a planet he has never left. After accepting Pizza Hut's offer to become director of field operations, Kaucic grew to love the high energy and huge challenges inherent in attempting to manage and retain employees in a low-wage environment. In 1997, he joined Applebee's International Inc. in Overland Park, Kan., as the vice president of human resources.

The familiar Applebee's Neighborhood Grill & Bar is the largest casual dining chain in the world, boasting more than 1,600 restaurants in 49 states and nine countries. The chain opens around 100 stores a year and now boasts more than 115,000 employees in company-owned and franchisee-operated establishments.

The greatest challenge of handling Applebee's continues to be turnover, even though fewer people head for the door annually than have ever before, far fewer than at most other restaurant operations, he says. Today the turnover rate among store management staff is around 14 percent annually, an astonishing low figure in an industry where 50 percent remains the norm for those positions.

The 52-year-old executive made curtailing turnover and rewarding achievement a priority in 2000, when he and Applebee's board chairman, president and chief executive officer, Lloyd Hill, began brainstorming the company's future. The two agreed the "essence" of the company's success would be "people, not just people, but noticeably better people," says Kaucic.

A new corporate philosophy was born focusing on human resources as a key component driving growth. Kaucic changed his title to chief people officer and began developing retention programs measured by "people metrics" -- an initiative that has paid off ever since, and for which he's been named to Human Resource Executive's 2004 HR Honor Roll.

Building the Tools

Applebee's first created assessment tools focused on helping managers select hourly employees based on nine core competencies such as punctuality, stamina, cooperation and appearance. The competencies helped young managers -- many of whom do not have great interviewing skills -- better select new hires attractive to Applebee's. "Our managers first thought this was way too much work until they started seeing the quality of the candidates they were hiring," says Kaucic. "It took us to another level."

Three more programs for retaining staff were developed. One, focusing again on hourlies, came about after Kaucic discovered that staff who left generally quit between day 30 and day 90 of their employment. He developed a board game called "Block Party," involving teams that receive prizes by knowing what temperatures certain menu items must be cooked at or how they would handle more complex issues such as what an appropriate reaction would be when an associate was being sexually harassed by a customer.

Moving up the employment ladder, Kaucic introduced the concept of mixed management to assessing general managers. Using the same competencies as hourlies, general managers rated themselves in nine categories, as did their supervisors. Together, they came up with overall and subcategory ratings.

Once in place, the system gave Kaucic a way to organize general managers into three groups: the top 20 percent, the middle 60 percent and the bottom 20 percent. Once supervisors saw the breakdown and identified top and mid-range performers, they went to work retaining them. The company did not make supervisors automatically fire the bottom 20 percent, as General Electric and other firms do, but it suggested that group be made well-aware their jobs were in jeopardy unless they could substantially improve, he says.

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To keep high performers, Applebee's set up a compensation system rewarding the select group of general managers with as much as $100,000 in annual salary and bonuses, as well as deferred compensation, which could amount to as much as $20,000 to $40,000 after just a few years.

They went a step further by creating recognition opportunities for good managers by appointing the best of them to two leadership councils, he says.

Kaucic also developed a fun exercise for 15 regional HR managers and operations staff modeled on quarterly phone calls Wall Street analysts conduct with various publicly held companies. Group members present their goals for the quarter in terms of hiring and retention in a presentation before their peers -- who offer, in return, bullish, bearish or neutral ratings. "This didn't cost much money; it was a matter of getting this group together to talk about their people results and they had never done that before," says Kaucic. "That simple structural approach had an amazing effect."

To help everyone understand the company's principles and goals, Kaucic created the acronym "BIG Fun TRIP," which stands for "balance, innovation, guest-driven, fun, teamwork, results, integrity and passion for service." Employees at the franchise support center who embody one or more of the principles can be nominated by fellow employees for recognition and prizes.

Paying attention to retention has paid off. Since 2000, general-manager turnover dropped from 20 percent to 8 percent, manager turnover declined from 24 percent to 14 percent and hourly turnover plummeted from 146 percent to 92 percent. Franchisees, who own 75 percent of the company's restaurants, have begun asking about "people metrics" and have suggested they become mandatory for all sites.

Kaucic believes his work sends a message to the restaurant industry, where a "learned helplessness" dogs the idea of retention. "I think if there's anything I've seen and learned, it's the more you put people at the center of your strategies ... the healthier and more successful you will be," he says.

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