This year California Pizza Kitchen scrapped incentives for quality control and guest satisfaction, instead rewarding restaurant managers for growing comparable sales and managing costs.

That figure translated to a paltry 3,200 jobs in July. “That's quite low,” concedes B. Hudson Riehle, NRA senior vice president of research and information. “The rate of [job] growth has declined overall.”

Has it ever. Research from Dallas-based People Report, which monitors restaurant employment trends, shows that just 30 percent of 125 companies expected to boost the number of hourly employees on their payrolls in the third quarter. “This is the lowest reading since the [survey] was created in 2006,” says Compensation Specialist Victor Fernandez.

Nonetheless, wage and hiring trends remain a subject of abiding concern among restaurant executives, who are adjusting their companies' compensation practices to absorb the impact of the slowdown.

Betsy Mercado, vice president of human resources for Washington, D.C.-based Palm Restaurants, is witnessing unemployment woes firsthand. “From where I sit, there has been an increase in the number of people losing their jobs. I've noticed a significant number of people looking for work and available,” she says.

The sackings have made recruiting managers easier and deflated pressure to bulk up compensation packages for competitive reasons. “You don't worry about paying over market to attract someone,” says Steve Fricker, president of Daphne's Greek Cafe, an 80-unit fast-casual chain headquartered in San Diego.

McAlister's Deli CEO Phil Friedman, who is currently pondering changes to his company's compensation program, describes recent job candidates as “someone in a large chain who is happy with their career progress and is suddenly on the market, and they wouldn't have been a year ago.”

There isn't much a company can do about hourly wages, other than watch as they climb to a federally mandated $7.25 on July 24, 2009. “It is a fundamental cost of doing business,” shrugs Senior Vice President Rick Johnson at Maryville, Tenn.-based Ruby Tuesday. “They just have to be accommodated in the business model.”

Although state and federal laws require that restaurants pay both front- and back-of-the-house employees at least the minimum wage when there isn't a tip credit, restaurants often pay significantly more to attract workers. According to figures from People Report and the Bureau of Labor Statistics, nontipped workers now earn from an average $7.60 per hour to $12.71 per hour—roughly from $1 to $6 above the federal minimum, which climbed to $6.55 an hour in July.

Twenty-four states mandate higher minimum wages. “Pennsylvania and Ohio, where we do business, are already way above [$6.55],” declares Karen Bolden, chief people officer for Pittsburgh-based Eat'n Park, citing the $7.15 and $7 minimum hourly rates of those states. “The increase didn't affect us.”

Although Los Angeles-based California Pizza Kitchen operates many restaurants in California, where the minimum wage is a whopping $8 an hour, co-CEO Larry Flax isn't fretting. “People ask me, 'Why would you build a restaurant now in Southern California?' But labor is just one of the things you look at. You've got to look at every single factor that determines a successful store,” he insists.

Restaurant executives realize that one of the crucial factors is the management team, in particular the general manager. Chains typically have base incentive programs for these employees on performance standards that take into account metrics like food and labor costs, sales, traffic, service standards and cleanliness.

Yet given deteriorating trends throughout the industry, manager compensation programs in the form of incentives or bonuses are shifting, sometimes radically.

This year, for instance, the 80-year-old Palm steakhouse chain added a diversity component to its management-incentive program. Ten percent of a restaurant's total bonus is awarded partly on the basis of increasing minority and female customers and trimming staff complaints relating to racial, ethnic or gender issues.

Once a bastion of maleness, The Palm now gives bonuses to managers who hire women and people of color. But it's not just a numbers game. The bonus depends on trimming gender and race-related complaints. For more about The Palm's diversity metrics, visit "The Palm Bonuses Depend on Diversity."

“We are an old company that has served a narrow niche in the market,” acknowledges Palm COO Walter McClure. “If we are going to be successful in the long term, we have to expand our reach [among customers].”

That makes perfect sense to former Brinker CFO Jim Parish of Parish Partners, who has helped chains design incentive programs. He believes these days managers need to actively market their restaurants in their local communities.

“If I were running a restaurant company,” offers the Vancouver, Wash.-based consultant, “I'd want that manager out in local areas doing everything he can to get guests to come back, and I'd build an incentive plan around that.”

Since the beginning of this year, CPK officials no longer bonus general managers on guest satisfaction and quality-assurance scores, arguing these are simply part of the job. Today, after re-budgeting, the incentive program is evenly divided between comparable sales and controllable profits and aligned with shareholder goals.

“Where [managers] can really show their mettle is being clever with how they run their restaurants and get customers in the door. It's about marketing and getting involved in community activities,” says Flax, who describes the new plan as having “attainable goals that are still stretch targets.”

Attainable is the key for pay packages. Stretching to reach bonusable targets had long been a sore point until Tampa, Fla.-based Outback Steakhouse arrived on the scene in the late 1980s. Companies, often reluctant to share the wealth, tended to budget on the high side. That effectively kept bonuses low and management turnover high, particularly when there were long periods between new budgets.

Outback founders Chris Sullivan and Bob Basham devised a generous cash-flow-based compensation plan that motivated managers to operate their restaurants as if they owned them. “Chris and Bob were big believers in sharing the wealth,” recalls Daphne's Frick, a former Outback vice president and later franchisee. “Our [managers] were making six figures running a single unit and staying put for five years. We were hiring multiunit guys to run one store.”

Frick changed his managers' bonus program, which was outdated, upon joining Daphne's in June. “The old bonus plan was based on actual vs. budget,” he explains, noting that budgets were not modified. “If we made a mistake on a budget, the poor manager had to live with that.”

Base pay for Daphne's managers is about $42,000. The new bonus program, which now includes mystery shops (15 percent of bonus) and food-safety audits (10 percent), can add $12,000 to base pay annually. Assistant managers can earn up to $7,000 in bonuses.

“We can't take focus off of the financial side completely,” says Frick, adding that sales account for 35 percent and cash flow, 40 percent. The new program measures current sales vs. prior year, using a sliding scale. He is hopeful his management team can teach managers enough about cash flow and EBITDA to model Daphne's compensation program on Outback's.

“A lot of concepts don't share enough information with GMs in terms of what the business is really producing. They stop communicating at the controllable line. We're trying to get [managers] to understand the full P&L,” Frick says. “We just want to get their heads into the business. It's the best way to get them motivated.”

Compensation rewards could change soon at Jackson, Miss.-based McAlister's Deli. The driving force is not the economy, however, but swelling unit volumes, the result of a computer-based site-modeling program that's been in use for several years.

But before anything changes, Friedman intends to determine which new skills, if any, are necessary to operate the fast-casual sandwich chain. “We are trying to do more with the concept, its products and presentation, and trying to look deeper into the job descriptions,” he says. “Out of that, there may be some differences in compensation-level incentives.”

May be? “We are benefiting from a number of casual-dining chains shrinking. There are a lot of people in the market,” explains Friedman, who says the out-of-work managers have more experience than others. “Not that we pay less. We will get more talent for what we have been paying. And we do not have to move our compensation much.”

Friedman says these people have “more experience and more future potential,” meaning they may eventually join senior ranks.

As some chains shutter restaurants and throw managers out of work, others stand to gain. Officials at McAlister’s Deli, a fast-casual sandwich operator, are actively recruiting unit-level man-agement and expect to get more for their money as experienced, well-trained restaurant managers hit the job market.

Compensation programs at these airy levels change relatively slowly; such features as stock ownership (restricted or otherwise) and equity positions, in both public and private companies, remain attractive draws, though changes in reporting options and tax concerns over the last several years have caused public companies to favor granting restricted stock.

“Generally speaking, most companies have come to the conclusion, even given the intricacies, it is better to have restricted stock options than to have stock options out there that are continuously banging the P&L,” explains Parish, referring to the rules that require public companies to charge options against earnings for their incentive value.

Private companies recruiting executive talent escape such worries. “I think the biggest trend this decade has been the greater focus on cash compensation and bonus vs. equity, especially in private companies,” says Mark Saltzgaber, a San Francisco-based investor and strategic adviser to restaurant companies. He believes this trend has been occasioned by two important factors:

*The lackluster performance of restaurant stocks compared to the 1990s. “The bar is higher to go public, and people realize that the equity pot of gold is harder to realize,” he says.

*Economic ups and downs, 9/11, market uncertainties. “A lot of people are looking for safety and security and are not willing to uproot their families for the potential upside of illiquid, high-beta equity,” he adds.

“The private company market has become more attractive than ever before,” offers Alice Elliot of the Elliot Group, a veteran executive recruiter based in Tarrytown, N.Y. Still, she adds, alluding to the miserable economy, “many [executives] have done quite well in different economic times.”