Papa John’s Rolls Out Hot HR Menu

When John C. Schnatter was a child, he used to cry whenever he lost at Wiffle™ ball. His mother worried about her son’s competitive streak, he recalls with humor. But during the summer, the youth and his brother also learned to work hard and use the best tools available. “We had to grease and sharpen the blades before mowing my grandfather’s lawn,” says Schnatter, founder and CEO of Louisville, Kentucky-based Papa John’s International, Inc. Years later, at age 21, after graduating from Ball State University with a business degree, Schnatter helped run his dad’s tavern in Jeffersonville, Indiana. Not only did he want to quickly apply his college education, he wanted to become rich as well. So one day, the entrepreneurial lad knocked out the broom closet at Mick’s Lounge, installed an oven and began selling pizzas.

From its grassroots beginnings in June 1985, Papa John’s has since become one of the fastest-growing pizza chains in the nation. In an industry already overcrowded with 60,000 pizzerias nationwide, Papa John’s is gaining visibility. Last year, Papa John’s was #1 on Business Week’s list of 100 Best Small Companies in America-based on its three-year results in sales growth, earnings growth and return on invested capital. Wall Street analysts and other business magazines, such as Forbes, Fortune and Inc., also have taken notice. According to the company’s annual report, Papa John’s total revenue increased to $161.5 million in 1994 from $89.2 million in 1993. In other words, the delivery and carry-out chain keeps rolling out dough faster than Pizza Hut, Domino’s and Little Caesar’s can shout pepperoncini. Most of Papa John’s 751 stores are located in 20 Midwestern, Mid-Atlantic and Southern states. More than 500 are franchise operations.

Papa John’s creates HR department in 1993.
As the company celebrates its 10th anniversary, Schnatter, 33, still sticks to the same values he embraced as a child. He’s still competitive, bets on his dreams and never compromises his tools. Just as it takes fresh ingredients and expertise to roll out the perfect pizza, it takes a fresh human resources leader and department to roll out a first-class pizza operation. “You need good people to hire good people,” he says.

And according to Gerry Durnell, publisher and editor of “Pizza Today,” the $30 billion-a-year industry faces stiff competition for quality personnel, products and services. So when Papa John’s made its initial public stock offering in June 1993, Schnatter added another key ingredient to his winning corporate recipe. He hired Carole A. Trask, the company’s first vice president of human resources. “Our culture to reward contributions and performance was already here,” says Schnatter. “What Carole did was to identify all of the elements, put them into a package and give it a [marketable] presentation. Today, with our culture and financial success, it’s easier to recruit great people,” he says. But Trask is the first to admit that HR faced a tough beginning. “You don’t just come into an entrepreneurial company that has all these fast horses out there and just pull them in with a whole bunch of policies,” she says. “It would be an absolute conflict with the culture.” Building an HR department from scratch has required as much care as “delivering the perfect pizza” (the company’s slogan). Within two years, Trask and her team of seven HR personnel have standardized Papa John’s culture, benefits, recruitment and retention efforts to keep the company on the fast track. In an industry also known for high rates of turnover—up to 200%—HR at Papa John’s must help store managers recruit thousands of part-time employees at low cost while also trying to retain them and other full-time employees as long-term investments for the company. (Of the 20,000 Papa John’s employees, most are part-time drivers and in-store workers who answer the phones and prepare the pizzas.)

Commitment to Papa John’s begins with its mission statement. Employees are expected “to deliver the Perfect Pizza by exceeding the needs and expectations of our customers, franchise family and employees.” The company’s core values include honesty, character, cleanliness, safety and competence. Papa John’s corporate beliefs also call for employees’ ongoing education and personal development, recognition of great performance and product focus. “The main thing is to keep the main thing the main thing,” Schnatter has been quoted as saying. Unlike its competitors, Papa John’s eschews additional food items, such as submarine sandwiches, chicken wings or salads. The menu is simple—pizza, breadsticks, cheesesticks and canned soft drinks. (And don’t forget the small tub of garlic sauce and two pepperoncinis that are added to each order.)

It was these values, Trask says, that attracted her to Papa John’s in the spring of 1993. Previously, she’d worked as an assistant HR director at Fort Collins, Colorado-based Poudre Valley Hospital. As manager of 10 HR employees, Trask was accustomed to the strict organizational rules and regulations that characterize most health-care institutions. There, she was well-known and well-respected. Hospital employees knew what to expect from a human resources department. Nevertheless, Trask wanted to move on. Fortunately, a friend told her that Papa John’s was searching for a human resources executive. Although Schnatter had built his company for eight years without an HR department, he recognized the need to standardize the company’s culture, recruitment efforts and benefits system. “As Papa John’s grew, I realized I needed a specialized group to help with hiring the right people to fit into the company culture,” he says. After her interview in April, Trask was hired in June 1993—the day before the company went public. She welcomed the challenge of building an HR department from ground zero. “I wanted to be part of a company that was entrepreneurial in spirit and which shared values similar to my own,” she says.

Standardize the corporate culture.
Although Trask was new to Papa John’s, she was no stranger to HR management. At Poudre, she’d already managed compensation and benefits programs, employee orientations, recruitment, retention and employee relations. But it was probably her earlier experiences as a Russian interpreter in Moscow and Siberia that most heavily influenced her approach to her new colleagues: Treat them with respect, and do a lot of listening. “When I first came, I asked key people, ‘What do you know about HR, and what would you like to see happen here? What are your list of priorities?'” Back then, Papa John’s provided a health plan managed by an insurance coordinator. The employee handbook was compiled by outside consultants. And store managers were responsible for processing new-hire paperwork and performance evaluations. “We didn’t have a whole lot of established guidelines and protocol,” she says. If a store wanted to hire someone, a manager might take out an ad in the local newspaper. Or the manager might ask around for recommendations. The hiring practices were decentralized and casual.

Schnatter also required Trask to attend orientation training that included learning about the company’s culture, its store operations, its business strategy and how the food commissaries were run. She even learned the art of slapping dough. By experiencing and observing the basic mechanics of operating a Papa John’s, Trask was able to strategically position HR to support the stores’ needs.

One of her first goals was to revise the employee handbook. Because Papa John’s believes its employees should actively participate in the culture, Trask incorporated the mission statement and corporate beliefs into the guide. She also added information about short-term and long-term disability, and tuition reimbursements. To make the handbook sound less contractual, she says, some of the language was changed. Before, the handbook didn’t include an effective date. Now, it does. She also updated Schnatter’s CEO’s message to employees and polished up the cover to make it more appealing to read. Although the original handbook included a general harassment policy, the revised version includes a written policy and procedure for handling sexual harassment, in particular. Basically, it encourages victims of sexual harassment to report any incident to their immediate supervisor unless that individual was the perpetrator. Employees now are instructed to proceed up the chain of command or request HR’s intervention until their complaints are resolved.

Trask also assessed the need to standardize performance appraisals. Since Papa John’s had gone public and offered stock options, “we needed something to demonstrate that an individual was performing according to the rules of good conduct. We’re still in the process of revising it,” she says. Before, managers in corporate-owned stores used their own forms. Some didn’t use them at all. “It was hit or miss. If a manager didn’t use one, there were no consequences,” she explains. Until it streamlined these employment procedures, Papa John’s wouldn’t be able to ensure a consistent business standard throughout its chain.

As HR’s direction became clearer, Trask eventually hired her first two HR employees between October 1993 and January 1994. One of them was Vickie Carey (now employment coordinator), who first came on board as an HR assistant to centralize employee data: resumes, terminations, applications, reference checks and other related information. Basically, new-hire packets were transferred from payroll to human resources. Carey assisted Trask in standardizing employees’ salaries. HR was then able to establish a pay-grade system that also allowed for flexibility, given the different regional markets. For example, if a store manager in Nashville couldn’t hire a driver for less than $6 an hour, he or she would have to pay $6. The pay-grade scales also provided a guide for franchisees, although they aren’t obligated to follow them. HR, however, does offer consultation services and training to any franchisee who requests its assistance, she says. After setting up the pay-grade system, Trask turned her attention to benefits.

Benefits vary for different levels of employees.
By 1994, Papa John’s was positioned for a major growth spurt—in restaurants, sales and earnings. The company began the year with 400 restaurants. By June, it celebrated the opening, in Atlanta, of its 500th store—a significant milestone for the rising pizza company. At year’s end, Papa John’s boasted 632 restaurants—of which 133 were company-owned and 499 franchised. Most of the expansion occurred in six markets: Baltimore, Charlotte, Ft. Lauderdale/Miami, Gainesville, Orlando and St. Louis.

With increased recognition in the media, Papa John’s also leveraged its notoriety to continue attracting the best employees as it entered new markets. The limelight boosted its standing in the investment community as well. Papa John’s completed two common stock offerings last year. According to the annual report, the offerings raised $35 million—providing capital to fuel future growth and further strengthen its already solid financial position. As of year-end, Papa John’s balance sheet reflected more than $62 million in stockholders’ equity, and less than $1.3 million of long-term debt. By July 1995, Papa John’s stock closed at $43.37, according to Trask.

What the expansion meant for HR was that with more employees on board, more would be eligible for the company’s benefits programs. (Previously, medical-claims processing was handled by the risk-management department.) By August 1994, Trask brought in another HR specialist, Judy Snider, to administer the benefits programs-health, stock, 401(k), unemployment and tuition reimbursements. In keeping with Papa John’s commitment to professional development, Snider worked part time until she completed her bachelor’s degree in human resources and began full time in January of this year.

Snider explains that Papa John’s benefits program has been designed to accommodate the company’s unique demographics. “We have a plan that’s different for each level of employee,” she says. As a fast-food delivery and carry-out service, the nature of its infrastructure is unique. Typically, a Papa John’s restaurant employs a restaurant manager, two assistant managers and approximately 20 hourly employees, most of whom work part time. In addition, the company employs area supervisors, each of whom assumes responsibility for overseeing three to five company-owned restaurants. Higher up are regional vice presidents and directors who oversee area supervisors and managers within their respective markets.

Under the current plan, corporate employees, area supervisors and in-store personnel—such as full-time managers and manager designates (those in training)—receive medical, dental, company-paid life insurance and short- and long-term disability. Employees who work in the four commissaries (the subsidiary that supplies fresh dough, food and paper products) receive medical and life insurance, according to Snider. Assistant managers, she adds, now receive medical and dental coverage. After 90 days of hire, they become eligible for coverage on the first day of the next month.

Since the HR department was created two years ago, Papa John’s hasn’t only been able to increase insurance coverage, but it has lowered the amount an employee is required to pay out of his or her checks. “The quick-service restaurant industry is very competitive,” says Snider. “We’re up against larger employers who may offer coverage, even to their part-time employees.” Papa John’s, she says, recognizes that in-store employees, such as part-time drivers, pizza makers and telephone personnel, could very easily toss their hats and aprons and drive over to the nearest competitor. “We’re taking a look at offering [benefits] to our part-timers. From the employees’ standpoint, they want something reasonable, and they don’t want to pay for single coverage. Many would like medical and dental coverage offered to them and their family members,” says Snider. Although the bulk of Papa John’s employees are college-aged students, the average age of in-store employees is 27. Many of those employees, she says, want benefits for their dependents. Snider says that from the company point of view, it’s difficult to find programs that accommodate an industry known for its high turnover rates. “We have to look for something that’s reasonable for both employer and employee. There are plenty of companies out there, but some want to charge an employee $200 a month. That’s just too much. So we have to be very cautious,” she says. As Papa John’s continues to grow, however, HR will have to speed up its benchmarking and cost-benefits analysis to set up a benefits program that will attract and retain the best recruits.

One of HR’s best benefits achievements this last year has been to administer a stock-option plan. Stock options are currently granted to store managers and area supervisors after one year of service. It entitles the employee to purchase or exercise a common stock at a set price in the future. Area supervisors can purchase up to 1,000 shares. Employees, says Snider, become vested over a period of five years. For example, Papa John’s granted 1,000 stock options last July 1. After one year—July 1996—an area supervisor may vest 200 shares; then 200 more for a total of 400 in 1997, and so on.

Moreover, eligible employees are given two options—cash purchase or cashless purchase—for acquiring their vested options and paying any taxes they owe. In a cash purchase, employees can elect to purchase the full amount of stock eligible to them by sending a check (payable to Papa John’s). For example, to purchase 50 options at $13 each, a check for $650 would need to be submitted. Then the employee would be mailed a stock certificate indicating the number of stocks purchased. Human resources would inform the employee of the taxes owed so that a second check could be sent to pay for the taxes.

In a cashless purchase, employees who don’t have cash on hand to pay the option-exercise price and taxes can use a broker. The broker will sell a portion of the shares and deduct any taxes that are due as a result of the purchase. The employee will then receive the remaining amount in the form of a cash or stock distribution.

Says Snider: “The program is extremely positive. Our employees are always talking about it. They’re proud to own Papa John’s stock. Our store managers feel more like owners and tend to be more accountable for their profit and losses.”

What else is in the HR hopper? A plan to establish a 401(k) and retirement plan. “Quite a few of our employees have come to us from larger firms that offer bells and whistles,” she says. HR is currently exploring its benefits options, finding out what’s available, the cost to run specific programs and the types of earnings growth the various funds garner. Snider also will consider the demographics of the company’s employees. Papa John’s HR department, for example, will continue to target college students, but the potential employee pool may also include older adults, such as those seeking second jobs, senior citizens, school bus drivers, and parents seeking part-time incomes. And as the pool expands, HR will continue to develop its recruitment and retention strategies.

Recruit and train to improve productivity.
To maximize Papa John’s hiring potential, Trask hired Mike Donnelly as recruitment manager. A former human resources manager for Walt Disney World in Orlando, Donnelly wears two hats—one for recruitment and one for training store managers. When he talks about recruitment, he says that Papa John’s looks primarily for that entrepreneurial sparkle. “It does not matter if you’re older or younger. We look for attitude,” he says. Since the company philosophy is to focus on the store, HR encourages store managers to drive the recruitment efforts. Papa John’s credo is formulated in a curriculum called Building the Perfect Team. It says: “Rest assured that your ability as a restaurant manager to recruit, hire and retain your team will have a direct effect on the success of your store. The people you choose to represent Papa John’s to our customers clearly reflect the standards you have set for your restaurant. You are truly in control of your own destiny.” The program also provides managers with a David Letterman-style list of Top 10 Reasons to Recruit the Perfect Team. It mentions such benefits as shortening one’s work week, making more money and improving the store’s image in the community.

“Our push is to get managers to recruit in different ways,” says Donnelly. Before, Papa John’s managers relied heavily on classified ads. Today, that method doesn’t work, he says. Store managers, therefore, are encouraged to make professional contacts within their own communities—whether it’s with the high-school principal, the college career counselor or the HR manager of a company downsizing next door.

College students, however, still comprise the largest segment of Papa John’s part-time employees. Many of the stores are located near college campuses, but Donnelly doesn’t depend solely on incoming foot traffic. By the end of the year, Papa John’s is scheduled to launch a Web site on the Internet. “We know that one big market for us are the college students who are surfing the Net,” he says. “If you’re sitting there eating a Papa John’s pizza in your dorm and thinking you’re short on money [while cruising the Web site], you might go down and fill out an application with one of our store managers.” Unlike one competitor that set up a site to sell pizzas, Papa John’s hopes to use the Internet to beef up its recruitment efforts. Donnelly is working with Videobred—a Louisville-based video production facility and Internet consultant—to define the Web site’s elements. Like most Web sites, it will offer a combination of information, education and entertainment to enhance the user’s familiarity with Papa John’s. According to Bob Arvin, one of Videobred’s computer animators, Papa John’s could conceivably receive several thousand hits a day. “But one problem is that you don’t know who these people are. They could be a potential employee. [They also could be seeking something other than a job lead.] You don’t know.” But the gains far outweigh the disadvantages. “Everyone seems to be jumping on the bandwagon,” he says. “I think the greatest advantage for Papa John’s is recruitment. Once you get your feet wet recruiting that way, you can move on to bigger and better things.”

No one can argue against the Internet’s high visibility and image-building features. But Donnelly also knows that Papa John’s image in the community will largely be determined by its employees’ actual customer service and safety practices. That’s why HR provides its drivers with the necessary training in customer service and safety. Employee-training programs for the company and its franchisees are conducted at 10 regional training centers. The drivers are instructed on proper delivery procedures, such as “Greet the customer with a smile and by their name. Make change quickly and efficiently. Count back out loud to the customer.” They also are trained to drive under conditions of fog, rain, sleet or snow. If there’s an emergency, drivers should know how to minimize a skid and avoid hitting another vehicle; they should also know how to handle minimal security risks and learn what to do if a robbery occurs. In fact, Papa John’s director of safety and security and its director of risk management have developed what’s known as Operation Perfect Score “O”—a program implemented this year to reduce the number of workplace injuries and increase the safety and security of employees and customers.

Promote from within.
As the HR recruitment manager, Donnelly also looks at ways in which Papa John’s can retain its employees. He and Trask hope to slash the company’s turnover rate of 150% by 30%. A big challenge, given the ever-changing population of part-timers. “There are plenty of positions available,” he says. “The place is exploding. If I had my way, I’d try to take everyone and give them the opportunity to move along or stay in their position, if they’re happy.” Papa John’s, therefore, tries to retain its employees by promoting from within and by rewarding performance goals.

Take Shelli Johnson, an area supervisor for Papa John’s in southern Indiana. In 1989, she read an advertisement in a local newspaper that said a driver could make between $8 and $10 an hour. “You get in your car, drive around the city all night. How much easier can it get?” she’d thought at the time. With that incentive, Johnson started out as a part-time driver. After six months, she quit her other job as a florist to drive full time. “The best characteristic of that job is the flexibility,” she says. “The money was good because I got salary, tips and mileage.” Three months later, she became a shift leader for two weeks. Showing promise, her area supervisor offered her a position as an assistant manager. She assumed that position for nine months before becoming a manager-designate and store manager for two years. As an area supervisor during the last two years, Johnson has trained four store managers to run all aspects of their operations—focusing largely on the financial end of their businesses.

As she reflects on her ascension into management, she credits her previous supervisors who offered their encouragement and praise. Meeting Schnatter and the company president, Daniel Holland, also helped. “I remember John coming into the store. Shaking his hand made a difference,” she recalls.

Now that Johnson is part of the management team, she shares HR’s commitment of recognizing performance goals. Rewards foster stability, loyalty and retention. For example, once a driver has completed 1,000 hours in safe-driving time, he or she may be given a VCR, a set of tires or a vacation. “The longer you’re here, the better the reward,” says Trask. Drivers also are offered Papa’s Perks—discounts with a company, such as Firestone, to obtain $60 worth of automotive services for $20. Another perk is a cellular phone at lower-than-retail prices. “Our goal is for them to become safe, reliable drivers, not fast drivers,” she says. In fact, fast got one competitor into trouble when one of its drivers hit a pedestrian while trying to meet its promise of a 30-minute turnaround. That’s why Papa John’s safety record is as important to its image as making perfect pizzas and hiring the best qualified employees.

Make HR an internal consultant.
As Papa John’s first decade comes to a close, Schnatter says he will continue seeking the highest calibre of employees and managers. For example, many of his executives are veterans of the food and financial industries. Among his higher-ranking cadre are a senior vice president of marketing (formerly with Wendy’s and McDonald’s), a corporate controller (formerly with Ernst & Young) and a vice president of information systems (formerly with Boston Chicken). And in terms of human resources, Trask already has formulated a game plan to expand the company’s HR department as well. If Papa John’s continues to expand nationwide—and it will—HR will clearly have to keep pace. Today, Trask manages seven HR personnel. Within two years, she hopes to more than double her ranks to 18, including herself. That would mean adding another administrative assistant, an events coordinator, an HR director, an employee relations manager and additional benefits specialists. When Trask attended a national human resources convention earlier this year, she says she learned more about positioning the HR function as a strategic partner within a company. “We’ve come a long way,” says Trask, who is one of the company officers and part of the senior management team. (She is one of two female vice presidents at the company.) Human resources, she says, has evolved in much the same way as its entrepreneurial Papa. “We’re not very bureaucratic in our processes. We don’t want to be just a policy creator. We’re like a mega-amoeba that has to meander through whatever issues and topics there are,” says Trask. “HR has to be looked at as a resource, like internal consultants who can turn out well-rounded managers.” Much like a perfect pizza.