Haidilao paid store managers more for their protégés' stores than for their own

A restaurant chain that grows by promoting its best store managers into regional roles faces a quiet contradiction: the manager most capable of training a great replacement is also the person with the most to lose if that replacement leaves to open a competing or cannibalizing store nearby. The usual tools — non-competes, one-time bonuses, loyalty appeals — treat the symptom without changing the underlying math: one manager, one store, one paycheck.

Haidilao changed the math directly. A manager who opted into the mentor-track pay formula earned less from their own store but gained a permanent royalty stream from every store their trained successors opened, and a smaller one from their successors' own successors — a multi-generational override that made building a lineage of trained managers more lucrative than protecting one's own storefront.

Instead of relying on non-competes or retention bonuses to stop capable deputies from leaving — or from being quietly held back by managers who feared training their own replacement — Haidilao let each store manager choose a second pay formula: a smaller cut of their own store's profit (0.4%), plus a share of every store later opened by a manager they had personally trained (3.1%), plus a smaller share of those proteges' own proteges' stores (1.5%). Training the most successful successors, not running the best single restaurant, became the highest-paying job in the company.

Paid managers a royalty on every store their trainees opened, making succession the most profitable move instead of a threat.

Because the multi-generational override paid more than the manager's own store profit share, the rational move for any manager stopped being 'protect my current position' and became 'train as many cap

An incentive built to accelerate a specific behavior keeps accelerating it even after the optimal rate has been passed, and multi-generational royalties compound that risk because every successor a ma

When your growth is bottlenecked on trained managers and your existing managers have every reason to hold back a deputy good enough to replace them, do not reach for non-competes or retention bonuses

Store openings accelerated sharply, with Haidilao's outlet count growing at roughly 41% annually from 2017 and its opening pace exceeding 50% in 2018 around its Hong Kong IPO. The same incentive later became a documented liability: at a 2021 shareholder meeting, founder Zhang Yong publicly blamed the multiplying royalty structure for driving reckless over-expansion, and the company closed around 300 underperforming stores that year — an honest coda to a mechanism that worked exactly as designed, just for longer than it should have.