When Five Guys founder Jerry Murrell made headlines recently over his approach to CEO bonuses, it reignited a conversation that business consultants and franchise advisors have been quietly having for years: how should the person at the top of a franchise empire actually get paid? In a landscape where public company CEOs routinely pocket eight-figure packages tied to stock performance and quarterly earnings, the franchise world operates by a fundamentally different set of rules. The Murrell story is not just about one man’s paycheck — it is a window into how franchise CEO compensation shapes the health, culture, and long-term trajectory of an entire business system. For consultants advising franchise clients, understanding these dynamics is not optional. It is the foundation of sound strategic guidance.
The Five Guys Story: Why It Matters Beyond the Burger
Jerry Murrell started Five Guys in 1986 with a simple premise: make the best burger possible, keep the menu small, and never cut corners on ingredients. What began as a single family-run shop in Arlington, Virginia has grown into a global franchise operation spanning more than 1,700 locations worldwide. But unlike the McDonald’s and Burger Kings of the world, Five Guys has remained privately held throughout its entire history. That single fact — private ownership — changes everything about how its leadership is compensated, and it makes the Five Guys model far more relevant to the vast majority of franchise businesses that will never see the inside of a stock exchange.
The reason Murrell’s compensation philosophy matters to business consultants is that most franchise systems in the United States are privately held. They are run by families, by small ownership groups, by entrepreneurs who built something from nothing and are now trying to scale it without losing the essence of what made it work in the first place. When these founders and CEOs sit down to structure their own pay, they face a set of tensions that public company boards rarely grapple with: How do you reward yourself for building something extraordinary without creating incentives that undermine the franchisees who are the actual engine of your growth? How do you take money off the table today without mortgaging the brand’s future? The way Murrell has navigated these questions offers a masterclass in getting it right.
How Franchise CEO Compensation Actually Works
To understand why the Five Guys approach stands out, you first need to understand the mechanics of how franchise CEOs typically get paid. The compensation structure in a franchise system is fundamentally different from a traditional corporation, and the differences are not just technical — they reflect entirely different philosophies about where value comes from and who deserves to capture it.
In a traditional corporation, the CEO’s compensation is often heavily weighted toward equity — stock options, restricted share units, and performance shares that tie the executive’s wealth to the company’s market capitalization. The logic is straightforward: if the stock goes up, everyone wins. But in a franchise system, there is no publicly traded stock. The franchisor’s revenue comes primarily from royalty fees, franchise fees, and in some cases, supply chain markups charged to franchisees. This means the CEO’s compensation must be structured around the actual operating performance of the system rather than the speculative sentiment of public markets.
Most franchise CEOs receive a base salary that reflects the scale and complexity of the system they manage, but the real action is in the bonus structure. And this is where things get interesting — and where most franchise systems either get it right or create the seeds of their own decline. A well-designed franchise CEO bonus ties the executive’s upside to metrics that reflect the health of the entire system: same-store sales growth, average unit volume, franchisee profitability, customer satisfaction scores, and sustainable new unit development. A poorly designed bonus, on the other hand, rewards the CEO for things like aggressive unit expansion regardless of whether those new locations are actually profitable for the franchisees who operate them.
What Jerry Murrell Gets Right That Most CEOs Get Wrong
What makes the Five Guys compensation philosophy distinctive — and what consultants should be paying close attention to — is the degree to which Murrell has historically subordinated short-term personal enrichment to the long-term health of the franchise system. While exact compensation figures are not publicly available (a luxury of private ownership), the company’s strategic decisions tell a clear story about what is being incentivized at the top.
Consider the most obvious signal: Five Guys has deliberately limited its pace of expansion. In an era when franchise brands routinely chase aggressive unit growth targets — often because the CEO’s bonus is directly tied to the number of new franchise agreements signed — Five Guys has taken a measured approach. The company has been known to turn down prospective franchisees who do not meet its standards, even when accepting them would mean more royalty revenue in the short term. This kind of restraint does not happen by accident. It happens when the person at the top is not financially incentivized to chase growth at all costs.
Then there is the question of menu simplicity. Five Guys has resisted the temptation to expand its menu in pursuit of incremental revenue, even as competitors have added everything from breakfast items to plant-based alternatives to mobile ordering platforms. Keeping the menu simple keeps operations simple, which keeps franchisee costs down, which keeps franchisee margins healthy. A CEO whose bonus was tied primarily to system-wide revenue would have every reason to push for menu expansion. The fact that Five Guys has not done so suggests that Murrell’s incentives are aligned with a different set of priorities — namely, the operational excellence and profitability of each individual franchise location.
Perhaps most tellingly, Five Guys has maintained a reputation for some of the strongest unit economics in the quick-service restaurant industry. Franchisees report strong average unit volumes and healthy margins relative to their investment. When the people who are actually putting their own capital at risk to operate your brand are doing well, that is the ultimate sign that the compensation structure at the top is working as it should.
The Dangerous Alternative: When CEO Bonuses Destroy Franchise Systems
To fully appreciate what Murrell gets right, it helps to understand what happens when franchise CEO compensation goes wrong. The history of franchising is littered with cautionary tales of systems that imploded because the incentives at the top were misaligned with the needs of the franchisees on the ground.
The most common failure pattern is what consultants sometimes call the “unit growth trap.” It works like this: the CEO’s bonus is heavily weighted toward new unit openings. To hit their targets, the CEO pushes the development team to sign as many new franchise agreements as possible. Standards slip. Territories get carved too thinly. New franchisees are approved who lack the capital, experience, or operational discipline to succeed. The system grows on paper, but unit-level economics deteriorate. Existing franchisees see their sales cannibalized by new locaztions opened too close to their own. Franchisee satisfaction plummets. The best operators start leaving the system. The brand’s reputation erodes. And by the time the damage becomes visible in the top-line numbers, it is often too late to reverse.
Another common failure is the “royalty extraction trap,” where a franchise CEO’s compensation is tied to total royalty revenue without regard to whether franchisees are actually making money. In this scenario, the CEO has every incentive to raise royalty rates, impose new fees, and mandate expensive system upgrades that drive revenue to the franchisor but squeeze the margins of the people actually running the restaurants, hotels, or retail locations. Over time, this creates an adversarial relationship between the franchisor and its franchisees — the exact opposite of the alignment that makes great franchise systems work.
Lessons for Business Consultants and Franchise Advisors
For consultants who advise franchise businesses or multi-unit operators, the Five Guys model offers a set of practical principles that can be applied across industries and system sizes. These are not abstract theories — they are the difference between franchise systems that thrive for decades and those that burn bright and flame out.
The first and most important principle is that CEO compensation must be anchored to unit-level economics. It is not enough to tie bonuses to system-wide revenue or total unit count. Those are vanity metrics that can be inflated in ways that actively harm the system. The metrics that matter are the ones that reflect whether individual franchise locations are healthy: average unit volume trends, franchisee cash-on-cash returns, four-wall profitability, and payback periods on initial investment. When the CEO’s bonus goes up because franchisees are making more money, you have created a virtuous cycle that is almost impossible to break.
The second principle is that expansion incentives must be balanced with quality controls. If a CEO is going to be rewarded for growing the system, those rewards should be structured with clawback provisions or deferred payment schedules that account for new unit performance over time. A franchise agreement signed today means nothing if the location closes within three years. Smart compensation design rewards the CEO for units that are still open and profitable after a meaningful evaluation period, not just for getting the franchise agreement signed.
The third principle is the one most often overlooked: transparency builds trust, and trust is the most valuable asset in any franchise system. When franchisees understand how the CEO gets paid — and when they can see that the CEO’s incentives are aligned with their own success — it transforms the relationship from adversarial to collaborative. Murrell’s family ownership structure at Five Guys creates a natural form of this alignment, but even in systems with outside investors or professional management, the same effect can be achieved through thoughtful compensation design and open communication.
The Bigger Picture: Compensation as Corporate Strategy
What the Five Guys story ultimately illustrates is that CEO compensation in a franchise business is not just an HR issue or a board governance question — it is a strategic decision that shapes every other aspect of how the business operates. The way you pay your CEO determines whether your system prioritizes growth or profitability, whether it values short-term metrics or long-term brand equity, whether it treats franchisees as partners or as revenue sources, and whether it attracts the kind of leadership that builds enduring value or the kind that extracts maximum value before moving on.
For business consultants, this means that any engagement with a franchise client that does not include a hard look at executive compensation is incomplete. You can optimize supply chains, redesign marketing strategies, and implement new technology platforms, but if the person at the top is being incentivized to do the wrong things, none of those improvements will stick. The compensation structure is the operating system that runs everything else.
Jerry Murrell may not have set out to create a model for franchise CEO compensation when he started flipping burgers in 1986. But four decades later, the system he built — and the way he chose to pay himself within it — stands as one of the most compelling examples of how getting incentives right at the top can create a franchise brand that delivers value to everyone in the system, from the corner office to the front counter.
Is your franchise compensation strategy driving long-term value — or quietly undermining it? Contact Coleman Management Advisors to schedule a consultation on executive compensation design, franchise system health assessments, and strategic advisory for multi-unit businesses.