<PAGE>
 
                                                                    EXHIBIT 10.8

                               THIRD AMENDMENT TO
                               ------------------
                              EMPLOYMENT AGREEMENT
                              --------------------
                                        

     This Third Amendment to Employment Agreement ("this Amendment") is entered
into as of May 5, 1997 between Sizzler International, Inc., a Delaware
corporation ("Sizzler"), and Kevin W. Perkins, an individual.

                                R E C I T A L S
                                ---------------

     The parties to this Amendment hereby acknowledge as follows:

     A.  As of May 1, 1996, Sizzler and Employee entered into a written
Employment Agreement dated as of such date and amended on September 25, 1996 and
on January 1, 1997 (as so amended, the "Agreement").

     B.  Sizzler and Employee now wish to amend the Agreement by entering into
this Amendment.


                               A G R E E M E N T
                               -----------------

     The parties to this Amendment hereby agree as follows:

     1.  The first sentence of Section 2.2 of the Agreement shall be amended to
read in full as follows:

     "Employee shall serve as the Chief Executive Officer of Sizzler's
     International division, comprising Sizzler's Asian and Pacific operations."

     2.  Section 2.5 of the Agreement shall be renumbered as Section 2.4.  The
first sentence of  the former Section 2.5 (new Section 2.4) of the Agreement
shall be amended to read in full as follows:

     "Employee shall be based at such place(s) in the Asia/Pacific region as
     Sizzler shall deem necessary to fulfill his duties, except for required
     travel on Sizzler business to an extent substantially consistent with
     industry practices."

     3.  Section 3.3 of the Agreement shall be amended to read in full as
follows:

     "Employee shall be entitled to participate (i) on a one-time basis only,
     the Bonus Program described in Exhibit A hereto (the "FY 97 Bonus Program")
     and (ii) for 

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     Sizzler's 1998 fiscal year, the Bonus Program described in Exhibit B hereto
     (the "FY 98 Bonus Program"). Sizzler will review annually and may, in the
     discretion of its Board of Directors, increase the FY 98 Bonus Program
     benefits."

     4.  The second sentence of Section 4 of the Agreement shall be amended to
read in full as follows:

     "Employee shall be entitled to reimbursement of relocation expenses in
     accordance with Sizzler's policy in effect as of the date hereof."

     5.  Section 5.4.1 of this Agreement shall be amended to delete the words
"President and Chief Executive Officer" in both places that they appear and
substitute in their place the words "Chief Executive Officer of Sizzler's
International division."

     6.  Section 6.2 of the Agreement shall be amended to delete clauses (i),
(ii) and (iii) thereof and substitute in their place the following:

     "(i)  Sizzler shall pay Employee his full salary through the Date of
     Termination; and
 
     (ii)  in lieu of any further salary payments to Employee for periods
           subsequent to the Date of Termination, and in liquidation of any
           damage or other claims asserted or capable of assertion by Employee
           as a result of any breach by Sizzler of this Agreement, Sizzler shall
           pay as severance to Employee as follows:
 
           (a)  an amount equal to US $200,000 if the termination under this
                Section 6.2 occurs on or before April 30, 1998;

           (b)  an amount equal to US $100,000 if the termination under this
                Section 6.2 occurs after April 30, 1998 and on or before April
                30, 1999; and

           (c)  an amount equal to US $300,000 if the termination under this
                Section 6.2, whenever it occurs, is in connection with or the
                result of the sale of all or substantially all of Sizzler's
                International division, whether in a single transaction or a
                series of related transactions."

     7.  Exhibit B attached to the Agreement (Sizzler's Policy 3-1007) shall be
deleted and shall be deemed to have been replaced by Exhibit B attached hereto
(the FY 1998 Bonus Program referred to in Paragraph 3 of this Amendment).

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     8.  Except as amended by this Amendment, the Agreement remains in full
force and effect in accordance with its terms.



"SIZZLER"                              "PERKINS"


Sizzler International, Inc.            /s/ Kevin W. Perkins
                                       ------------------------
                                       Kevin W. Perkins

By:  /s/  James A. Collins
     ---------------------
Its:  Chief Executive Officer
      -----------------------
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                                   EXHIBIT B
                                   ---------
                                        
                         FISCAL YEAR 1998 BONUS PROGRAM
                         ------------------------------
                                        
  This Bonus Program is provided by Sizzler International, Inc. (the "Company") 
to Kevin W. Perkins on the terms and conditions set forth below.

  In compensation of Perkins' services, promptly following the end of its 1998
fiscal year the Company will pay to Perkins a one-time cash bonus based upon the
International division's attainment of specified minimum levels of earnings for
that fiscal year.

  Terms and Conditions
  --------------------


     1.  If EBITDA for Sizzler's International division equals or exceeds U.S.
$18,350,000, and EBITDA for Sizzler's Sizzler Australia division is $0 or
greater, Sizzler shall award a one-time cash bonus to Perkins.  The amount of
the bonus will depend upon the specific level of EBITDA attained, in accordance
with the following schedule:

 
<TABLE>
<CAPTION>
            A                               B                               C

If Int'l EBITDA equals or         And SZ Australia EBITDA        Then the amount of bonus
       exceeds                       equals or exceeds                   will be:
<S>                              <C>                                  <C>  
Tier 1:  US $18,350,000            Tier 1:  US $0                       US $200,000
Tier 2:  US $18,800,000            Tier 2:  US $300,000                 US $150,000
Tier 3:  US $19,400,000            Tier 3:  US $1,000,000               US $150,000
Tier 4:  US $20,000,000            Tier 4:  US $2,000,000               US $200,000
</TABLE>



     2.   No credit shall be given with respect to EBITDA that does not attain
the minimum dollar amount specified above. For example, if International EBITDA
does not attain US $18,350,000 or Sizzler Australia EBITDA does not attain US
$0, no bonus need be awarded.

     3.  To earn a bonus at any level, the EBITDA targets in both column A and
                                                                           --- 
column B must be met.  For example, if International EBITDA is US $18,750,000
and Sizzler Australia EBITDA is (US $250,000), no bonus need be awarded.
 
     4.  Each of the Tiers shall be cumulative.  For example, if International
EBITDA equals or exceeds US $20,000,000 and Sizzler Australia EBITDA equals or
exceeds $2,000,000, the amount of Perkins' bonus would be US $700,000
($200,000+$150,000+$150,000+$200,000).
 

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     5.  For purposes of this Exhibit:

         a.  the term "EBITDA" shall refer to the applicable division's
             earnings, for Fiscal Year 1998, denominated in US dollars, before
             interest, taxes, depreciation and amortization, and determined in
             accordance with GAAP. Earnings shall be determined on the basis of
             the applicable division's income after all appropriate division
             expenses, including but not limited to Perkins' and other division
             employees' compensation, except that for the purpose of determining
             the amount of any bonus under this Bonus Program, earnings will be
             reduced by the amount of any Tier 1 bonus ($200,000) payable to
             Perkins.
 
         b.  the term "Fiscal Year 1998" shall refer to Sizzler's fiscal year
             ending April 30, 1998.

         c.  the term "International division" shall refer to the KFC division,
             the Sizzler Australia division, and Sizzler franchise operations in
             the Asia/Pacific region, and The Italian Oven division.

         d.  the term "Sizzler Australia" division shall refer to the Sizzler
             restaurant operations in Australia.

     6.   Any bonus earned hereunder shall become due and payable upon
determination of EBITDA for the International and Sizzler Australia divisions as
soon as practicable after Fiscal Year 1998.

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