In this article, President of HVS Executive Search Keith Kefgen explains how hotel labor costs are continuing to rise despite the struggling economy.
By all accounts the last few years have been difficult for the lodging industry. Falling room rates have had the greatest impact on hotel profitability. The other factor that always determines hotel profitability is the cost of labor. It has been widely thought that with unemployment running at levels not seen in a decade that access to cheap labor would abound. Think again. Our most recent compensation survey suggests that labor cost continue to rise even in the face of the economic downturn. We believe that the lodging industry faces even greater challenges as the economy continues to improve.
With nearly 4000 hotels participating in our 2002 HCE Annual Survey, data was garnered from every segment, size and location in North America. The national average salary for a hotel General Manager was $88,000, which was a $7,000 increase from fiscal year 2000. Not surprisingly, bonus compensation decreased from the 2000 numbers but only by $1,500. Each of the other five positions had salary increase over the same period of time, with increases ranging from $1,000-5,000. The national averages for base and bonus are listed below.
More Rooms, More Money
Based on the number of rooms in a property, compensation followed a fairly consistent pattern; as the number of rooms increased so did compensation. For example, General Manager compensation moved from $50,000 at properties with less than 150 rooms to $172,000 at properties with more than 800 rooms. Likewise, bonuses increased in the same manner with most bonus plans being tied to a percentage of base salary. Below is a synopsis of the room size analysis.
We further conducted a regression analysis and determined that there was a statistically strong relationship between the size of a property and compensation. We further determined the salary increase for each position from the 2000 study to the 2002 version. Below is a review of those increases.
Geographic Indicators
Geographics played a role in compensation as well. Higher cost of living areas on the east and west coast also had higher compensation packages. There were some exceptions to this rule but logic dictates that you need to pay more to attract talent to high cost of living areas. General Managers and Directors of F & B in the Pacific region were the highest paid, while Controllers, Directors of HR, MIS, Sales & Marketing and Rooms all made the most in the Northeast. The graph below indicates these trends.
Location And Type
The location of a property had some significant trends. Center City hotels and Resort hotels tended to pay more than hotels located at Airports, Highways and in Suburbs. This also confirms that cities tend to be high cost of living areas and resorts tend to be larger more complex assets. The data below gives detail to this conclusion.
The industry class affected compensation as well. Luxury hotels tended to pay the most, while the Micro-Budget paid the least. Luxury hotels tend to be more complex and offer a greater array of services to guests. Likewise, managers tended to have more tenure, training and business sophistication. Below is the data to support this argument.
Much like Location, the Type of hotel had similar effects on compensation. Resort and Convention hotels tended to pay more than All-Suite and Extended-Stay hotel properties. Resorts also tend to be larger and more complex assets, while Convention hotels are almost exclusively in City Center locations. This confirms the other trends previously discussed. Below is the Type analysis.
Keith Kefgen
President
HVS Executive Search
372 Willis Avenue
Mineola, NY 11501
516-248-8828 Ext. 220
516-742-1905
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