How to Upgrade Hotel Sales and Revenue Management Incentive Practices and Improve Plan Satisfaction

Transcription

1 ZS and the HSMAI Foundation IPR Executive Summary How to Upgrade Hotel Sales and Revenue Management Incentive Practices and Improve Plan Satisfaction Tony Yeung

2 ZS and the HSMAI Foundation IPR Executive Summary How to Upgrade Hotel Sales and Revenue Management Incentive Practices and Improve Plan Satisfaction Tony Yeung As hotel sales and revenue managers show dissatisfaction with compensation practices, a new incentive compensation study from ZS and the Hospitality Sales and Marketing Association International (HSMAI) Foundation reveals opportunities to improve incentive plans. Can these changes motivate sales and revenue management teams?

3 The U.S. hotel industry has seen its largest increase in demand of the decade, which is expected to increase another 2.4% this year. 1 No doubt, hotels are relying heavily on sales personnel and revenue managers to help them capture their share of this windfall, but are these sales professionals optimally motivated to perform? Last year, large hotel properties spent an average of $253,000 on incentives pay alone for their sales and revenue management teams. Yet many of these teams are dissatisfied with their compensation plans, according to a survey by ZS and the HSMAI Foundation. Four common themes echoed among respondents to explain this dissatisfaction: one, perceived low overall pay levels; two, unrealistic sales goals; three, low pay differential between low and high performers; and four, limited performance reporting. Among the causes of discontent, respondents revealed what they viewed as important drivers of satisfaction (see Figure 1). Derived Drivers of Satisfaction for Sales Professionals Differential Earning Competitive Pay Effective Goals Executive Leadership Team Work/Life Balance Recognition Learning and Development Career Opportunities Hotel Leadership Position Communication of Strategy Attribute Importance as Driver of Incentive Plan Satisfaction Source: 2014 ZS Hotel Sales Incentives Practice Research Study (n=200) Derived Drivers of Satisfaction for Revenue Management Professionals Effective Goals Differential Earning Recognition Career Opportunities Communication of Strategy Executive Leadership Team Learning and Development Competitive Pay Hotel Leadership Position Work/Life Balance Attribute Importance as Driver of Incentive Plan Satisfaction Source: 2014 ZS Hotel Revenue Management Incentives Practice Research Study (n=322) 1 Article/14804/STR-Tourism- Economics-release forecast#sthash.lxithscc.dpuf Figure 1. Differential earning, competitive pay and effective goals are key opportunity areas to increase plan satisfaction. 1

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5 Turnover in hotel ownership and difficulties in articulating a return on investment of sales, marketing and revenue management initiatives challenge an impactful incentive plan, says Robert A. Gilbert, president and CEO of HSMAI. Attribution of hotel revenue performance is becoming more complex today, which contributes to the wide variety of plans that exist in our industry. With that, many need to be updated. Most sales teams and revenue managers aren t happy with the state of their incentive plans, which presents a real problem, says Tony Yeung, a ZS Principal and a leader in the firm s global B2B sales and marketing practice. This creates multiple risks, from low motivation and engagement to higher turnover costs, particularly in sales and revenue management, where even short-term vacancies can result in significant missed opportunities. The Sales and Revenue Management Incentives Practice Research reports are the first data-validated compensation design studies for the hotel industry. ZS surveyed 322 revenue managers and 200 sales leaders from HSMAI s membership in the United States and Canada, representing boutique hotels, midsize chains and large international resorts. Overall, for both sales and revenue management, incentive plan structures are similar, most preferring goal-based plans with a predetermined objective or target component, typically with three or fewer performance metrics. But there are different schools of thought on the best underlying performance metrics. 3

6 For sales, room night revenue or total hotel revenue is the most common, although sales leaders plans often include a hotel profit component. For revenue management, RevPAR Index (revenue per available room) and room night revenue dominate; however, properties tend to select just one of the two, with RevPAR Index as a slight favorite, indicating a desire to drive performance relative to the 40% Percentage of Base Salary 20% 16% 22% 18% 19% 21% 14% 14% Target Incentive Actual Incentive 0% Sales Management General Sales People Conference and Catering Sales People Director of Revenue Management Top-to-average performer incentive pay ratio 2.9x 1.5x 1.4x 1.8x Room Night Revenue (36%) Total Hotel Revenue (39%) Total Hotel Revenue (51%) RevPAR Index (27%) Primary Performance Metrics Total Hotel Revenue (26%) Room Night Revenue (32%) Food and Beverage Revenue (32%) Room Night Revenue (25%) Gross Operating Profit (20%) Room Nights (10%) Room Night Revenue (9%) Total Hotel Revenue (13%) Most plans require that a minimum threshold or gatekeeper is met for one plans using thresholds. Earnings caps are common, with almost two-thirds of

7 Such caps limit the cost of incentives to properties, but can often demotivate the highest performers. The good news: The four key identified challenges each come with opportunities to improve sales and revenue management incentive plan structures, metrics, payouts and communication practices. The level of dissatisfaction among most sales teams is particularly alarming. ), a measure of likelihood to recommend the incentive plan to a colleague. the investment hotels are making in their incentive plans isn t as impactful as it could be, Yeung says. Low incentive plan satisfaction creates a risk that strong performers leave for other hotels or other industries. Likelihood of Sales Professionals to Recommend Current Incentive Plan Extremely likely Promoters (9-10) 19.5% Passives (7-8) 34.5% Net Promoter Score: -26.5% Not at all likely Detractors (0-6) 46.0% Likelihood of Revenue Managers to Recommend Current Incentive Plan Extremely likely Promoters (9-10) 17.7% Passives (7-8) 42.9% Net Promoter Score: -21.7% Not at all likely Detractors (0-6) 39.4% as the biggest driver. Net Promoter Score is calculated by [% of total Promoters - % of total Detractors].

8 Overall pay level was identified as the most significant driver of incentive plan satisfaction. Not surprisingly, respondents who receive a higher level of compensation often those at large hotels and upper-end brands have the most favorable perceptions of their incentive plans. Ensuring appropriate pay levels is critical to creating a culture of engagement and motivation, says Yeung. Hotels that appropriately benchmark overall pay levels and pay mix and align base salary and incentives accordingly will be most likely to have motivated sales staff. Keeping competitive pay levels ensures that you don t lose your sales or revenue management team to the hotel down the street or to other industries, Yeung adds. Hotels need to monitor this over time to ensure they aren t left behind in terms of talent retention and attraction. Opportunity 2: Set achievable goals and aligned thresholds. On average, hotels are setting goals out of the reach of their sales and revenue management teams. While 70% of salespeople earned an incentive payout, more than half failed to achieve their target payout amount. For all respondents, the average actual incentive payout was considerably less than the targeted payout at 100% goal-attainment: Sales teams received an average of 18.5% of base salary with an average target of 22.2%, while revenue management received 14.4% with an average target of 21.3%, indicating a significant gap between actual results and planned goals. Best-in-class companies use a robust and systematic approach to setting achievable goals for their teams. This often starts with the overall hotel budgeting process, says Yeung. If the overall budget forecast isn t realistic, then sales goals are likely to be unattainable. Leading organizations also take a systematic, data-driven approach to allocating goals to salespeople, ensuring fairness and motivation across their teams. Opportunity 3: Improve pay for performance. Respondents report that high performers earn, on average, 50% more incentive pay than average performers. In many other industries we see a much higher portion paid out to high performers, says Yeung. The high-to-average differential for incentive pay is about one and a half times in the hotel industry, whereas two times to three times is the norm in many other industries to appropriately reward the highest performers. Pay for performance is driven by the payout rates defined in the incentive plan. To drive higher pay for performance, hotels should set payout rates that allow the true stars to earn much more at the upper end, between two and three times the pay of an average performer, says Yeung. Leading sales organizations model their compensation plans based on historical results, ensuring that the plan pays out appropriately to high, mid and low performers, while also understanding the expected cost and risk under different scenarios. 6

9 Opportunity 4: Timely, efficient performance reporting. Communication and reporting issues between plan administrators and sales and revenue management are also a problem, according to the study. A majority of hotels manage their incentive plans on-property using custom tools, usually MS Excel based. While many salespeople do not have access to timely performance reporting to understand progress and expected payouts, the study found that those who do were more satisfied with their incentive plans. Although formal performance reports are often distributed monthly or quarterly, 60% of sales teams and almost half of revenue managers reported that they need to manually calculate performance and expected payouts on an ongoing basis (see Figure 4). Performance Reporting Mechanisms Effect on Likelihood of Sales to Recommend Current Incentive Plan More sophisticated reporting Performance reporting method Incentive plan likelihood to recommend Online or reporting 6.7 n=96 Paper reporting 6.0 n=95 Manual calculation only 3.0 n=9 Less sophisticated reporting Source: 2014 ZS Hotel Sales Incentives Practice Research Study (n=200) Figure 4. Access to reporting tools, especially more sophisticated options, increased the likelihood of sales professionals to recommend their plans. Timely, efficient performance reporting is important, says Yeung. Good performance reporting and tools like payout calculators keep the incentive plan top of mind and reinforce the motivational impact. Solutions need not be overly expensive technology investments. For many hotels, improvements to existing processes and tools can yield a significant benefit. Larger brands or management companies can capture value from configurable tools that can either centralize plan administration, or increase effectiveness at individual properties. Looking Ahead When it comes to hotel incentive plans, many of today s practices will not cut it in the long run, says Gilbert. The hotel industry s cyclical nature and sensitivity to economic changes may prevent management from simply increasing overall compensation, but thankfully, we found that there are other nonmonetary drivers of satisfaction. Hotels have an opportunity to improve incentive practices by taking a more systematic approach to evaluating and improving their plans, which can have a big impact by driving better motivation, engagement and retention, all of which contribute to the bottom line. 7

10 About the Author Tony Yeung is a ZS principal based in Toronto, and is a leader in ZS s Travel and Transportation practice. He has more than 15 years of consulting and industry experience focused on client engagements in sales and marketing strategy and execution across a number of industries, including consumer products, transportation and logistics, industrial products and medical devices. His areas of expertise include sales force design, sales effectiveness and incentives design. 8 ZS is a registered trademark of ZS Associates, Inc. NPS is a registered trademark and Net Promoter Score is a trademark of Bain & Company, Satmetrix Systems and Fred Reichheld.

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