A well-structured incentive program for sales and marketing executives at independent hotels can result in an independent hotel that outperforms its branded competition.
If you have attended any hotel industry conferences this year or kept up to date with industry press, it’s impossible to ignore the dialogue around brands and the argument that we are reaching a point of brand oversaturation in the market.
Are the lines of differentiation blurring between brands, often within the same company? Is the brand proposition to the consumer and to the hotel owner becoming diluted? Is too much choice overwhelming?
Of course, the big chains counter that they have to compete with the online travel agencies; their earnings nowadays are based on management fee growth rather than real estate appreciation, and the value of their loyalty program drives the need to provide greater consumer choice.
This scenario gives independent hotels an opportunity to be differentiators, to stand out from the crowd and to offer something more unique that captures the consumer not looking to follow the crowd. The reality nonetheless is that, commercially, independent properties are having to compete against an increasing number of 800-pound gorillas who are getting bigger by the day.
In order to compete against the sales and marketing muscle of the big brands, independent hotels need to punch above their weight and to be at the very top of their game in terms of commercial strategy and execution. To achieve this requires commensurate leadership and talent, namely an outstanding sales and marketing director and team. This of course takes money. After all, you get what you pay for. While there are numerous studies on what does or does not incentivize peak performance, it is widely recognized that financial reward is a highly motivating factor for sales people. “The belief is that at-risk pay motivates salespeople to work hard and direct effort toward sales activities that encourage achievement of sales goals,” wrote the authors of a 2017 Harvard Business Review article titled “Sales bonuses are supposed to motivate, so don’t waste them on easy targets.”
The ratio of fixed pay to at-risk pay varies sector to sector. For example, many in insurance sales are on a 100% commission basis, but the average in the U.S. according to Harvard Business Review is a ratio of 60% fixed salary to 40% bonus. Interestingly, the hotel sector incentivizes at a lower rate. Our data for the London hotel market across all segments, sub-locations and room counts, shows a median paid bonus for a director of sales and marketing of just 14% of annual base salary.
What’s curious, however is that the director of sales and marketing is clearly a key valued member of a hotel’s management team. After the general manager, the DOSM position is the highest paid in terms of base salary, just ahead of the hotel manager and slightly out of reach of the finance director. Revenue generation clearly outranks service delivery in the earning stakes. It is perhaps surprising though that directors of food and beverage take home more in bonuses than their counterparts in sales and marketing, roles which are supposedly by their nature highly incentive-driven.
Quality sales and marketing people are always tough to come by and are expensive to lose, especially in competitive markets. The perceived value of directors of sales and marketing has therefore driven up their price over the years to a point where they command the salaries they do.
I would question, however, if a hotel is getting maximum value from its DOSM if there is little incentive to outperform the market. At independent hotels, where the direct correlation between the performance of a sales team and the performance of the hotel is easier to measure in the absence of a flag, a stronger emphasis on incentive reward and less on fixed salary could help drive increased performance in the battle against the brands. It will also expose the hotel less from a fixed overhead perspective when the market turns and times get tough. Historically, in times of economic downturn, the sales and marketing department often experiences a higher rate of employee turnover as high salaries stand in starker contrast to a perceived lack of results.
A bonus should play an integral role in a well-structured compensation program that rewards short-term performance, both financial and non-financial. It should serve to strengthen the win-win link between the performance of the company and the performance of the individual. In the fight against the brands, independent hotels could find that a more heavily weighted incentive scheme could help drive even greater performance from their commercial teams.
Chris Mumford is a Founding Partner at AETHOS Consulting Group (www.aethoscg.com) and serves as a Managing Director of its London office. Having studied and worked in Germany, Japan and the US, Chris applies his executive search and human capital advisory consulting on assignments throughout Europe the Middle East and Asia regions, placing senior executives at leading hospitality companies in the lodging, restaurant, food service, timeshare, cruise and tourism sectors.
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