Facing a tightening labor market and wage pressures, executives at hotel ownership and management companies say the answer is to invest more in employees while smartly trimming costs.
REPORT FROM THE U.S.—As the labor problems inherent in a strong economy metastasize, executives at hotel ownership and management companies say they concentrate less on what they can’t change and focus on what they can.
The labor pool is shrinking, and workers, when they can be found, are demanding higher wages.
- More on the U.S. hotel industry wage/labor picture:
“As a nation, we have nearly full employment,” Klaudio Simic, VP of Operations at Provenance Hotels, said via email. “Our industry has, in the past, been able to balance wage growth with economic growth, but as the former starts to outpace the latter, everyone is feeling the pressure.”
Much of that pressure comes from competing for employees with companies in other sectors that are somewhat setting the pace for wage growth, Bryan DeCort, SVP of Operations at Hotel Equities, said in an email interview.
“With unemployment at 20-year lows and companies, like Amazon, increasing minimum wage and creating additional wage pressure, the extraordinary demand for talent means we must appeal to employed talent and draw them from their current jobs,” he said. “Not easy.”
Prism Hotels & Resorts President & CEO Steve Van pointed to other factors that he said are making the issue more difficult.
“Demographics are making (the labor pool) tighter, plus you have fewer immigrants coming in,” he said. “Living expenses are going up, and people need to make more money. So part of it is finding people, and the other part is paying them.”
DeCort said the issue is driven in part by a generational shift.
“The well-documented workforce shift from Boomers to Gen X to Millennials and Gen Z is real—different skillsets, salary expectations, motivations and learning curves,” he said.
Van added the pain is more acute in certain markets.
“We’re trying to find people to work in hotels in Silicon Valley, and that’s pretty hard,” he said. “But it’s also hard in places like Oklahoma City and Baton Rouge.”
Simic said he sees the potential for market-specific challenges to become more widespread.
“We operate in multiple markets, including Seattle and Portland, two cities that have some of the highest minimum wages in the nation. Further complicating matters, predictive scheduling is already in place in Portland, and health and wellness ordinances that have the effect of limiting productivity are already in place in Seattle. These are all likely to gain traction across the West Coast and eventually nationwide,” he said.
Talent from within
It’s futile to try to change a reality that is outside of the hotel industry’s control, so companies must look inward for answers, DeCort said.
That starts with developing talent from within to cultivate a company’s internal workforce, the executives agreed.
Hotel Equities “continues to produce talent internally as we scale our best-in-class leadership development and training programs,” DeCort said.
“We complement our commitment to developing internally with an award-winning culture, competitive compensation inclusive of customized and flex benefits, such as the ability to work remotely. As we grow, we create a pipeline of opportunity for our associates, which encourages opportunity and loyalty.”
Simic said Provenance’s “No. 1 focus” is employee retention, “because the cost of recruiting, hiring and training is exponentially more than the cost of keeping good people happy, content and well-compensated.”
He added the company is “focused on not only remaining competitive in terms of wages but also on all the intangibles that create loyalty and ensure that, even if they are recruited from outside, our team knows the grass is always greenest right here with us.”
Van stressed that he sees the value in taking care of and compensating his employees well, noting that even at properties with unionized workforces, including the Hyatt Regency LAX, the company has “great relationships with our unions.”
“They need a fair deal, and we need great employees,” he said.
He said maintaining a healthy and happy workforce with relatively low turnover also helps keep costs down, particularly when it comes to insurance.
“We have fewer increases in insurance than just about anybody, and that’s something you don’t normally think of,” he said. “So we make sure (employees) are happy and treat them really well.”
When hiring, instead of promoting, to fill positions, knowing where to look for employees is key, DeCort said.
“Our team intentionally looks to hire within local sub-groups that are traditionally overlooked, such as military veterans, adults with special needs, single parents and students,” he said. “This gives us a competitive edge.”
On the other side of the issue, expenses have to be controlled, while limiting impact to employees or guests, the executives said.
“Each day, for every cost increase, we ask ourselves the tough question: Where we can find commensurate cost savings without compromising the guest experience? We are always navigating this, experimenting, checking our guest-satisfaction score to determine what really matters to our guests and fine-tuning our operations because, despite the economic pressure, we cannot compromise on guest experience,” Simic said.
“If we aren’t delivering on that, we won’t be able to be sustainable and fulfill our obligations to our owners, investors and—just as importantly—our employees.”
One way Prism has dealt with managing costs in the face of increasing wages is by better managing staffing levels, Van said.
“We have a proprietary system for scheduling that helps save us money,” he said. “It helps us make sure that when the front desk needs two people, there are just two; and when it needs one, there’s one.”
He said getting that software in place required an investment, but it has a provable ROI for Prism’s owners.
Simic said the food-and-beverage sector has had some success with similar challenges “by developing casual concepts that rely on technology and self-service,” and the hotel industry can learn from that.
“Our industry has already started to experiment with how we can work smarter, not harder—particularly in areas like in-room dining, parking and minibar—to create savings that help offset increased labor costs,” he said.
He cited an example of small savings that add up for Provenance. “Rather than maintaining multiple daily newspaper subscriptions that just a handful of our guests take of advantage of, we offer a digital press reader that allows guests to access scores of publications with the touch of a button,” he said.
The executives agreed the labor problem is unlikely to improve in the foreseeable future.
“We just started to see wage growth surpass economic growth and can expect that to continue,” Simic said. “We are also due in the cycle for an economic slowdown, which when it comes—and it is sure to come—will further complicate matters. Our plan is to seize every opportunity to be proactive about mitigating the effect of rising labor costs, to hold on to the talent we have and to continue to grow as a company to make ourselves as attractive to potential employees and guests.”
DeCort predicts the labor environment in the next year to be “hyper-competitive,” and to continue “to decline as we softly enter a turn in the cycle.”
As a result, he said, Hotel Equities is “prepared for potential staffing shortfalls due to a decrease in quality and volume of available talent, high turnover and loss of profit margin.”