ZS and the HSMAI Foundation IPR
Executive Summary
How to Upgrade
Hotel Sales
and Revenue
Management
Incentive Practices
and Improve Plan
Satisfaction
Tony Yeung
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?
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
0
0.1
0.2
0.3
0.4
0.5
0.6
Attribute Importance as Driver of Incentive Plan Satisfaction
0.7
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
0
0.1
0.2
0.3
0.4
0.5
0.6
Attribute Importance as Driver of Incentive Plan Satisfaction
0.7
Source: 2014 ZS Hotel Revenue Management Incentives Practice Research Study (n=322)
http://www.hotelnewsnow.com/
Article/14804/STR-TourismEconomics-release-2015forecast#sthash.LXITHScc.dpuf
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Figure 1. Differential earning, competitive pay and effective goals are key opportunity areas to increase
plan satisfaction.
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“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.
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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
Percentage
of Base Salary
40%
20%
0%
Target Incentive
22%
16%
18%
Primary
Performance
Metrics
21%
14%
14%
Sales
Management
General
Sales People
Conference and
Catering Sales
People
2.9x
1.5x
1.4x
1.8x
Room Night
Revenue (36%)
Total Hotel
Revenue (39%)
Total Hotel
Revenue (51%)
RevPAR Index
(27%)
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%)
Actual Incentive
Top-to-average
performer
incentive pay ratio
19%
Director of
Revenue
Management
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
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)
Net Promoter
Score: -26.5%
34.5%
Detractors
(0 - 6)
46.0%
Not at
all likely
Likelihood of Revenue Managers to Recommend Current Incentive Plan
Extremely
likely
Promoters
(9 - 10)
Passives
(7 - 8)
Detractors
(0 - 6)
17.7%
42.9%
Net Promoter
Score: -21.7%
39.4%
Not at
all likely
as the biggest driver. Net Promoter Score is calculated by [% of total Promoters - % of total Detractors].
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.
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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
Less sophisticated
reporting
Performance
reporting method
Incentive plan likelihood
to recommend
Online or email
reporting
6.7
n=96
Paper reporting
6.0
n=95
Manual
calculation only
3.0
n=9
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.
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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.
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Promoter Score is a trademark of Bain & Company, Satmetrix Systems and Fred Reichheld.
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