How Bonuses Can Help Independent Hotels Fight the Brands

If you have attended any hotel sector related conference this year, or kept up to date with industry press, you will have been unable to ignore the dialogue taking place around brands and the argument posited by some that we are reaching a point of brand oversaturation in the market. Are the lines of differentiation between brands, often within the same company, becoming blurrier; is the brand proposition to the consumer and to the hotel owner being diluted; is too much choice overwhelming? The big chains of course counter that they have to compete with the OTAs; their earnings are nowadays based on management fee growth rather than real estate appreciation; and the value of their loyalty programme 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 800lb 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; you get what you pay for. While there a numerous studies on what does or does not incentivise peak performance, it is widely recognised 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 towards sales activities that encourage achievement of sales goals.” 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 as per Harvard Business Review in the US is a ratio of 60% fixed salary to 40% bonus. Interestingly the hotel sector incentivises at a lower rate. Aethos™ data for the London hotel market across all segments, sub locations and room counts, shows a median paid bonus for a Director of Sales Marketing of just 14% of annual base salary.

The curious thing however is that the Director of Sales & Marketing is clearly a key valued member of a hotel’s management team. After the General Manager the DOS&M 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 however that Directors of Food and Beverage take home more in bonus that 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 such a competitive market as London. 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 DOS&M 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 brand machine in the background, a stronger emphasis on incentive reward and less on fixed salary could help to 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, Sales and Marketing is a department which 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.