Incentive Pay Lessons from the Hospitality Industry

What can compensation managers responsible for managing incentive pay learn from the hotel industry? A good deal, according to new research findings.

Hotel sales and revenue management teams are accountable for delivering profitable business to their properties. Incentive compensation is an important motivational tool for these roles, but a new study uncovers significant employee dissatisfaction with the current state of incentive compensation plans in the hotel industry. This, in turn, poses important risks for managing talent retention, motivation and overall employee engagement.

That’s the conclusion of the Hotel Sales Incentive Practices Research Study by global sales and marketing consultancy ZS and the nonprofit HSMAI Foundation, the research and educational arm of the Hospitality Sales and Marketing Association International. (, the research and educational arm of the Hospitality Sales and Marketing Association International. (View infographic.)

In this study of incentive compensation design, ZS surveyed 522 HSMAI members in sales and revenue management within the U.S. and Canada. The goal was to better understand the structure of incentive plans today and highlight opportunities for improvement.

In ZS’s analysis of a wide range of hotels, from boutiques to international luxury resorts, only 20 percent of sales executives and 18 percent of revenue managers reported being likely to recommend their incentive compensation plans to colleagues or peers. The majority of participants cited dissatisfaction with overall pay levels, limited performance reporting and poor plan administration.

“The magnitude of dissatisfaction across these roles may have significant consequences for the industry,” ZS principal Tony Yeung, author of the study, told SHRM Online in an e-mail. “Low incentive plan satisfaction among revenue management and sales teams can translate into lower motivation and a loss of talent over time.”

Practices Improve Employee Motivation

“Survey participants who are likely to recommend their incentive plan to others tend to work at hotels that offer higher total compensation,” Yeung said. “This emphasizes the need to benchmark and ensure pay levels are competitive within both the hotel industry and broader sales function.”

About 50 percent of sales and revenue management participants also cited relatively low differentiation between top and average performers in their compensation plans—an issue that is particularly acute for the hotel industry.

“In many other industries, such as high-tech, industrial products and health care, we see a much higher proportion of incentive budget allocated to top salespeople, which often translates to a two to three times payout difference between high and average performers,” Yeung said. “For many hotel brands and individual properties, relatively low pay differentiation is limiting the impact of their incentive plans.

“Timely and accurate performance reporting and monitoring reinforces the value of an incentive plan, but many hotels lack strong tools to do so,” Yeung added. “Addressing this can improve plan satisfaction at relatively low cost.”

Hint: It’s Not Always About Money

The study uncovered opportunities to drive higher plan satisfaction and performance. Higher total pay levels are one opportunity, but others that require less, if any, incremental investment include:

• Focusing more strongly on pay for performance to better reward, motivate and drive performance of top employees.
• Establishing accurate, realistic and achievable goals that better reflect performance expectations.
• Adopting recognition programs to acknowledge the strongest contributors.
• Developing robust tools for performance reporting so that teams always know where they stand in relation to their goals and payouts.

“Simplicity and good communication are common denominators for success,” said Robert A. Gilbert, president and CEO of HSMAI.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

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