Hotel Online  Special Report


Senior Hotel Executives Are Scratching Their Heads Over
an Annual Dilemma: What, if Any, Adjustments Should
They Make to Next Year’s Payroll? 

Are you worth a pay rise?

By HOTEL Asia Pacific columnist Mark Keith, Managing Director Asia Pacific of HVS Executive Search, December 2003

Senior hotel executives are scratching their heads over an annual dilemma: what, if any, adjustments should they make to next year’s payroll? 

But when it comes to rewards in 2004, the old proverb, “He who pays the piper calls the tune” might be better written as, “Pay the piper who plays the right tune.” 

Nothing illustrates the diversity of our region more clearly than the characteristics of pay practices, which obviously reflect the conditions in each environment. Or do they?

In Singapore, there was support for a zero increase in pay levels for 2003, with any rewards being reflected in bonus pay. Company contributions to the Central Provident Fund have also been reduced to stimulate employment levels in the city.

In Thailand, competition for skilled staff remains a key factor in determining any payroll increment, and other industries have targeted hotel staff as they are perceived as having essential basic business skills. Although this year’s budgeted salary increases were generally not implemented,there will probably be a modest increase in 2004 to match cost-of-living increases.

In South Korea, negotiations with unions determine salary levels, and it is predicted that increases will range from 5-9%. 

Hong Kong has one of the highest salary costs in the region, thanks to almost two decades of rampant payroll inflation. Although the Employers Federation has taken a lead role in recommending that employers hold off pay rises, amazingly - after over five years of patchy economic performance - employers still largely maintain a fixed 13th-month bonus. 

Part of the problem in Hong Kong is that overall civil-service pay has risen steadily, despite poor economic performance and private-sector practice. The challenge is to introduce independent governance in civil-service pay, which will ensure that government compensation decisions are not administered by those who are the beneficiaries of the system. 

And here lies the secret of appropriate pay practice: independent oversight.

It is unreasonable and unrealistic to subject an individual manager to the suspicion that a pay proposal that he/she is championing has been determined against a consideration of “what’s in it for me?” 

Now, consider this - a 3% increase for a line employee making US$1,000 a month adds up to a mere $30 but, further up the food chain, the same increment represents a serious chunk of change. 

It takes extraordinary courage and objectivity to recommend and implement appropriate pay policies that may not be in the interests of certain individuals or groups of colleagues. 

Independent oversight is required, and smart companies form an independent compensation committee to oversee their compensation programmes. This committee ensures that the company’s compensation programme is designed to attract, retain and motivate employees at all levels, and takes into account the compensation practices of companies competing for hotel-industry talent. 

We have all experienced service inconsistencies in the same establishment. No matter the level of training and supervision, individual staff members perform at their default capability or comfort level. 

This means that, for example, a customer might experience a rushed and garbled telephone greeting from one operator, and the same words pronounced perfectly with warmth and feeling from a another. 

In restaurants, customers – and restaurant managers - know that individual waiters can provide a very different customer experience; that’s why a VIP table will be allocated the “best” talent available, and everyone knows which staff member will be allocated to check in a VIP.

Employees who perform outstanding service stand out - they know they’re good, and they expect to be rewarded. 

Such rewards not only encourage them, but also send a message to others and define the standards expected far clearer than any standards policies filed away in dusty manuals. 

Failure to execute a compensation practice that recognises and rewards talent leaves the competition free reign to pillage and poach with temptations commensurate with the talented employee’s self image. 

Pay awards that recognise individual contributions as well as overall business results will ensure the company message is conveyed far better and clearer than any staff-meeting memo. 

These rewards convey the alignment with financial and strategic company goals, as well as stockholder interests. Put simply, this requires that a substantial portion of each employee's compensation should be variable and tied closely to the achievement of specific business objectives and corporate financial goals. 

No matter what a company says about how it is performing and how it sees the prospects for the coming year, how and what a hotel ends up paying in 2004 will communicate a much louder and compelling message.
Pay-for-performance has long been established in text books on compensation but, in order to ensure that it does not just remain a dusty theory, the application of pay-for-performance means that under-achievers will actually receive a decrease in pay. 

That’s the message required in 2004 - along with some other equally critical signals. 

Banish the expectation and the implementation of an across-the-board increase. If there is a budgeted payroll increase of, say 3%, then allocate those dollars, baht or pesos according to individual performance. 

This means some individuals might receive as much as a 15%-30% increase in overall annual pay - a hefty reward, and one they will notice and remember. 

However, instead of implementing this reward as an increase in base pay, it should be awarded in the form of a one-off, or partially deferred, bonus that will not have the cumulative effect of an increase in monthly base pay. 

Imagine a top-performing staff member, who earns a salary of the equivalent of $1,000 a month and expecting the usual one-month bonus, suddenly receiving a bonus of $3,000 – 10 times higher than normal expectations. 
Alongside this star performer [who no doubt receives regular approaches from competitor employers], poor performers would actually get a cut in base pay.

The message will be heard loud and clear. 

Arguments will be made to the effect that there are few poor performers or under-achievers, and that these are systematically disciplined and/or coached and, if they fail to improve, they are eventually released. 

But just look, for example, at the variety in the proficiency of the required languages in any hotel in the region and you will see the disparity in service delivery – this, despite countless years of language classes offered free by hotel-training departments. The reality is that non-performers often get away with it – at the expense of their hard-working colleagues.

Such a radical pay policy requires courage and objectivity; it will come from informed, knowledgeable and independent thinkers who are not intimidated by the prospect of the “loud” voices of the whispering classes who are invested in maintaining the status quo.

Contact Mark Keith at:

© Copyright HOTEL Asia Pacific

Subscription Information
Hotel Asia Pacific
Steve Shellum
158 Wong Uk Tsuen
Yuen Long
New Territories
Hong Kong
Tel: +852 2882-7352
Fax: +852 2882-2461

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