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The Devil's in the Details - Pay for Performance Programs Revisited
By Joseph M. Gravish, October 2006

“Naturally, we want to incent our managers, push for results, and drive for the numbers… And, with a solid reward program, Pay for Performance, in place, ‘It is a slam dunk’.” So begins a recent pay for performance rewards program primer (“The Slippery Slope of Pay for Performance Programs” by John R. Hendrie, October 2006). It’s an excellent tutorial outlining an easily understandable roadmap for those hoteliers considering adopting this type of employee rewards program.

Just seven words comprise the most important message in the entire article - “Whoa, time out! Let’s think on this.” Should you or your HR manager be speeding enroute to a pay for performance destination let me add some cautionary, go-slow road signs to your triptik – issues you need to carefully ponder before embarking on the slippery slope the author refers to. Truly, the devil is in the details.

There are significant hurdles both executive management and program participants must overcome. Let me peel back just a few layers of the onion to expose some critical details. 

The tendency to believe that pay for performance is, alone, a sufficient motivator to drive outstanding performance and superior achievement.

Pay for performance rewards is but one component affecting employee satisfaction. Hotels will not attract the best available job candidates nor retain the highest producing employees if the base pay is meager (some executives use the term “competitive”), benefits non-existent and non-financial rewards few or none. Like a three-legged stool, all legs must be sufficiently strong to create the firm foundation on which hotels can prosper. 

Some might also argue that longevity can’t be totally dismissed in the total compensation formula. To quote Cara Finn, VP, Employment Services at Remedy Corporation “You can’t simply ignore longevity. If an employee has been with (a) company three years, he’s performing.”   

Many hoteliers are so busy putting out daily fires they have little time leftover to administer to the repetitious monitoring, evaluating, rewarding, re-planning, re-development, etc. tasks involved. An effective pay for performance program takes time, effort, persistence, organizational and personal discipline. If you’re not committed to it for the long haul, and prepared to execute it as it should be, perhaps a more simplistic approach is more effective for you.
Benchmark data is, at best, unscientific in the hospitality industry and prone to historical mythology. There are simply too many tiers, client types, geographic/employee/ demographic/managerial/cultural differences, etc. to cavalierly adopt a generalized data set to your particular situation. There’s no holy grail. That said it’s not unreasonable to take specific historical data, adjust for unique market segment conditions and create your own benchmark. The process can fail however if you do not continuously review these factors, accept that market conditions change, and in turn modify the benchmark; all in concert with your pay for performance participants. As the author of the article insightfully states “What happens is that variables and inattention can scuttle the best intentions.”
Though the author provides an excellent set of parameters to work with (“*Keep the formula simple, *Objectives must be in the control of the participant, *Financial reporting system must have some credibility, * Senior management must be the driver, *Scheduled progress reviews are essential, *Remuneration must be made in a timely fashion”) few property-level executives have the in-house expertise to properly create and sustain an effective pay for performance system. Within each of these parameters lay the signposts leading to success - but just as importantly jarring potholes of failure. 
Sharing the bounty
Two issues here: the type and amount of the reward. Rewards must be tailored to the employee. Different generations value different types of rewards. Younger managers may respond better to monetary rewards while veterans – those with a family – yearn for more time off. And don’t forget the rank and file. Giving a gift card for a free oil change to an employee who doesn’t own a car would hardly be considered a worthwhile reward. 

With regard to the amount, any monetary-based reward program should ensure the incentive is proportional to the achievements or contributions. With all the emotion involved in the debate surrounding the pay gap between senior executives and lesser paid employees it’s important to adequately share the bounty. A poorly designed rewards formula may exacerbate the real, or perceived, pay gap and can be a de-motivating.   

Conduct an introspective self-audit. Ask yourself, do I return the bounty to both managers and line-level staff – to those who most contributed to its production? Do I explain how profits are distributed to my constituents?   Do I hold at least an annual “state of the hotel” employee information session?  If not, why? The best pay for performance systems are built to reward your #1 asset – people - first.

Information sharing
An effective pay for performance system presumes an information-rich environment – a direct, identifiable major highway that links executive management’s assigned target and the participant’s task execution. Openly sharing resultant data (increases, reductions, exceeds; customer retentions and satisfaction, market share: percents, dollars, etc.) among executive management and all participants facilitates mutual trust and bonds them together.
So what questions do you need to ask, and satisfactorily answer, before adopting a pay for performance system? Here are just a few:
  • Does the culture of my hotel lend itself to the creation of a pay for performance system? Can I support this effort with other meaningful rewards that together attract A-list job candidates and retain my best, most creative, most customer-focused, productive employees? 
  • Might implementing such a system create inter-participant disharmony, unwanted divisions, and distracting competition? If so how will I deal with it? Am I willing to resource all participants adequately so that no one participant feels compelled to rob from another – all in the name of meeting an objective?    
  • What safeguards have I put in place to constantly monitor the program and ensure an objective, honest review of participant achievements?
  • Are the rewards sufficiently appropriate to motivate both high-level and marginal performers?
  • Are there alternatives? Would an integrated, balanced scorecard approach, for example, be more effective?  
  • Am I constructing a pay for performance program which will, intentionally or unintentionally, disguise a pay freeze?
  • What is my exit strategy should my plan not achieve the desired results?
Pay for performance programs can work in the hospitality industry. Properly done it makes good sense for both ownership and participants. Just don’t drive blind. Admittedly there are risks in any incentive program. There are hurdles – no system is perfect and all incentive programs can’t be presumed to be inherently successful.  And there is much at stake - most importantly the loyalty, trust and support of your most important profit-generating asset – your people. 

Mr. Gravish is a human resources professional with over 25 years leadership experience at numerous organizational level and among diverse environments, both national and international. He is an advocate of building business success through, and by, people – first.

Joseph M. Gravish

Also See: Nothing Happens in Hotels without Bob, Betty and Bryan, the Front, Heart and Back of the House / Joseph M Gravish / August 2006
Negotiating Issues Between Hoteliers and Unions – It’s About the Money / Joseph M. Gravish / July 2006

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