By David Mansbach
Any expert will quickly corroborate what readers already know – that seismic shifts are underway within the hospitality industry. The sharing economy, industry consolidation and digitally-armed Millennials all confirm that we are entering extraordinary times, and optimistic entrepreneurs and leaders are embracing this chaotic environment to identify new paths and opportunities. Notwithstanding all this disruption we must not lose sight of the one simple fact that robots, at least in the foreseeable future, will not be running hotels.
The General Manager (GM) is the undisputed business and cultural nucleus of the hotel ecosystem, and recent research indicates that such leadership roles require competencies – including emotional intelligence, adaptability and consultative decision-making – that can neither be relegated nor replaced by technology. As a result, the proverbial “war for talent” is more topical and critical than ever. To this end, let us explore pertinent data and trends for hotel owners and operators to make informed decisions when designing programs to attract and retain high-impact GMs.
Covering four and five star GMs across the United States, AETHOS’ 2016 General Manager Compensation Study yielded a myriad of interesting results. Of these, two findings are particularly noteworthy, so let us explore each in turn: (1) the positive correlation between GM pay and property size, and (2) the differentials in GM pay between independent versus branded/chain hotels.
Compensation Trends by Room Count The main point here is that compensation increases in accordance with room count. In particular, there was a greater than 20% increase in median base pay as you moved through the data breaks under analysis:
- Responsibility of < 100 rooms compared to 100-250 rooms; an increase in base pay of 31%, USD $126,000 to USD $165,000;
- Responsibility of 100-250 rooms compared to 250-500 rooms; an increase in base pay of 24%, USD $165,000 to USD $205,000;
- Responsibility of 250-500 rooms compared to 500-1,500 rooms; an increase in base pay of 22%, USD $205,000 to USD $250,000
Property size often equates to task/ function complexity and diversity, with the GM serving as the lifeline to all critical activities – including property-level operations, management of the employee base, financial oversight, sales and marketing, local branding and market strategy, guest and employee security and customer engagement. Additionally, larger hotels typically have more complex ownership structures with a diverse constituency that can include private equity, hotel management companies, operating companies and professionally-trained asset managers. Finally, GMs at larger, more complex properties are often better integrated into more centralized HR and operational systems, where GMs can serve as ad-hoc mentors or coaches to aspiring leaders as well.
While the room count/compensation correlation does not come as a surprise, the difference among the data breaks was quite large. This is especially pertinent when you take into consideration that some of the smaller hotels in AETHOS’ study commanded the highest average room rates in the country.
Independent vs. Branded/Chain Properties The main point here is that independent hotel GMs receive larger base salary packages than their branded/chain property peers:
- GMs responsible for independent properties received a median base salary of USD $196,000, 10% more than GMs at branded/chain hotel assets;
- The differential was even greater when analysing total cash compensation (base salary and annual cash bonus received over the past twelve months). Independent GMs received USD $255,000, 18% more than the USD $216,000 received by branded/chain GMs.
[Note: these analyses compared GMs overseeing 100-500 rooms to ensure integrity]
The general sense is that these comp schemes recognize and reward the increased authority and autonomy borne by these GMs. To be sure, Cornell Hospitality’s 2014 report, “Who’s in Charge Now? The Decision Autonomy of Hotel General Managers,” presented an interesting perspective when comparing independent and branded hotel GMs and governance structures. The authors concluded that independent GMs have more autonomy than their brethren at branded/chain properties and greater oversight of operational, marketing, human resources, financial and strategic issues. Therefore, the comp trends appear consistent with this thinking and perhaps are not that surprising in context.
Owner/ Operator Takeaways for Winning the “War for Talent” Stated simply, effective GMs transcend property-operations by adding enterprise value to a portfolio, and AETHOS’ 2016 General Manager Compensation Study indicates that the market is incentivizing them as such. The scale and scope of oversight can be significant for branded/chain assets, but the level of autonomy, authority and subsequent accountability for GMs at independent properties tends to be even greater. Consequently, their compensation packages reflect these business realities.
Pay-for-performance has always been the name of the game, so owners and operators should carefully heed these aggressive trends when strategizing campaigns for new hires or re-evaluating the compensation of incumbent talent. Successfully managing increasingly complex and diverse operations, as well as promoting increasingly personalized or differentiated service standards for guests is a job description not easily satisfied.
Owners and operators are not paying merely to gain average leadership. Today’s compensation trends reflect the reality that GM talent at the property-level is a multi-faceted recipe, blending tactical and strategic business and financial acumen with savvy and pragmatic people skills for connecting with ownership and aligning teams up and down the organizational chart. Looking at GM compensation as a line item misses the point; it is best seen as an investment that brings a positive ripple effect to the entire P&L.