Is optimizing compensation key to a satisfied sales force?

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The article was originally published in Hotel Business on June 21, 2015.

NATIONAL REPORT—In the film Glengarry Glen Ross, Alec Baldwin as Blake screams out to his real estate sales team the often-imitated lines: “A-B-C. A-Always, B-Be, C-Closing. Always be losing. ALWAYS BE CLOSING!” While not as demonstrative, hotel operators likely give their

sales force and revenue managers that same directive. But, if the right compensation plan is not in place, salespeople may not have the drive to succeed in that effort.

Global sales and marketing consultancy ZS, in collaboration with the Hospitality Sales and Marketing Association International (HSMAI) Foundation, recently released the Hotel Sales Incentive Practices Research Study, with a goal to better understand the structure of incentive plans and highlight opportunities for improvement.

“We work with our clients on the incentive compensation plans for their sales people and revenue managers,” said Tony Yeung, a principal at ZS’ Toronto office and the lead researcher

and collaborator with HSMAI on the study. “We’ve just seen that there is really no good data out there on best practices with respect to that compensation. Data exists in terms of benchmarking when you think of overall compensation levels in a given city or in a specific hotel segment. But, there is really no good information on incentive compensation structures, so that was the objective—to go out and secure that data.”

For the study, the first of its kind for the hotel industry, ZS surveyed 522 HSMAI members—322 revenue managers and 200 sales leaders—within the U.S. and Canada. “One of the questions

we asked was, ‘Would you recommend your incentive plan to a friend or colleague at another hotel?’ The answer was resoundingly either passive or negative in turns of the likelihood to recommend,” said Yeung. “We don’t generally hear people across industries have resoundingly positive things to say about incentive compensation; usually, it is about neutral. Here, it was actually quite negative.”

In ZS’ analysis—which covered a range of hotels from boutiques to international luxury resorts—only 20% of sales executives and 18% of revenue managers said they were likely to recommend their incentive compensation plans to other colleagues or peers. The majority of participants, the study revealed, were unlikely to do so for several reasons, including overall pay levels, low payout upside, limited performance reporting and poor plan administration.

Yeung elaborated on the reasons for dissatisfaction in the compensation plans: “One has to do with the goals that we set for sales people, and many of those are aggressive, overly stretched targets that are not attainable. That leads to low payouts at the end of the day and an unfair plan. Another is around pay-for-performance. There isn’t a lot of upside earning opportunity in those plans. Even for best performers, when they do quite well, their ability to earn is either capped or just not that aggressive and not that meaningful. The final one is the notion of access to data and performance reporting. For many salespeople in the hotel industry, just knowing how they are doing on an ongoing basis is challenging. There aren’t good systems, good data or good reporting for them to know and understand how they are doing on an ongoing basis with respect to performance— the payouts, what they are going to earn at the end of the quarter, the end of the year, those kinds of things.”

For revenue managers, the study noted that it’s not always the almighty dollar that leaves them unfulfilled. “With revenue managers, one of the things they cited quite often as drivers of satisfaction in their roles or with their compensation plan actually weren’t incentive compensation related,” said Yeung. “Recognition was one, so non-monetary recognition programs were things revenue managers cited more strongly than salespeople. The other one was around career opportunities and career development. Revenue managers oftentimes are operating on a little bit of an island. Those who work on property, they are the only person—especially at a midsize property—in that role. They are working among other cross-functional disciplines such as marketing, sales and operations. I think this idea of career opportunities and recognition was important to them.”

From its findings, ZS established four “opportunities” hotel management can implement to keep their revenue management and sales teams satisfied when it comes to their compensation plans. They include setting competitive pay levels; setting achievable goals and aligned thresholds; improving pay for performance; and timely, efficient performance reporting.

Pay levels were most important to salespeople, according to the study. “When you take the base salary they are earning and the incentive compensation, the overall monetary compensation level was one that salespeople rated very highly in terms of something that drives a higher level of satisfaction with the way their incentive plans are structured,” said Yeung.

He emphasized that goals, especially for salespeople, must be fair and achievable “because if we don’t have good goals, then even the best incentive plan is going to fall down. It’s not going to work out and function in an effective way.”

Designing a plan that has the upside opportunity for the highest performers will likely enhance the satisfaction level of the revenue managers and salespeople that the hotel could least afford to lose to another property, or even to a different industry such as healthcare and technology.

“If someone does really well and is delivering strong results, he or she should be rewarded appropriately,” said Yeung. “We saw from the study that, typically, our best performers in the hotel industry are earning about 1.5 times what an average performer might earn. In other industries, we

see it more in the zone of two to three times. So, designing a plan with more upside opportunity would be [an opportunity] that I would highlight.”

Yueng said he expects the study to be done again but feels that it would return on a biannual basis because “we find that this doesn’t change on an annual basis.” He did note, however, that timeline could change if the types of revenue managers and salespeople surveyed in future studies are expanded.

“In this initial wave, we really focused on on-property salespeople and revenue managers. There are other roles we would like to include in future studies, and that may come sooner than two years from now,” he said. “The ones that jump to the top are really some of the off-property sales roles. So, global sales organizations or area sales positions were roles that were not included in this study. Those are the ones that we see a need for and would be the next priority for future ways to do the study.” HB