Industry Update
Opinion Article 1 July 2008

Russia Moves Towards More Local Management in Hotels

Over the past year, the number of expatriate employees in management-level positions in Moscow and St. Petersburg has decreased significantly in 3, 4 and 5-star hotels.

By Tatiana Veller

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HVS Executive Search Completes its 2nd Annual Compensation Survey in Moscow and St.-Petersburg (Part I)

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In May 2008, HVS Executive Search–Moscow completed its 2nd annual Compensation Survey of property-level hotel positions in 2 major Russian markets–Moscow and St. Petersburg. This year the survey attracted a larger group of respondents, covered a wider array of positions, and included a larger number of indices. As a result, the survey yielded more in-depth results than the previous year. In this article, we would like to point out the major year-over-year changes from our 2007 Survey, as well as draw your attention to several interesting observations regarding management positions and their packages.


Participants

This year, we had wider participation–24 hotels took part in our survey vs. 15 in 2007. Additionally, there has been an increased participation from non-chain, unaffiliated properties in Moscow and St. Petersburg. This year we had participation from 3, 4 and 5-star hotels, for which the salary information exchange became habitual a long time ago. We are hopeful that next year we will be able to attract more participants from both the Russian regions and CIS.

Positions

Last year's survey only covered 11 management positions in Moscow and 10 in St.-Petersburg. This year's report contains information on a much broader list of positions. For example, the list of management positions included from 12 (in 3-star hotels) to 17 positions (in 5-star properties), and for non-management employees, from 23 (in 3-star properties) to 34 (in 5-star hotels).

Indices

We included more dimensions of management compensation packages in our survey this year. This year, we don't only report on base salary, bonus, and total comp, but also monetary values of medical insurance and meal allowance for management positions. For non-management employees, we are covering base salary figures, bonus and total cash compensation in this year's report.

2007 vs. 2008 – What Changed?

Table 1: Percentage of Expatriate Managers in 2007 vs. 2008

The most drastic change from last year's survey is the reported decrease in number of expatriate employees in property-level management positions. While we reported some expatriate presence in nearly all positions surveyed last year, this year the only jobs that were still steadily held by expats were General Manager and Executive Chef, with some inclusion of Director of Food & Beverage. Amazingly, this holds true among all hotel categories across 3, 4, and 5 star properties. See Table 1 for graphical representation of the data on various positions.

With a decrease in a number of expatriates in management positions, we observed a smaller number of hotels that provided additional benefits to their top managers such as housing, car and travel allowance. Interestingly, not only has there been a decrease in a number of expats getting this package, but a number of local managers that used to have similar packages to that of expats seem to have been stripped of excessive add-ons. Either hotels are starting to count their kopecks, or there is a new breed of managers starting to appear, for which other things matter more: association with a recognizable name, ability to grow professionally and learn from the best in the industry and career opportunities, to name just a few.

Another sizeable change occurred, not surprisingly, in the base salary figures of all Russian labor market participants. As the ruble gets stronger and the demand for staff grows, the candidates start demanding a premium for having a local expertise, knowing the market, and speaking the language. Some of the changes (in US Dollars, gross) year-over-year, are shown in the Table 2 below.

Table 2: Managerial Salaries in 2007 vs. 2008
* USD cost in 2006/7 at the time of taking the survey - 26.5 Rubles, in 2008 - 23.5 Rubles

In 2007-2008 RevPAR increases in Russia have been in the neighbourhood of 10-15% per annum, which may justify some of the noted spending on execs' pay. It's been industry knowledge for some time that Russia is enjoying one the lowest proportions of labour cost to ADR. Perhaps it is now creeping up to match the world standard. Russia's annual inflation rates in the past couple of years have been around 9-11%, and it's customary for employers in Russia and the former USSR states to give “pro-rated inflation equalization” raises.

And still, such substantial over-the-board increases in executive pay prompt further questioning into whether this is consistent with the line-level pay increases and with the hotels' profitability/revenues. We will look into the line employee pay levels in the next article of this short sequel.


Tatiana Veller is Managing Director of HVS Executive Search - Russia. Tatiana specializes in Executive Search and compensation consulting for all facets of the Hospitality industry in the territory of Russia, CIS and the Baltics. For more information, questions and comments please contact Tatiana Veller at [email protected] or phone numbers +7 (495) 230-0117 and +7 (909) 642-0313.


HVS International is a hospitality services firm providing industry skill and knowledge worldwide. The organization and its specialists possess a wide range of expertise and offer market feasibility studies, valuations, strategic analyses, development planning, and litigation support. Additionally, HVS International supplies unique knowledge in the areas of executive search, investment banking, environmental sustainability, timeshare consulting, food and beverage operations, interior design, gaming, technology strategies, organizational assessments, operational management, strategy development, convention facilities consulting, marketing communications, property tax appeals and investment consulting. Since 1980, HVS International has provided hospitality services to more than 10,000 hotels throughout the world. Principals and associates of the firm have authored textbooks and thousands of articles regarding all aspects of the hospitality industry. Click here for more...

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