If one starts with the basic premise that hotel managers should be paid for managing, the incentive management fee structures that are prevalent today largely miss the mark. They actually compensate managers based primarily on overall market performance, rather than their individual merits as managers. Hotel managers are typically paid a base fee equal to 2.0%-to-3.0% of total revenue-3.0% being the most common-plus an incentive. Incentive fee structures vary, but over the last decade or so, they have coalesced around a formula that pays managers 10% to 20% of cash flows that exceed a certain performance threshold. This threshold is generally reached when the net operating income exceeds a return on the owner's investment of between 8.0% and 10%.

About HVS

HVS is the world's leading consulting and valuation services organization focused on the hotel, restaurant, shared ownership, gaming, and leisure industries. Established in 1980, the company performs more than 4,500 assignments per year for virtually every major industry participant. HVS principals are regarded as the leading professionals in their respective regions of the globe. Through a worldwide network of over 50 offices staffed by 300 experienced industry professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. For further information regarding our expertise and specifics about our services, please visit www.hvs.com.

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