How Should I Compensate My Sales Manager?
By Leora Lanz, President of LHL Communications
This is a very common question, and yet one which typically has a complicated answer. But should it?
Recently, we've been approached by a handful of different hotel owners asking for guidance on how to compensate the sales manager or team. The truth is, there never really has been an exact science or "specific percentage" to be calculated when deciding sales compensation packages. Traditionally, it is part of the overall marketing budget for a hotel, which usually falls in the range of 9% -12% of the total projected revenue.
Base Salaries:Our hotels have become more complex businesses to operate. The demands of owners continue to rise and we face ever-increasing competition. Today, our guests and the travel agents/meeting planners who book business to our hotels are also better informed when conducting business with us. Compensation for good sales managers needs to stay attractive so that we can hire educated people who can successfully sell to our educated customers. Too often lately, we have seen good sales people departing to other industries that pay better and are less demanding than our industry.
Commonly, hotel directors and owners would take a look at various factors when determining base salary:
- What can the hotel afford to pay, based upon its own revenue?
- How many rooms does the hotel have to sell?
- What are the general salaries in the local market?
- Can I afford to increase the salary in order to attract seasoned talent?
- How complex is the entire hotel operation?
In 2004, HVS Executive Search released its Lodging Property Report (to be updated in 2006) that analyzed salaries and bonus structures for various positions, including sales managers, throughout the United States. Salaries were studied based on the following criteria:
- Number of guestrooms in the property
- Class of hotel: limited service, budget, extended stay, luxury
- Location: city, highway, etc.
- Type of hotel: convention, resort, etc.
- Geography: Mid-Atlantic, South Atlantic, etc.
A review of this data shows that sales managers' salaries are highest in the resort, convention and city center properties and in particular located in the New England/Mid-Atlantic region of the United States. Luxury hotels often pay higher salaries as well. Bonus averages in 2004 were approximately 13% of salary and were increasing nearly 3% each year.
What doesn't work?
- Low salaries that prevent the hotel from having the best sales managers available in the market;
- Low salaries that only attract entry level sales people;
- Low salaries that encourage sales people to be on the lookout for higher paying positions. This leads to high turnover, loss of momentum, and lost business.
- High employee turnover fosters a lack of customer loyalty. Since the customer may not be close to anyone in the sales department because "their contact is always new," there is no compelling need to be loyal. It is just as easy to book a meeting at another hotel.
- Make the salary such that the manager feels great about it. Don't wait for the bonus or incentive to make that happen.
- Good salaries will result in low turnover. High employee retention leads to strong relationships with customers. This leads to customer loyalty and more business.
What doesn't work?
- In speaking with a number of hotels and/or hotel companies, we discovered that hotels frequently alter bonus plans for sales people. Often, this is done when the sales team actually achieves their goals and begins to earn more money. What tends to happen is once the bonus plan is changed, it again takes a couple of years for the sales team to meet the new goals. The end result is a sales team that feels it is being penalized for meeting its original goals. If the bonus structure has served to motivate the team and the results amounted to increased room revenue, then why not keep the bonus structure in tact? Perhaps the goal can be increased, but it is imperative that the new goals are realistic, and it would help the effort if the sales team were actually part of the goal-setting process.
- A popular bonus structure is the bonus based upon a percentage of salary, with a "cap." Companies can have great success with offering a bonus plan with generous "caps." What tends to happen is that as business improves, the "cap" remains the same or is decreased, and therefore the incentive to bring in more business could deteriorate.
- Some properties have tied bonuses to total profitability of the hotel, rather than what the individual sales manager booked. The sales manager is therefore being held responsible for operational aspects of the hotel for which they had no influence. This can be discouraging.
- Some hotels pay bonuses quarterly. Sometimes sales managers prefer this to receiving their bonus at the end of the year.
- The simpler the plan to explain, the better. When the sales manager or sales team understands what the goals are, how much they can earn, and when they will receive compensation, this is what works. The best bonus plan is one that is based upon realistic goals and can motivate.
- Let the sales team participate in developing the bonus plan and goal setting.
- Create a bonus program that rewards the team for achieving its goals. Think about including the catering department in the team goal as well since a large percentage of what catering books will be the result of room blocks booked by sales. When dealing with social groups (such as weddings) room blocks are generally required as well. The idea is to keep everyone focused on the big goal. That is when the hotel wins. Upon speaking with management companies that have adopted a team approach, we have learned that the results have been excellent. The sales and catering department achieves their goals, the sales people make bonus and the hotel has booked more business. Everybody wins!
- If a team incentive system is put in place, rewarding the super achievers can also be accomplished by awarding sales people for outstanding performance. Outstanding performance may be booking business that exceeds goal by 25%, for example. This kind of performance can be recognized with a cash payment that is above the team incentive payout.
- In some cases, non-cash incentives, such as the ability to work from home, is rewarding for employees.
What should we always keep in mind?
Here's what we consider when developing compensation plans that need to satisfy various aspects of the operation:
- The plan must fit the culture of the company and/or hotel. Are we a high base/low incentive company? Middle of the road for both? Or are we a low base/high incentive organization?
- "Caps" protect the organization financially. Yet, when well structured, bonuses that are capped can still reward for production and hard work.
- Incentive plans should be consistent and not changed annually.
- In a weak economy do not change the bonus plan. Put added incentives in place that will address a particular need, with a specific beginning and ending date. This will serve to avoid changing the program simply because of economic factors. Once business returns to normal the added incentive can be eliminated.
Leora Halpern Lanz is the principal of LHL Communications, a hospitality content marketing, branding and media relations advisory. She is also full-time faculty teaching various marketing classes at Boston University’s School of Hospitality. In February 2017 she was named one of the Top 25 Extraordinary Minds in Hospitality Marketing by the Hospitality Sales & Marketing Association International (HSMAI).More from Leora Lanz