What Bonus?

A Year End Dilemma

By:  Keith Kefgen & Michael S. Kogen

The softening of the US economy was well underway prior to the horrific events that unfolded on September 11^th in New York and Washington, D.C. The negative impact on business sectors across the country has been significant, particularly in the hospitality industry. It is that time of year when the leaves fall and hospitality executives traditionally know that bonuses are around the corner. The foremost question in their minds is whether there will be any 2001 year-end bonuses.

Michael Nanosky, President of Janus Hotels and Resorts, recently visited all 55 properties in his portfolio in order to personally quell fear and concern amongst his 3,500 employees. He reassured them that the company as a whole was financially intact and that management was doing everything in their power not to institute wage reductions and avoid any employee layoffs. Some of his senior level executives earn as much as 40% of their base salary in a bonus formula. But with a considerable amount of it tied to revenue he realizes that he is going to be “looking at the discretionary side” of the equation in the near future. He doesn’t want to lose valuable employees due to the impact of circumstances that they had no direct control over. In addition, he will be reexamining the bonus structure for 2002 in light of what he feels may be a 12 month downturn.

Robert Falor, President of Allied Hospitality Group, has always been big on incentives throughout his organization. He is modifying Allied’s  2002 bonus formula to reflect a philosophy in which executives will feel that they have more “control” over their bonus destiny. Their traditional bonus formula consisted of a profit component, a quality assurance component, and a discretionary component. The revamped formula will have an operations margin component, a quality assurance component, and a RevPar penetration component that will be allocated with a 50% weighted value.

First Hospitality Group President Robert Habeeb has not had to make any wage modifications or layoffs since September 11^th. He feels that their “lean” organization will continue to respond to market conditions and sees no forthcoming need to modify their more traditional bonus structure. Mary Comfort, Director of Compensation at Choice Hotels International, and Peter Cass, Chief Executive Officer at Preferred Hotels & Resorts Worldwide, maintained that their respective bonus structures were very much linked to overall corporate performance.

The current weak economy has produced a 5.4% unemployment rate, the highest in 21 years. Likewise, pressure on hospitality wages will continue to increase. In particular, bonus programs based solely on financial measures will come under fire. It is therefore important for bonus formulas to reflect a more “balanced” criteria; the revenue component should be structured so as not to undermine an employee’s contribution to an organization.

Keith Kefgen, is President of HVS Executive Search, the leading executive search firm specializing in the lodging, gaming, and restaurant industries.

Keith is a frequent lecturer on industry-related issues and has written more than 90 articles on the topics of executive selection, pay-for-performance, corporate governance, and executive leadership. He is the founder of two e-commerce initiatives, hospitalitycareernet.com, a web-based recruiting site and 2020skills.com, an online assessment profile. He serves on the board of the Association of Executive Search Consultants (AESC) and is co-president of the International Association of Corporate and Professional Recruitment’s NYC Chapter.

Keith Kefgen
Michael S. Kogen
372 Willis Ave.
Mineola, NY  11501
516-248-8828