Roosevelt University

Management Theories & Practices in Hospitality Industry:

Compensation

A Research Paper Submitted to:

Professor Gerald F. Bober

Manfred Steinfeld School of Hospitality and Tourism Management
Hospitality and Tourism Management (BSHTM)

By:

Manerly Salvatore
February 15, 2010

COMPENSATION
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According to HR Guide to the Internet (2000), “Compensation is a systematic approach

to providing monetary value to employees in exchange for work performed” (para. 1).

Compensation may achieve several purposes assisting in recruitment, job performance, and job

satisfaction. Therefore, HR Guide to the Internet defined compensation as “a tool used by

management for a variety of purposes to further the existence of the company. Compensation

may be adjusted according the the business needs, goals, and available resources” (para. 3).

McNamara (2003) claimed that compensation is closely related to benefits. Thus, many

people simply referred compensation to a payment to an employee in return for their contribution

to the organization, that is, for doing their job. The most common forms of compensation are

wages, salaries and tips. Furthermore, McNamara explained, “Compensation includes topics in

regard to wage and/or salary programs and structures, for example, salary ranges for job

descriptions, merit-based programs, bonus-based programs, commission-based programs, etc”

(as cited in http://www.managementhelp.org/pay_ben/cmpnstn/cmpnstn.htm, para. 1).

Meanwhile, employee benefits are typically referred to retirement plans, health life insurance,

life insurance, disability insurance, vacation, employee stock ownership plans, etc. HR Guide to

the Internet stated that benefits is actually included as one different types of compensation, along

with base pay, commissions, overtime pay, bonuses, profit sharing, merit pay, stock options, and

travel/meal/housing allowance (para. 9).

Organizations usually associate compensation/pay ranges with job descriptions in the

organization and is usually provided to an employee in return for their contribution in

organization. The ranges include the minimum and the maximum amount of money that can be

earned per year in that role. In order to further understand compensation, McNamara stated that

jobs in organizations have two classifications, exempt and non-exempt:

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Professional, management and other types of skilled jobs are classified as exempt.
Exempt jobs get a salary, that is, a fixed amount of money per time interval,
usually a fixed amount per month. It is not uncommon for exempt positions to
receive higher compensation and benefits than non-exempt jobs, although non-
exempt jobs often can make more money than exempt jobs simply by working
more hours. Unskilled or entry-level jobs are usually classified as non-exempt.
Non-exempt jobs usually get a wage, or an amount of money per hour. Non-
exempt jobs also get paid over-time, that is, extra pay for hours worked over 40
hours a week or on certain days of the week or on holidays. Each job must have
the same pay range for anyone performing that job, that is, one person can't have a
higher maximum pay than someone else doing that same job. (2003, as cited in in
http://www.managementhelp.org/pay_ben/cmpnstn/cmpnstn.htm, para. 6)

Implementation of an effective compensation plan can provide many benefits to most

ogranizations. In the hospitality industry, industrial salesforce is a very important aspect of which

represented by sales and marketing professionals representing all segments of the industry.

Researchers such as Shipley and Kiely (1986); Winer and Schiff (1980) agreed that, “Industrial

salespeople say they are motivated by earnings” (as cited in Sipley & Jobber, 1991, p. 157).

Hence, “Compensation can be used to provide incentive, to attract and retain capable salespeople

and to direct them toward achieving specific objective while staying within the company’s

budget (Lancaster & Jobber, 1985; Winer, 1982, as cited in Sipley & Jobber, 1991, p. 158).

However, there are a lot of more employees available now because unemployement is

very high. Berta (2009) reported, “The US’ unemployment reached 9.8 percent in September,

and since the start of recession in December 2007, 15.1 million people have lost their jobs” (p.

30). Thus, many organizations denied the importance of compensation in order to attract and

retain their employee.

Irwin (2009) pointed out that “effective organizations and companies are always looking

for the best people, and the best people want benefits” (Berta, 2009, p. 30). Managers need to

remember that compensation may not only be used to recruit and retain qualified employees, but

also to “increase/maintain morale/satisfaction; reward and encourage peak performance; achieve

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internal and external equity; reduce turnover and encourage company loyalty; and modify

(through negotiations) practices of unions” (HR Guide to Internet, 2000, para. 9). Furthermore,

Mansbach (2009) emphasized, “When more jobs become available during the rebound, many

companies will risk losing their best talent to competitors that maintained their employee focus”

(as cited in Lockyer, 2009, p.1). Lockyer (2009) agreed that, “Companies may ignored

compensation issues at their own peril, as talent likely will follow the money when the economy

recovers” (p. 29).

Those companies that reasoned they do not feel the necessity of compensation during

the recession, simply need to start adjusting their compensation strategies and plans by

developing a program outline to meet the companies‘ budget. On his sales performance and

incentive compensation blog, Dionne (2009) admitted, “With the state of the economy, it is no

surprise that most companies are rethinking their reward strategies. In a strong economy, one of

the major arguments in favor of incentive compensation is employee retention. During a

recession, the main argument is to keep employees motivated” (para. 1).

To have a better idea of how various companies are reacting to the economy, Dionne

analyzed the result of some surveys conducted by Hewitt (411 organizations); Watson Wyatt

(248 organizations); Mercer (190 organizations, based on yesterday’s WSJ article); WorldatWork

(members only, 698 members responding to a Quick Poll; BLR (Business & Legal Reports) (518

organizations) and Incentive Research Foundation. Dionne further responded,

Many companies have different philosophies when it comes down to rewarding

their employees. Some of them are currently looking at cutting costs, cutting
incentive programs, cutting rewards, cutting travel, increasing quota amounts, etc.
Others, on the contrary, are looking at reducing base pay, and to increase incentive
compensation; they figure that if employees are only paid for performance, then
they can afford to pay them. Then there are those who don’t currently pay
commissions and start thinking that it could be a pretty good idea. Finally, there
are many companies who are not necessarily looking at transforming their
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incentive compensation plans, but are looking at making them work better. (2009,
para. 2)

Meanwhile, Berta (2009) observed the study conducted by HVS Compensation Services,

in conjunction with Nation’s Restaurant News. This study polled representatives from 78

publicly and privately held multiunit chains and measures the compensation and benefits data for

22 leadership positions. Berta later confirmed that, “According to the 2009 Chain Restaurant

Executive Study, restaurant operators are revising plans to lower cost and still find ways to offer

benefits that will reward, retain and attract good employees and top executives” (p.30).

Shipley and Jobber (1991) reported the findings of their salesforce motication,

compensation and evaluation research presented under salesforce compensation heading as

showed on the table below (p. 163):

In addition, a new and comprehensive study of compensation was conducted in September and

October 2009 by HVS-NRN. The survey of this study polled 78 responding companies, 55 of

which are private enterprises and 23 of which are publicly traded firms in chain-restaurant

industry. The study showed that, “There are several strategies companies take regarding

underwater options” and “There were the lack of long-term incentives offered among the

respondents. The median amount of long-term compensation pack- ages, encompassing stock
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options or other incentive grants, only hit six figures in a number of cases, the data show, and for

some positions, such incentives were not even granted” (Lockyer, 2009, p. 29). However,

“salaries increased as company size grew” (Lockyer, 2009, p. 29):

References

Berta, D. (2009). Restaurant companies find creative ways to compensate talent. Nation's
Restaurant News, 43(43), 30. Retrieved from Hospitality & Tourism Complete
database.

HR Guide to the Internet. (2000). Compensation: Outline & Highlights. HR Guide to the
Internet. Retrieved February 11, 2010 from http://www.hr-guide.com/data/G400.htm

Dionne, J. (2009, January 6). Incentive compensation and total reward strategies during a
recession. LeapComp: Sales Performance and Incentive Compensation
blog, Industry News. Retrieved February 14, 2010 from
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http://leapcomp.com/2009/01/incentive-compensation-and-total-reward-strategies-in-a-
recession.html

Lockyer, S. (2009). Pay attention or pay the price. Nation's Restaurant News, 43(43), 1-29.
Retrieved from Hospitality & Tourism Complete database.

McNamara, C. (2003). Field Guide to Leadership and Supervision for Nonprofit

Staff (2nd Ed.). Authenticity Consulting, LLC. Retrieved February 11, 2010 from
http://www.managementhelp.org/pay_ben/cmpnstn/cmpnstn.htm

Nelson, B. (2004). Motivating people is the right thing to do. Corporate Meetings &
Incentives, 23(11), 59. Retrieved from Hospitality & Tourism Complete database.

Shipley, D., & Jobber, D. (1991). Salesforce motivation, compensation and evaluation by
Industrial Distributors. Service Industries Journal, 11(2), 154. Retrieved from
Hospitality & Tourism Complete database.

Stephenson, S. (1995). The pain of workers' compensation. Restaurants & Institutions,

105(13), 186. Retrieved from Hospitality & Tourism Complete database.