By: Keith Kefgen and Rosemary Mahoney August, 1996

• Corporate Executive Bonuses as a Percent of Base Salary
• Property Level Executive Bonuses as a Percent of Base Salary

Tie bonuses to performance. Seems obvious, right? Wrong. The fact is that in most companies, title and seniority mean more when it comes to bonus pay. By granting bonuses according to title and seniority, companies turn them into entitlements, not incentives. We suggest that linking incentives to performance is the only fair and rationale way to reward employees. If you want a system that works, follow our rules for designing a successful bonus program.

Setting Up a Bonus Plan

Bonus plans by design, should be geared to reward employees for short-term performance. Short-term is defined as 12 months or less. In implementing any bonus program, employers must first establish how the program fits into their overall compensation philosophy as well as set criteria that need to be met for the reward. There are some that believe in paying low salaries and highly aggressive incentives, while others believe the exact opposite. Regardless, devise a plan that fits the uniqueness of your company.

In establishing criteria, we recommend simplicity and quantifiability. make the plan easy to communicate to staff members and exciting enough for them to rally around. Criteria based on RevPar, EBIDTA, Guest Comments, Departmental and House Profit, Earning Per Share, Return of Equity, etc. make for good benchmarks.

The bonus plan can encompass any number of benchmarks (we recommend at least two, no more than four), but make certain they motivate and reinforce the behaviors you wish to influence. We believe “Santa Claus” type bonuses - given by the principal of a company out of the goodness of their heart, are totally ineffective. These kink of bonuses breed expectations without corresponding job performance.

Payments can be made quarterly, biannually or annually but it is essential to stick to the established procedure. Changing payment schedules and criteria midstream is the fastest way of demoralizing employees. Furthermore, not all bonuses need to be monetary. Employees can be equally motivated by rewards that are meaningful but yet not monetary.

Types of Bonus Plans

Any number of bonus programs can be combined and tailored to meet your organization’s needs. Each approach has its own unique advantages, risks, reasons for consideration and criteria for success. Below are some common approaches.

• Broadbanding
• Merit Pay
• Variable Merit pay
• Competency-Based Pay
• Blended Group Inventive Plan
• Small Group Incentives
• Bonus Plans
• Stock Ownership Plans
• Skill-Based Pay
• Profit Sharing
• Gain Sharing
• Recognition Awards
• Contribution Awards
• Non-monetary Awards

The tables give a brief look at bonuses allocated to both corporate executives and property executives in the lodging industry. The data is based on results of our Hospitality Compensation Exchange (HCE) Survey.

Remember that bonuses are earned, not granted. There should be a direct correlation between bonus payments, job performance and goal attainment.

HVS Executive Search is a Mineola, NY based human resources consulting firm. The firm is headed by Keith Kefgen, President, and Rosemary Mahoney, Director. HVS Executive Search provides retained executive search, compensation consulting, employee-opinion surveys and organization development.

For additonal information contact the firm at

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