Hotel Chain CEO Wants People To Tip More Instead Of Raising Wages

The CEO of HEI Hotels has a problem attracting and retaining employees, like so many other businesses right now. And he believes the solution is for guests to tip more, rather than raising wages.

HEI Hotels is rethinking how it encourages customers to tip because of the labor shortage, its CEO said.

This included letting guests opt-in to gratuities when they arrive, which they don’t pay until they leave.

CEO Ted Darnall also said that raises and bonuses weren’t the solution to the labor shortage.

You Know HEI Hotel Properties, Just Not The Ownership Group

This ownership group includes 80 properties across Marriott, Hilton, IHG and Hyatt such as Westin La Paloma, Westin Grand Central, Pullman San Francisco, Royal Palm South Beach, Conrad Miami, Le Meridien Central Park, and Hilton St. Louis at The Arch. This is the company that owns the Westin Fort Lauderdale Beach Resort which tried to impose a 2% surcharge on all guests paying by credit card.


Credit: Westin Fort Lauderdale Beach Resort

Customers Need to Be Trained To Tip More

The HEI plan is to be “encouraging customers to authorize tips at check-in to ensure staff were recognized for their hard work” and having these charged to credit cards, since customers are carrying less cash. They’re also “considering adding a minimum gratuity to restaurant checks.”

This is a tipping point, according to the chain’s CEO, for consumers deciding whether to retain the elevated tipping levels of the pandemic, when consumers felt bad for hotel workers serving customers or whether they’ll revert to pre-pandemic tipping practices. The chain’s task, he believes, is “to educate customers about how hard staff had been working,” and make sure they continue elevated tipping. Hard work shouldn’t be recognized by higher wages.

The U.S. Hotel Business Is Back, But Wants To Keep Costs Low

U.S. hotel occupancy is within 10% of 2019 levels, and room rates are within 5%, and 2019 was at historically elevated levels. We’re no longer in a pandemic hotel recession, or even anything approaching Great Recession conditions. But hotels are doing all they can to generate revenue while avoiding costs. Hilton’s CEO says hotels need to keep many of their pandemic cuts in place in order to support profit margins going forward.

This Hotel Group Thinks Higher Wages Are Less Valuable Than More Tips

The HEI CEO says that raising wages isn’t a solution because other hotels will just raise wages too and then it won’t help. That assumes they’re competing for the same workers, but that’s not true, they’re trying to entice people back into the labor force.

Some hotels have been raising salaries and offering bonuses, but Darnall said that this has “never been the solution” for hiring challenges in the hospitality industry. “If somebody pays a dollar more then somebody else is going to match that,” Darnall said.

“I call that an unsustainable competitive advantage. In other words, you’re at a competitive advantage for an hour, until somebody decides to match it,” he said.

Why Businesses Resist Higher Wages As A Recruitment Strategy

The real challenges businesses face raising wages to attract workers,

  • The employee doesn’t produce more value than the higher wage (the value of the wage can’t exceed the value of marginal product)
  • When pandemic unemployment runs out and schools start back up, they won’t be able to lower wages (wages are sticky downward)
  • The cost of higher wages won’t just apply to the new employees they bring on board, but to everyone else on the property – similarly-situated employees will need to be paid what new hires are paid, and those making more will need to have wages adjusted upward, too.

These are why so many employers are resisting paying higher wages to entice workers, and prefer to try to attract candidates offering free appetizers if they show up to an interview or job fair, although that approach is far from universal. Southwest Airlines just announced they’d be raising their minimum wage to $15 per hour. Most low wage jobs in aviation though are paid by contractors, rather than by major airlines. This won’t help attract people to push wheelchairs in airports, for instance.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. There are some jobs that are just so service based that the compensation must be tip based. Management can’t be there all the time to ensure the customer experience and competitive marketplace issues drive salary or hourly rate more than performance so I guarantee if we were to move away from tipping we’d still have to tip to insure proper service because we’d see a significant increase in the number of workers making the dining experience far less than friendly.

    In this politically charged environment, people see others they might disagree with and use their power when they can to make their opposing point. In the past, people knew that there was value in keeping away from politics and religion at least until you get to know someone. A server who can tell right away that he or she wouldn’t like the customer is still compelled to smile and be friendly and do his or her best because the bulk of the compensation is tips. Take this away and the service will become crap or at least unreliable and more dependent on other factors. I’ve known some servers who still make the customer experience pleasant despite their own tiredness or pain or difficulties at home. It’s one of the most difficult jobs to do where the customer experience is so closely tied to the people delivering the service. Think about a clerk, they can be talkative or friendly or quiet or stern and well it doesn’t matter too much because you get the stuff you bought and if it’s good quality your needs are met. Sure it’s nice to have a friendly checkout person but hey I got my fresh watermelon. The dining experience is about the food but it’s also equally about the service. That is why I tip well, if the service deserves it and I always notice when I return the service is always better because whether they like me or not, they know they’ll be paid well by me if they make my dining experience as pleasant as it can be.

  2. Just like I tip after a meal I will continue to tip after individual night stays in cash. It’s all based on service

  3. Perhaps the wave of the future is hotel design that needs less labor? Hard surfaces on the floor with a drain. Just hose down the floor between guests. Bed sheets are given to guests as a package. TV remote tied to the bed stand.

    Check in by video link to India. One person on site just in case.

  4. wow. Interesting comments. Was particularly thinking of my experience as a social worker where we are NEVER tipped and it would be unethical to accept one even if offered. Working for a non-proift/low wage/ public agency, we too (and here I include those dedicated people I supervise who do housecleaning for older adults) have no choice in those we serve, and yet like retail and other service related industries, must do so with a smile on our faces and patience in our hearts, which is regularly tested. Minutes ago 2 wonderful younger women left our home after tending to my most obnoxious and dementia impacted 98 year old mother. I assist them as able, but their job is hard and I know they are not paid nearly enough. We cannot afford to tip them and even if we won the lottery, would never be able to tip them as well as they should be for what they are doing. However, When one pays over $150 for one night in a hotel room, breakfast included or not, I think there should be an expectation of basic services. Fair wages and benefits should be offered by these hotel corporations. Look at the wages of the CEO’s of them. CUT BACK on their wages, and treat the employees well to begin with, and people will WANT to work for you. Keep your standards high. Charge a fee (maybe) for extras like daily linen service/changes etc. But stop nickle and diming the guests you want to attract. An empty hotel with closets full of linens will be far easier to maintain and less staff needed…but will not bring you the income you want to show your shareholders. I am a very tiny shareholder in Marriott…only because I bought ITT before it split and became Starwood. If I find out this insanity is going to start systemwide at hotels I will no longer be a shareholder or will remain to vote the people in charge out of their positions as best I am able. In the end, tipping is based on good service provided, not prior TO receiving who knows what? A small card could be left to be dropped in the key drop box signed and indicating a gratuity of whatever amount should be given to the housekeeper etc.

  5. @Mark Rascio:

    “There are some jobs that are just so service based that the compensation must be tip based. Management can’t be there all the time to ensure the customer experience . . . . . . ”

    Preposterous. Were you correct, when I sit down to a nice dinner at a decent restaurant, I’d hafta assume the mantra of a competitive diving or figure skating judge, evaluating degree of difficulty, quality of execution, deductions for errors, etc., etc. That, in and of itself, is a terrible customer experience.

    I get it – appropriate wages get passed on to consumers absent tipping. Bring it on.

  6. To address the comment from the CEO about people carrying less cash, how about offering some sort of mechanism to tip housekeeping on a credit card (e.g., scan a QR code that’s in the room and make a payment). I’d be all for that since I’ve found myself without cash some times and I always like to leave something for housekeeping.

  7. Oh man, the foreigners must be laughing their arses off right now. Here we go again, more American tipping culture run amuck. At least this SOB is honest about it. “I want to pay my employees less than the free market (i.e. other hotels) dictates, and keep my big salary, so please tip more.”

    I am not staying at any hotel that charges to use a credit card and I am not staying in any hotel that leaves a tip envelope in the room. Tell you what Mr. Darnall, since you want to keep underpaying your employees, how about everybody who stays in your hotel who makes more than you do tips the employees, but for every guest who stays in your hotel but makes less than you do, you pay the tips out of your own pocket?

    Dude, suck it up, earn you salary, pay your employees a fair wage, and stop blaming your customers.

  8. Never been a fan of tipping except in restaurants where I normally tip 25-30% if service is excellent. Other areas I don’t and won’t see a need to tip. JMHO

  9. Asking me to tip gives me even less incentive to tip. And I never tip extra when minimum tips are imposed, even if I would have tipped more if there was no minimum tip.

  10. @ Gary — These hotels owners can go pound sand. They want us to pay more for less. Not happening over here. I go to a hotel for SERVICE, not to be denied daily housekeeping and to tip people. I will just stay home or go to hotels that still provide full service. Asia cannot re-open soon enough.

  11. This is only a problem in America. If a job is worth doing, it’s worth being paid steady wages without relying on the generosity of strangers.

  12. Oh boo. The corrupt CEO and his billionaire shareholders want to keep all the money for themselves and not pay more in salaries. Thus demanding customers pick up the slack.
    Tell you what: AIN’T GONNA HAPPEN!

  13. I say outlaw tipping completely and pay a decent wage. The whole concept of tipping is really archaic and borderline demeaning with the worker having to rely on the crumbs given to them by strangers.

  14. Great review of this idiot from Glassdoor:

    “The COO, Ted Darnall, came to visit our property and the words out of his mouth was, “We don’t care about guests, we don’t care about surveys. We are a Real Estate Company and value of the land beneath us is all that matters.” Then he spent the next two hours blabbing on about how great he is and made us all stand up to listen to his borderline sociopathic speech. Some leadership…

    Advice to Management

    Fire Ted Darnall and get a COO in that isn’t a sociopath/dictator. Allow people to LOVE their job, not just work them to the point of a nervous breakdown.”

  15. I’m with @Gene. Offering less while expecting customers to pay more is ridiculous.

  16. The one issue Gary noted that makes sense is unemployment insurance preventing workers to return when they make nearly as much at home as working. Wages/prices are sticky and can’t easily be reduced in the future when unemployment ends.This is a governmental policy issue. We’d all be better off with UBI instead of unemployment and welfare. People on welfare/section 8/food stamps/ssi/etc. and unemployment are disincentivized from working and encouraged to produce kids for welfare checks. Right now select groups of people get fat at home on welfare and the white working class who works hard gets nothing from the government. Ending all federal/state/local welfare-food stamp-ssi-housing-unemployment insurance-etc. programs pays for it with reduced bureaucracy/less crime/less fraud/less govt. prosecuting people for checking the incorrect box on a form.

    A higher minimum wage is actually a good thing for businesses. If a business wants to pay higher wages, they have to raise prices which makes them uncompetitive with the businesses paying peanuts. There is an endless supply of workers willing to work for peanuts because of illegal immigration and them being low quality workers. A higher minimum wage means no business will be uncompetitive because of higher prices to pay for wages. The business would benefit from having higher quality and more productive workers who won’t steal. This alone makes up for some of the increased cost of workers. Why would a business hire a low producing illegal or undesirable when higher wages allow them to hire better quality westerners. The hotel may do better business in the future if better and more hospitable service induce a return by guests or recommendations to their friends and family.

    Tipping gets a bad rap. Tipping is supposed to do the opposite of what it is claimed. When I tip a worker, I know I am providing a fair compensation directly to a worker rather than just paying a company who provides 100% of the income to a person. A worker getting $15 an hour from a company means that’s it. With tipping, decent and above workers can earn more than they would otherwise. I pay not only for good service but for hospitality. If I person is nice, I tip. This helps the workers more than it helps me. People who oppose tipping and don’t tip don’t make sense to me. Why penalize workers? In the U.S. and the Caribbean, tip well. In Europe, tip at a lower percentage because that’s the culture. Still tip there. Some waitresses and bartenders make a lot more than their work is worth because of tipping. Same at hotels. It’s not a situation where tipping is universally bad for workers.

  17. What a self absorbed, foolish, greedy man. Train it’s customers as if we were digs? I already tip 15-20 percent and refuse to give any more. It is the business obligation to pay a living wage not my responsibility as a customer to do so. I Will Not stay at his hotels. Simple enough.

  18. What a self absorbed, foolish, greedy man. Train it’s customers as if we were dogs? I already tip 15-20 percent and refuse to give any more. It is the business obligation to pay a living wage not my responsibility as a customer to do so. I Will Not stay at hotels with this philosophy. Simple enough.

  19. Well guess what greedy scumbag hotel CEO, it’s not our job to pay your employees wages. Try letting go of some of the 7 figure salary you don’t deserve so your slave employees can afford to feed their families.

  20. These comments from the CEO show how out of touch he is with regular workers. The reason he has trouble recruiting is that HE or the employer is not showing appreciation for the hard work by giving raises or bonuses. He’s outsourcing that motivation to the customers.

  21. Americans are idiots. Uber banned tipping yet they DEMANDED to be able to tip their drivers!!!!

    Now they live with the culture they so belove; the COO is just smart to make advantage of it.

    Just don’t export your tipping scourge to other countries when you travel.

  22. Typical of US employers to try and avoid their obligations and pass THEIR costs onto customers.

    Tipping should be banned, employers should be paying a fair, living wage, like they do in most countries outside the USA.

    Employees, their payment, customer service, and discipline is not the customers responsibility.

  23. I guess all those making tipping comments have never traveled. I had nothing but excellent service all over Europe, the UK, and Asia. Must’ve been because I held some extra tip money over the head of the street urchin that served me. .. Oh wait! GET RID OF TIPPING PERIOD!

  24. @Dee

    It comes out to the same thing when customers pay higher prices to pay for wages or tip. Tips give customers more control over who they reward the most for the best performance. Wages should be higher so better quality American workers get those jobs instead of illegals and businesses do better with an actual competent workforce. However, tipping shouldn’t die in the service industry.

  25. @Jackson Waterson never disappoints with his right wing manifest posts. Keep up the good work by uniting your brothers. I am sure a few would be open to carrying the accelerant for your cross burnings.

  26. How ridiculous. I almost never tip at hotels except to bellhops and valet where it is expected (and both those services have been mostly discontinued this year).

    Here’s a simple solution: if you want to retain valued employees PAY UP!! This has worked for costco and TJs for years. Compare to the crappy service at walmart which refuses to pay squat and tells workers to go on food stamps and obamacare.

  27. Unintended consequences – as a result of this garbage, if I find myself at one of his properties, I’m tipping no one. Including waiters and bar staff. They and he can suck it.

    You’re not getting a minimum service tip either. Credit card chargeback for a fee under duress.

  28. @jfhscott:

    “Preposterous. Were you correct, when I sit down to a nice dinner at a decent restaurant, I’d hafta assume the mantra of a competitive diving or figure skating judge, evaluating degree of difficulty, quality of execution, deductions for errors, etc., etc.”

    As we should. If management doesn’t want to hold their employees accountable, then it IS up to us to do so. We tip based on service value received. Great food+great service=great tip. Great food+mediocre service=mediocre tip. Meh food+good service=good tip. Ad infinitum.

    However, and this speaks directly to @Mark Rascio, as well:

    “There are some jobs that are just so service based that the compensation must be tip based. Management can’t be there all the time to ensure the customer experience . . . . . . ”

    Good management shouldn’t have to be there all the time. The employees should KNOW, in no uncertain terms, that their good-paying job depends on their delivery of high-level service. If management not only pays for and expects high-level service, but terminates employees who don’t deliver, there will be others clamoring to fill the position because they know that A) they will be well paid, B) the working environment would be such that people are actually held accountable for their performance, so that C) slackers who bring down the morale are quickly ousted and D) their co-workers are pulling their own weight as well.

    And while we’re in the subject of tips, why does the “acceptable” percentage amount have to increase? Thirty years ago, a 15% tip on a $10 check was $1.50. That $10 check is now $20, so the same 15% leads to a $3 tip.

  29. Tips are a mostly American abomination. Barbers, waiters, shuttle drivers, etc al. expect tips. Baloney. If you don’t like the pay, find a different job. Teachers, police officers, social workers, etc al. don’t get ripped, or expect tips. Their pay is too low to survive. Why tip the dude who is hired to bring you your food? Ridiculous. Find a different job if you don’t like it .

  30. @ Jürgen: you are not understanding the real problem. The issue is they are in a business that pays nothing and they have zero options. The real problem lies with the employer. The employers need to start paying these people a livable wage. It is a problem with the US culture and laws.

  31. Certainly wouldn’t tip teachers or cops let the states do their jobs and pay all as they should. As mentioned tipping should be done away with.

  32. Look, if a front desk agent is getting you an upgrade on the house, holding your bags, making your reservations, absolutely you should tip. If housekeeping does a good job, leave a few bucks. If you want a better room, slip a guy a $20. You want better service in the service industry, you tip

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