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.