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| The Center for Hospitality Research | ||||||||
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May 23, 2006
FIND OUT YOUR COST OF TURNOVERAside from occasional ceremonial public handwringing, the hospitality industry seems to have accepted the vexing problem of turnover as a cost of doing business. With a solid calculation of the cost of that turnover, however, two Cornell researchers suggest that the industry might renew its interest in reducing turnover costs. In a new report from the Cornell Center for Hospitality Research (CHR), professors Timothy Hinkin and Bruce Tracey calculate the cost of replacing front-desk associates—and those figures should draw the industry’s attention. “The average cost of turnover at the front desk was 30 percent of salary, or an average dollar figure of nearly $5,900,” said Hinkin. “That percentage figure was consistent across all market segments. Even more devastating than the loss of the employee was the loss of productivity among managers, supervisors, and coworkers. Our participants said that co-workers lost 20 percent of their productivity for up to 16 days when a colleague left the front desk.”
The calculations are drawn from the CHR Turnover Tool, which Hinkin and Tracey created for the hotel industry. Hinkin and Tracey present preliminary data from that tool in their new report, "Development and Use of a Web-Based Tool to Measure the Costs of Employee Turnover: Preliminary Findings," which is available at no charge from the CHR's website, http://www.hotelschool.cornell.edu/research/chr/pubs/reports/. “We began building this calculator when a hotel manager asked us how much it was going to cost him to lose a valuable executive chef,” Tracey recalled. “Sadly, we could not answer the question as comprehensively as we would have liked, but we resolved to find out. Instead of estimates, we want to be able to share actual figures for various positions. We’d like to encourage hotel managers to participate in this important effort.” All CHR Reports and Tools are available from the Center's web site, www.chr.cornell.edu. Thanks to the support of the partners listed below, all CHR Reports and Tools are made available free of charge. Tipping Versus Service Charges
Although voluntary tipping seems to be the rule for service businesses, several operators have shaken up their industries by dropping voluntary tipping. For instance, the restaurant business took notice last year when Thomas Keller instituted an automatic 20-percent service charge at his Per Se restaurant in New York. One year earlier, Holland America rocked the boat by eliminating its longstanding tipping policy in favor of daily service charges. “The lesson from those decisions is that tipping should not automatically be the default policy for service businesses,” suggests Michael Lynn, a professor at the Cornell University School of Hotel Administration. In a new report from the Center for Hospitality Research, Lynn compares the advantages and disadvantages of voluntary tipping with those of service charges and service-inclusive pricing. The report is available at no charge at http://www.hotelschool.cornell.edu/research/chr/pubs/reports/. “Tipping may not be as advantageous as managers seem to believe,” Lynn said. “What I’ve done is to identify nine factors to consider in determining what is the best way to cover the cost of service employees. I cannot advise an operator which policy is best, but I can frame the analysis.” The report suggests that the principal benefits to hospitality firms of voluntary tipping are that it lowers nominal prices, increases profits through price discrimination, motivates up-selling and service, and lowers FICA tax payments. However, tipping also motivates discrimination in service delivery, gives servers surplus income that could go to the firms’ bottom line, increases the risk of income-tax audits, and opens firms up to adverse-impact lawsuits. The alternatives to tipping (i.e., service charges and service-inclusive pricing) have their own sets of costs and benefits. Lynn suggests that the decision of whether to permit tipping or not is worthy of reconsideration, contrary to what hospitality operators might believe. “Consumers say that they prefer guaranteed server wages over tipping, and that they prefer tipping over added mandatory service charges,” he said. “But those preferences do not always seem to translate into actions. In other words, operators should not worry that their customers will end their patronage due to one policy or another. Instead, they can base their tipping policies on considerations of the issues discussed in this report.” Featured Advisory Board Member
Suzanne R. Mellen is the Managing Director of the San Francisco office of HVS International, a full service consulting and valuation firm which specializes exclusively in hotel and related properties on a worldwide basis. She also heads up the HVS Gaming Service Division. Prior to establishing HVS Internationals second office in San Francisco in 1985, Ms. Mellen was Director of Consulting and Valuation Services for the firm in Mineola, New York. Her professional experience includes consulting and appraisal positions with Morgan Guaranty Trust, Laventhol & Horwath and Helmsley Spear Hospitality Services, Inc. in New York City and with Harley Little Associates in Toronto, Canada. She gained her operational experience with Westin Hotels at the Plaza Hotel in New York. Ms. Mellen has a BS degree in Hotel Administration from Cornell University and holds the MAI designation of the Appraisal Institute, the CRE (Counselor of Real Estate) designation of the American Society of Real Estate Counselors, and the ISHC designation from the International Society of Hospitality Consultants. She is a full member of the Urban Land Institute. Ms. Mellen has been appraising hotels and related real estate for 28 years, has authored numerous articles and is a frequent lecturer and expert witness on the valuation of hotels and related issues. She developed the Simultaneous Valuation Formula, a mortgage equity income capitalization formula for variable income properties and developed the software for the model. HVS International, operates both nationally and internationally from its offices in San Francisco, New York, Boulder, Miami, Vancouver, B.C., India, Dallas, London, Toronto, Ontario, Sao Paulo, Buenos Aires, Singapore and Spain. Research Fellows and Staff at Industry Events
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