In today's ambiguity, how do Russian hoteliers cope with a need to run leaner businesses, and how do these actions compare with international landscape? Inspired by 2009 Russia HCE compensation survey results, and speaking with market participants.
I promise not to use the 6-letter "C"-word in this article, which already fills everyone's communication channels. I just want to talk about how Russian hoteliers are coping with the changing economic climate these days, and what they are doing on the staff compensation front to keep their hotels profitable. I also want to compare what's happening in our market with the practices in other parts of the world.
We have recently completed the Annual HCE™ Survey, which this time covered Russian Regional cities, CIS countries and the Baltics. With the survey being in its 3rd year, more companies are willing to share information and we are pleased to see the independent players and local hotel groups from all around the region also joining in.
To set the stage for further discussion of HR trends in the market, here is the opinion on the general state of the hotel market in Russia these days from a local representative of one of the international Hospitality Consulting firms: "The market data on the dynamics of the hotel revenues in the 1st couple of month of this year gives a reason to think that the most stable in the current shaky market situation are the modern high-quality hotels in the mid-market price range... It's obvious that the demand has shifted to the lower segment, but it doesn't mean that clients don't want quality: even in January, historically the "bottom" month in terms of hotel performance for the Moscow market, the 4- and 5-star hotels' occupancy was 2 times higher than the lower segment hotels'.
The consensus on the market is that the worst part of today's situation is its' unpredictability – nobody can tell when the upturn will start, thus it's difficult to plan for the use of available resources. For the hotel industry, which is fully dependent on the general economic activity, this leads to the drastic shortening of the planning horizon – today rarely anyone budgets for longer than 30-90 days. Another factor in this situation is the increased rivalry among hotels. And, the main arms in this war are, of course, prices.
Unfortunately, so far the hotels cannot come to a consensus, which would help them devise a single strategy and uphold the prices. Thus, the client (especially the big corporate accounts) will continue to determine the prices until at least the end of this year..."
The above market situation in terms of the bottom line management translates to the forced and intensified focus on expenses, especially where there is high pressure on the brand/management company from the side of the hotel owner.
The easiest solution for most market participants seems to be turning to HR looking for cost savings. We may not agree
that it's the wisest solution, but more on that a bit later. The overall trends across the region are the lowering of base salaries and the disappearance of some perks. Let me share a couple of typical base salary comparison charts from our 2009 Report plotted on the timeline.
Table 1 - Source: 2009 HCE Russia/CIS/Baltics report
Table 2 - Source: 2009 HCE Russia/CIS/Baltics report
What the tables above clearly illustrate is that base salaries are coming down across the management and line positions. This trend cuts through all titles on all levels of organizations with few exceptions. Does this mean that hotels are sacrificing staff salaries to hold up the RevPAR?
Of course, the hotels are doing everything in their power to avoid layoffs because it will be difficult to find the right people
for the industry and train them (which is an additional time and money expense) when things get better. And, because the salaries in the Russian hotel sector are significantly lower than in other industries, people don't line up outside of hotels in a quest to get a job there. In addition, any cuts in front-line staff usually mean lowering of service levels. And that is something not a single hotel can afford right now – every guest is a treasure!
Hotels try, to the best of their ability, to find other ways out of the situation – shortened work weeks, unpaid vacation leaves, cutting benefit packages and/or bonuses, lowering salaries for management (and, in some cases, non-management), trying to replace highly-salaried employees with more junior people that will demand lesser salaries (to their advantage in this tactic, the market is currently overflowed with candidates who are willing to negotiate on their salary demands), or going into a strict saving mode on other personnel-related expenses.
Some hotels close entire floors – for example, one of the major St.-Petersburg market players has reportedly conserved two floors because the occupancy isn't high enough to justify the expense of up-keeping the space that doesn't create revenue inflow.
Now, on cutting people to cut costs: we believe those companies that engage in aggressive layoffs are shooting themselves in the foot by being unprepared for the upturn in business when it happens. According to the commentary from Henrik Mansson, Senior Vice President of Human Resources for Mövenpick Hotels & Resorts (cited in the recent material from Hotels.com, "Buying when others can't afford to"), they are strategically hiring right now: "Different companies have different needs based on where we are in the cycle. Our shareholders have an absolute commitment to the long-term development, growth and expansion of the company. Therefore I can work on a long-term plan and at the same time be very aware of short-term tactical revenue/sales targets … I'm not being silly in just adding costs, but doing this in a smart way." He also mentions adding sales staff specifically.
When the layoffs are unavoidable, usually the first positions to go are the administrative-type roles, e.g. secretaries, office managers, personal assistants. Hotels also try to divide the responsibilities among fewer people, and get rid of duplicate positions.
For example, let's take a sales and marketing department headed by a DOSM with a Director of Marketing, Director of Sales, Assistant Director of Sales, a Senior Sales Manager, a PR Manager, and several Sales Managers. When the going gets tough, the following structure optimization may happen: Assistant DOS' may go and be replaced by a Sr. Sales Manager, who gets paid less and can fulfill the same job with minor training. The Director of Marketing may be let go, and his responsibilities divided between the DOSM and the DOS; one sales manager's job can be eliminated also. Other options we heard some hotels use is optimizing staff in front-line positions that signal the "status" or the "class" of the hotel – for example, out of two doormen on the shift only one may be left, or the Concierge desk that used to operate on a 24-hour basis (3 shifts) would now operate from 8am till midnight (2 shifts), or the elevator attendants' jobs will be cut (those nicely-groomed boys and girls in hotel uniforms that push buttons for you and wish you a nice day in 5-star hotel elevators in Moscow) …
Markku Wahlberg, Regional General Manager of IHG in Moscow said: "We are not cutting staff or laying anyone off at our hotels in Russia, but if the employee leaves voluntarily, we typically don't replace them. We haven't done the pay raises this year, not even the inflation adjustment – it was by a mutual agreement with our staff as a necessary economic measure to sustain our business here.
We get smarter in terms of room inventory management – we semi-conserve entire floors when the occupancy is low, putting the lighting on minimum and decreasing the heating/cooling use. We look at how we do laundry, trying to combine loads and avoid unnecessary water and energy use … at the same time, we don't really know what lies ahead, so it's hard to predict what other measures may be necessary furher down the road."
So, how does what the Russian hoteliers are doing compare to what's happening in the markets worldwide?According to Keith Kefgen, Chief Executive Officer of HVS Executive Search: "Many US-based hotel companies are shortening work weeks, cutting executive pay and enacting pay freezes for most employees. This is an attempt to limit layoffs. If the financial performance of properties continue, layoffs will be necessary.
Where COLA (Cost of Living Adjustment) increases are mandated by union agreements, layoffs are the only alternative. Part-time workers have already been furloughed. My comments although are general in nature and individual markets may be more or less affected."
We see that the industry in Russia isn't unique in either the problems that are tormenting the hoteliers, or the ways they find out of the situation. We truly all live in the global village; forget all the recent talk about the de-globalization of the world economy.
Our only advantage in Russia is the lack of union movement, which would forbid the layoffs and make the salary cuts difficult. The Russian version of unions, called profsoyuzy, are not yet a part of hotel staff's lives, nor does it look likely to change in the nearest future.
About the Author
Tatiana Veller heads up Moscow office of HVS Executive Search. Tatiana has been involved in hospitality industry in Russia and US for over 10 years. Having academic degrees in Hotel Management and International Business from US and Russian institutions, combined with line and managerial operational experience with some of the top companies and several years in Executive Search with a focus on Hospitality, gives Tatiana a unique view on developments in hotel industry in Russia and CIS and an ability to compare it with practices and standards worldwide. For more information, questions and comments please contact HVS Executive Search - Russia at tveller@hvs.com, or by telephone at +7 (499) 230-0117 
