HOSPITALITY AND LEISURE
Hospitality and leisure sector faces pressure to revamp executive rewards
Companies in the hospitality and leisure sector will have to reconsider the way they reward their senior people, according to a new report by PricewaterhouseCoopers.
Falling hotel room prices and occupancy rates, declining corporate hospitality budgets and difficult trading conditions for pubs and restaurants are exerting downward pressure on senior executives’ salaries, benefits and pensions. These factors - combined with government and public pressure on top pay in other sectors, a paucity of debt available for refinancing and other knock-on effects of contractions in consumer spending – mean that increases in senior executives’ remuneration will be hard to justify.
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Marcus Peaker, reward partner at PwC, said: “We’ve seen huge public and governmental scrutiny on pay and bonuses in financial services and it is only a matter of time before other sectors, including hospitality and leisure, start to feel a downwards pressure.”
He added: “As restaurants discount to ride out the recession and businesses restructure, salary freezes are likely to spread through the sector. And, as circumstances change, executive reward practices must shift from a market-driven approach to one that fits with individual business models and strategies but with an overriding principle of restraint.”
Key findings
Median salaries for a hospitality and leisure chief executive (CEO) and finance director (FD) are £500,000 and £279,000, respectively, compared with the FTSE All Share medians of £411,000 and £275,000.
Individual salary increases have dropped below 1.5% for the first time in recent years.
Approximately two-thirds of total compensation is performance based. For a CEO, an average of 67% is based on variable components, such as bonus and share incentives. For an FD, this figure is 63%.
Bonus payments
Maximum bonus potential continues to rise, according to PwC, with the majority of quoted companies in and beyond the sector operating a policy of a bonus maximum of 100% of salary. As Peaker pointed out: “The impact of current trading conditions is likely to be reflected by decreased payments in absolute terms in next year’s bonus round. Although bonuses are not dead, shareholders will expect companies to clearly demonstrate why a bonus is being paid in this challenging economic environment”.
PwC reckons that setting appropriate types of bonus performance targets and levels that balance executives’ and businesses’ expectations with those of shareholders and regulators will be a key challenge this year.
A final word
“Executive reward varies widely across the hospitality and leisure sector, but the industry as a whole will doubtless get caught in the backwash from the financial services sector and elsewhere, meaning toxic trading conditions are not only putting pressure on profits but also on pay packets.” - Robert Milburn, hospitality and leisure UK leader, PricewaterhouseCoopers.
Want to know more?
Title: The State of Pay: Hospitality and leisure executive remuneration, PricewaterhouseCoopers, October 2009.
Availability: Download the report in PDF format from the PwC web site at www.ukmediacentre.pwc.com/Content/Detail.asp?ReleaseID=3396&NewsAreaID=2.
PricewaterhouseCoopers provides “industry-focused assurance, tax, and advisory services to build public trust and enhance value for its clients and their stakeholders”. For more details visit www.pwc.co.uk.