A new approach to hotel management fees

In the ever-evolving hospitality industry, the question of how to effectively compensate hotel operators remains crucial

While the basic premise of paying managers for their management skills remains true, the prevailing incentive fee structures may no longer adequately reflect market realities, particularly for owners.

Key takeaways

• The incentive management fee (IMF) motivates operators to exceed financial targets for gross operating profit (GOP) in order to earn additional fees. This encourages greater efficiency and benefits both the management company and the hotel owner;
• However, owners are increasingly feeling financial pressure from all angles due to the rising costs of goods, labor, insurance, utilities and everything in between, prompting a rethinking of all expenses, including management fees.
• A better incentive management fee system would compensate high-performing managers for above-average performance in both good and bad years based on a variety of metrics, not just a percentage of AGOP.

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