To Offset the Increase in Minimum Wage, Focus on Productivity

By Mark Heymann Chairman & CEO, Unifocus | December 25, 2016

Fourteen U.S. states started 2016 with a higher minimum wage, and it seems all but certain that the federal minimum wage, which has remained at $7.25 since 2009, will soon follow. The White House has thrown its support behind the Raise the Wage Act, which would increase the federal minimum wage to $12 by 2020 - a move that also has the support of 60 percent of small businesses, according to a poll conducted for Small Business Majority by Public Policy Polling.

Meanwhile, a Hart Research poll shows that 63 percent of the public favor an even larger federal increase - to $15 - over the same time frame. This higher figure has been embraced by New York's governor, who has signed a bill implementing a 70-percent raise in his state's fast food minimum wage to $15 by 2018, and by several cities that have committed to phase in a $15 minimum wage, including Los Angeles; Portland, Ore.; San Francisco; and Seattle.

Bottom-Line Impact

The benefits of a higher minimum wage are clear for those workers who will bring home a bigger paycheck, but what will it mean for service industry employers and their customers? While historically raising the minimum wage has had little impact on profitability, those increases were typically incremental. In 1978 for example, the federal minimum wage grew from $2.65 to $2.90 - a 25-cent increase. Today's proposed changes are in the ballpark of four or five dollars an hour, which will have a more dramatic effect on organizations. And those that fail to review their business model and adjust their operating philosophy to offset the higher labor costs could potentially experience a dollar-for-dollar negative impact on their bottom line.

The Ripple Effect

Minimum-wage workers may be only a limited percentage of a hotel's staff (this will vary by area of the country and by state), but raising their pay will likely create a ripple effect in the market. Consider that there also will be employees who are paid above the current minimum wage but below the increased minimum wage. If the hotel only raises those workers' wages to the new minimum, it puts them at the same wage level as workers who had been earning less. This could well lead to a discouraged group of employees or a less engaged team, and that could have a broader impact on the bottom line. The alternative would be to increase those employees' wages at the same differential as their minimum-wage-earning colleagues.

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Eco-Friendly Practices: Corporate Social Responsibility

The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.